TAKING DISTRIBUTED
TRAINING SIMULATION
PERSONALLY
‘11
2011 ANNUAL REPORT
About SimiGon
SimiGon (AIM: SIM) is a leading developer and supplier of distributed simulation solutions
for defence and civilian applications. SimiGon is the creator of SIMbox, a leading PC-based
platform for creating, managing and deploying simulation-based content across multiple
domains. Through its off-the-shelf training solutions for demanding high-skill occupations,
SimiGon provides diverse organizations with faster and more cost-effective training.
SimiGon’s growing client base includes blue-chip training and simulation systems
providers as well as over 20 air forces and commercial airlines worldwide. Founded in
1998, SimiGon maintains offices in Israel and the United States.
Contents
3
4
5
6
9
11
Financial and Operational Highlights
Market
Solutions
Chairman & CEO Reviews
Board & Management
Financial
2
TAKING DISTRIBUTED TRAINING SIMULATION
PERSONALLY
Operational Highlights
Awarded a $5.6 million, five-year contract from
Check-6, SimiGon's first major contract outside the
aerospace and defence industry
Moved up the supply chain when selected as
prime contractor by the U.S. Air Force Air
Education Training Command (AETC)
in $2.6
million contract
Entered the fourth year of supporting Lockheed
Martin's F-35 Lightning II Joint Strike Fighter
("JSF") training program. This project made a
significant contribution to revenues in 2011 and is
expected to continue to do so over the lifespan of
the JSF programme
SimiGon has been successfully meeting project
milestones over the past three years for the UK
Military Flying Training System ("UKMFTS")
SimiGon is in the third year of a long-term contract
to provide training simulations for a strategic
European aircraft manufacturer
Continued to deliver a complete Live, Virtual and
Constructive training solution
for Unmanned
Aerial Vehicle training program, a leading provider
in the small tactical unmanned aircraft systems
The Company's training and simulation platform,
SIMbox, was selected for
in-base driving
training system by the U.S Air Force
Significant
the Company's
distribution network as number of strategic
partners tripled in 2011 from the number in 2010
improvement of
its
When it comes to distributed
simulation solutions, SimiGon
technology is the way to go.
Leading the industry shift away
from inflexible, stationary and
expensive training systems, offering
personal, portable and cost-
effective training solutions
optimized for the PC or laptop. Our
off-the-shelf platform and products
– for air, land, sea and industrial
applications – are highly flexible,
adaptable and robust. This
“personal” approach enables
multiple high-skill users to train
simultaneously on multiple
platforms, saving defence and
civilian organizations significant
time and money. We offer state-of-
the-art simulation solutions for non-
training applications, bringing the
best of personal simulation to wider
audiences.
Financial Highlights
Revenues increased by 5% to $5.48 million (2010: $5.21 million)
Net profit improved by $1.03 million to $0.35 million (2010: Loss of $0.68 million)
Total operating expenses decreased by 12% to $4.35 million, (2010: $4.95 million)
Gross margin of 85% (2010: 85%)
Generated positive cash flow from operations of $2.3 million
Significant increase in cash and cash equivalents and short term bank deposits at the year end at $4.74 million
(31 December 2010: $2.62 million)
3
LEVERAGING GROWING MARKETS
FOR PERSONAL TRAINING & SIMULATION
There are several factors driving the need for
personal, flexible solutions in the fast growing
training and simulation market.
Key Trends
Operating complexity: Aircraft, ground vehicles,
maritime systems, and control rooms and their
subsystems are
increasingly complex with more
advanced technology inside them. This requires better
training tools to enable correct and safe operations.
“Digital Natives” don’t learn with user manuals based
on a "learning by reading" methodology. They learn
with challenging, interactive, “see-it and do-it” training
methods. Customer empowerment: Organizations are
smarter and more demanding than ever and will no
longer accept inflexible, expensive solutions provided
by large suppliers. They know what type of training
solution they need and demand it from their training
solutions:
providers.
Government
seek
commercial
Commercial-Off-The-Shelf (COTS) products to save time
and money. Cost of training: Instructors, trainees and
platforms have limited time and associated rising costs,
especially in multifaceted environments. This intensifies
the need to maximize preparations and increase the
effectiveness of
training
exercises and operations. Leveraging available, cost
effective technology to provide continuous individual
and collective training ensures mission readiness.
Flexible,
and
Instructor-led and
Off-the-shelf
customers
live
“Learning
Fast Growing Market
With these market trends and the current global
economic state, the industry is turning away from
expensive, stationary training systems towards more
robust, flexible and reconfigurable cost-effective PC-
based or laptop-based COTS training solutions. The
interactive,
doing” methodology
by
championed by SimiGon software systems has become
recognized as the most effective way to train users,
especially those in demanding high-skill occupations in
both military and civilian markets. And while the
economy is in turmoil, the training & simulation market
is thriving as its cost saving benefits are recognized by
government and civilian leaders. Many organizations
are using a learning management system (LMS).
4
leader
in seeking
In terms of market value, the greater Modelling &
Simulation market is valued at more than $20 billion
annually and the projection for the global eLearning
market is $107.3 billion by the year 2015. The market
growth is driven by reduced costs, simplified training
and a dispersed workforce.
The biggest driver of the training and simulation market
growth is the defence industry. Despite the US defence
budget cuts, the US Department of Defence remains
the undisputed
training and
simulation solutions for military preparedness and
readiness for symmetric and asymmetric warfare. The
market anticipates increased usage of simulation based
training for these purposes as the DoD seeks more ways
to reduce costs. While the Iraq and Afghanistan-
Pakistan front pushed the industry to rapidly develop
and field innovative training solutions, future force
planning is underway to keep military personnel trained
after wartime using more simulation based training and
less real assets. In the military pilot training market,
Forecast International projects 1,600 new fixed wing
military training aircraft over the next ten years and the
market for fighter aircraft will be worth nearly $194.5
billion as approximately 3,150
fighters will be
manufactured. Another important market segment,
Airborne Intelligence, Surveillance and Reconnaissance
(ISR), estimated at $17.3 in 2011, will continue to grow
globally. The US market is the largest Commercial and
Military Flight Simulation segment while the Asia-Pacific
region is the fastest growing market. The Civilian
in the
aviation market continues to be a driver
large
simulation market with more than 11,850
commercial jets forecast to be produced by 2021,
valued at $1.4 trillion.
Since the global economy is affecting how governments
spend, training and simulation technologies are playing
a larger role to offset the decrease in live training
exercises. Significant business potential also exists in
areas such as commercial flight training, air traffic
control, homeland security, maritime operations,
nuclear and electric power plants operator training,
crane operations, driving and medical care. Operators
working in these domains are requiring advanced,
holistic training solutions, such as Simulation Based
Training and Learning Management Systems to reach
and maintain high levels of operational skill.
GETTING PERSONAL
WITH DISTRIBUTED SIMULATION SOLUTIONS
SimiGon’s comprehensive portfolio of off-
the-shelf solutions – including a state-of-
the-art simulation platform and range of
compelling products –
the
knowledge gap” for professional users. At
flexible
the
solutions are easily integrated either by
customer organizations or third-party
systems integrators for both military and
civilian applications.
SimiGon’s
“closes
same
time,
SIMbox
SimiGon is the creator of SIMbox, a leading PC-based
platform
for creating, managing and deploying
simulation based content across multiple domains
training, mission debriefing, homeland
including
security and entertainment. SIMbox is a flexible, off-
the-shelf 3D simulation engine comprised of a wide
array of software modules that empowers users to
create an unlimited range of new products and content.
Built from the ground up as a robust and flexible
platform, SIMbox has been deployed successfully by
large training and simulation systems providers, leading
military contractors, and over 20 air forces and
commercial airlines worldwide. SIMbox is comprised of
three main environments:
SIMbox Toolkit development environment: SIMbox
suite,
Toolkit
empowering non-programmers to create, reuse and
control simulation-based applications.
SIMbox Server management environment: SIMbox
Server which serves as the Learning Management
System (LMS), contains various software modules used
for configuration management of developed content,
control over content distribution, data gathering from
end users, and data analysis and report generation.
SIMbox Runtime delivery environment: SIMbox
Runtime provides hi-fidelity 3D distributed simulations
that place the user
in a virtual or constructive
environment with numerous viewpoints for both
military and civilian applications.
easy-to-use development
an
is
KnowBook™ Family
is a family of PC-based COTS training
KnowBook
applications used by leading organisations for training
professional users. KnowBook provides a common
platform for learning, training, planning and debriefing.
5
The key members of the KnowBook family are:
AirBook™: the family’s flagship application that
enables aircrew and organisations to remain completely
updated with the rapidly changing demands of the
military and civilian aviation world.
GroundBook, MarineBook and CarBook: the newest
members of the KnowBook family designed for ground,
maritime and driving training scenarios.
AirTrack™
AirTrack represents the next generation of passenger in-
flight entertainment
solutions. Successfully
(IFE)
installed and operational on airlines worldwide, AirTrack
is a cost-effective, rapidly deployable solution for
airlines seeking to upgrade their IFE systems. Based on
advanced SIMbox technology, the system’s capabilities
include hi-fidelity 360º 3D simulation views, moving
maps, external plane views, dynamic media, and real-
time flight data and news. AirTrack is provided with an
easy-to-use, PC-based software configuration tool that
enables airlines to independently and rapidly customize
and upload in-flight content based on specific needs.
Systems
Debriefing Systems
SimiGon offers advanced post-mission debriefing
applications that provide critical feedback and improve
operational readiness. Utilizing a standard Windows
graphical user interface (GUI), the PC-based systems can
be deployed at any location and are extremely simple to
operate. SimiGon’s debriefing systems include D-Brief
PC and MDDS Pro. Operated from a server connected to
multiple client workstations, the systems analyse flight
data stored on the aircraft’s PMC or RMM cartridge. D-
Brief PC
is used to support real-time air combat
debriefing. MDDS Pro is a digital debriefing solution
incorporating video with 3D simulation.
Air Traffic Control
SimiGon's successfully deployed Air Traffic Control
training solution includes instructor operator stations,
virtual pilots, voice recognition and the ability for
instructors to modify training sessions in real time. The
systems are used by ATC instructors to train new
controllers in guiding aircraft through take-off and
landing procedures as well as for recurrent and
operational training. The Company aims to leverage its
success in this market to compete for additional military
and civilian ATC training contracts.
SHARING PERSONAL MESSAGES
FROM CORPORATE LEADERSHIP
Chairman & CEO Reviews
Chairman’s Statement
I am pleased to report a significant year of progress in
2011 for SimiGon, marking a turnaround
in the
operations of the business and a return to revenue
growth and profit .
In 2011, SimiGon successfully executed its strategy to
long term growth as the
build a foundation for
Company continued to set the standard for training and
simulation programmes
large aerospace and
for
defence training programmes. Added to our strong
position in the aerospace and defence sector, 2011 saw
a further milestone for SimiGon as the Company moved
into the oil and gas sector, opening up further
opportunities for growth.
Looking ahead, the Company’s strategy is to focus on
driving growth through its existing presence in the
aerospace and defense market and also to leverage
that position to access new and growing markets for
SimiGon’s simulation technology. There is now an
increasing awareness and market acceptance that
customers
SimiGon’s
significantly reduce costs, improve trainee pass rates
and increase safety levels .
solutions
training
help
As a result of the success in 2011, SimiGon enters 2012
in stronger position than previous years and I am
confident the business will continue to progress and
grow over the coming years .
I look forward to working with fellow board members
on behalf of our shareholders, customers and
workforce as we embark on this new and exciting
phase for the Company. I would also like to take this
opportunity to thank the management, employees and
all those involved and associated with SimiGon for the
hard work and the tremendous support we have
received over the last year.
Alistair Rae
Chairman
6
Chief Executive’s Review
Overview
We are pleased to announce a return to revenue
growth and profit in a year of significant progress as we
successfully implemented our strategic growth plan.
We were able to foresee the potential market
challenges, plan for it and improve our positioning and
market reach. As a result, SimiGon has cemented its
market leading position in the aerospace and defence
industry while also achieving its growth plans to expand
into lucrative new markets and move up the supply
chain to become a prime contractor for training
programmes. With a larger and more diverse customer
base, major new contracts secured and the expected
ramp up in sales of our long term defense training
programmes, the Board looks forward to 2012 and
beyond with confidence.
SimiGon is pleased to report a return to revenue
growth and profit in 2011. Revenues increased 5% to
$5.48 million (2010: $5.21 million) with a $0.35 million
profit from a loss of $0.68 million in 2010. The positive
results in 2011 are the result of a patient strategy
implemented by management to position SimiGon with
strategically valuable partners and build a foundation
for long term growth. SimiGon's software is now the
preferred
simulation
technologies for four of the world's largest military
including the JSF and
flight training programmes
UKMFTS, which is a reflection of SimiGon's leading
position
in the market of PC-based training and
simulation solutions.
training and
supplier of
Operational Overview
SimiGon entered 2011 with a set of strategic goals to
build a foundation for long term growth. These were:
to expand into new markets outside the aerospace and
defense industry; to increase the number of strategic
partners; and to move up the supply chain and be a
direct supplier of training programmes. It is pleasing to
report that all of the above targets were achieved.
SHARING PERSONAL MESSAGES
FROM CORPORATE LEADERSHIP (CONT.)
industry and the first step
Major contract wins
In October 2011, SimiGon was awarded a $5.6 million
contract from Check-6 in a five-year agreement, the
Company's first major contract outside the aerospace
and defence
in the
Company's growth strategy to diversify its product
offering and increase its addressable market. SimiGon
will bring the type of training and skill development
required for survival by fighter pilots and astronauts, to
oil and gas workers, preserving lives and protecting
its
profits. Check-6 has worldwide operations and
clients
leaders such as Chevron,
Diamond Offshore, BP, Hess and others.
industry
include
This development diversifies SimiGon's customer base
and leaves the Company less reliant on the defence
sector. Non-military sales accounted for 23% of
revenues in 2011 as opposed to 16% in 2010.
SimiGon achieved a further significant milestone when
selected as prime contractor for AETC for the delivery
of SIMbox based T-6A Modular Training Devices (MTD).
The SIMbox MTD simulators will be used to train
undergraduate, Remotely Piloted Aircraft
(RPA)
students for Pilot Instrument Qualification training.
With this agreement SimiGon moved up the supply
chain and to become a direct supplier to AETC. This
agreement positions SimiGon for similar opportunities
globally as the T-6A is also used as a basic trainer by the
Canadian Forces, the Luftwaffe of Germany, the Greek
Air Force, the Israeli Air Force, and others.
In addition, the Company's training and simulation
platform, SIMbox, was selected for its in-base driving
training system by the U.S Air Force. This agreement
opens another door for SimiGon and could lead to
further new business opportunities in the future.
In 2011 the number of strategic partners tripled from
the number in 2010. New partners secured in 2011
include Check-6, AETC and TAISR Group to add to
SimiGon's established, long term partnerships with the
likes of Lockheed Martin, BAE and Boeing. As a result,
SimiGon is not as dependent on a single client or
country for its sales and now has a more diverse and
global presence.
Update on long-term contracts
The Company entered the third year of supporting
Lockheed Martin's F-35 Lightning II Joint Strike Fighter
("JSF")
training program. The company expects
increased license delivery as the JSF program enters its
regular production and delivery phase.
SimiGon has been successfully meeting project
milestones over the past three years for the UK Military
Flying Training System ("UKMFTS"). This substantiates
SimiGon's product capabilities allowing the company to
increase
its product capabilities and
showcase
probability of future sales.
SimiGon is in the third year of a long-term contract to
provide training simulations for a strategic European
aircraft manufacturer. This partnership was further
strengthened in 2011 as agreement was reached for
additional licenses as part of future projects expected
to be delivered in 2012 and 2013.
training
The Company continued to deliver a complete Live,
for
Virtual and Constructive
Unmanned Aerial Vehicle training program for a leading
provider
in the small tactical unmanned aircraft
systems. The first training center was launched in 2011
with additional systems expected to be delivered to US
and international clients in 2012.
solution
Increased partnerships
As part of the Company's long term strategy, SimiGon
constantly surveys the potential to increase its number
of
strategic partners and penetrate additional
commercial markets, offering other industries learning
and
advanced
simulations
technological infrastructure.
training
using
its
Financial Performance
Revenue for the year ended 31 December 2011 was
$5.48 million, compared to $5.21 million in 2010,
reflecting
In terms of regional
breakdown, 71% of SimiGon's revenues came from
North America (2010: 67%), 27% from Europe and the
Middle East (2010: 27%) and 2% from the Far East
(2010: 6%).
increase of 5%.
7
SHARING PERSONAL MESSAGES
FROM CORPORATE LEADERSHIP (CONT.)
Net profit for the fiscal year improved by $1.03 million
to $0.35 million (2010: loss of $0.68 million).
Total operating expenses for the year decreased by 12%
to $4.35 million (2010: $4.95 million), the research and
development expenses decreased to $1.68 million
(2010: $1.76 million) mainly due to salary expenses and
cost management. Sales and marketing expenses were
$1.70 million (2010: $1.71 million). General and
administration expenses decreased to $0.98 million
(2010: $1.48 million) mainly due to doubtful debt
share-based
provision
compensation and reduced professional fees.
year 2010,
recorded
in
Outlook
SimiGon has made a solid start to 2012 with revenue
visibility improving as sales to the Company's long-term
partners and recent contract wins continue to ramp up.
With a strong order book in place and new markets
now opening up alongside the Company's established
leading position in the aerospace and defence industry,
the Board expects year-on-year sales growth and looks
forward to the future with confidence.
Amos Vizer
President & CEO
The operating profit therefore is $0.31 million (2010:
operating loss $0.55 million) and the net profit is $0.35
million in 2011 compared to net loss of $0.68 million in
2010. This resulted in a net basic and diluted earnings
per share of $0.01 (2010: Basic and diluted loss per
share of $0.02).
SimiGon generated positive cash flow from operations
of $2.3 million in 2011. As at 31 December 2011,
SimiGon had cash, cash equivalent and deposits in the
amount of $4.74 million (31 December 2010: $2.62
million).
8
DISPLAYING PERSONAL COMMITMENT TO
ORGANIZATIONAL SUCCESS
Board of Directors
Alistair Rae, Non-Executive Chairman
Alistair is currently chief executive of
LTG Technologies Plc, an AIM traded
company, having been a non-executive
director from 2002 to 2005. He was the
group finance director of Jarvis Plc
the
from 2004
period of
company
reconstruction. Prior to this he was a director in the
corporate finance department of HSBC Investment Bank
from 1996 to 2002, and before that he worked in
corporate finance at Cazenove for ten years in the UK
and the Far East. Alistair qualified as a chartered
accountant with KPMG.
to 2005, guiding
a
through
Amos Vizer, President & CEO
founding SimiGon, Amos
Prior
to
founded
software
a
Logi-Cali,
development house specializing in data
storage applications. He previously
served as marketing and business
development manager
ISYS
Operational Management Systems, an
international IT company. Amos also previously worked
for
the missiles division of RAFAEL Armament
Development Authority Ltd. Additionally, he served ten
years in the Israeli Air Force (IAF) as an F-4 Phantom
Fighter navigator, a flight school course commander,
and a Popeye missile weapons officer. With extensive
training
in advanced software development, Amos
holds a BA in business administration.
of
in
financial
its
financial
Efraim Manea, CFO
Mr Manea joined the Company as its
June 2008,
finance controller
aspects
managing
reporting,
including
corporation accounting and
tax
preparation, budget and forecasting
and risk management. He has more
than seven years of accounting and management
experience and before joining SimiGon served for
approximately four years as an Audit Team Manager at
Ernst & Young's High-Technology sector. Mr Manea is a
Certified Public Accountant and holds a BA
in
Accounting and Business Administration from the
College for Management in Israel.
Eitan Cohen, Non-Executive Director
Eitan Cohen is a Co-Founder and Chief
Executive Officer of ASIC Depot OOD
an EDA and Semiconductor design
centre. Eitan previously held positions
as CEO and Country manager
for
Semiconductor and EDA companies, in
which he led to the award of multi-
million
tier-one companies and
managed business development activities with potential
partners worldwide.
dollar deals with
accountant
Independent Non-
Nevat Simon,
Executive Director
Nevat has practiced as a certified
in his own
public
accounting firm since 1991, providing
both accounting and other financial
services to the firm’s clients. He has
previously served on the board of
Sprint Investments Ltd. and Multimetrics Ltd., both
publicly listed companies on the Tel Aviv Stock Exchange,
and on the board of a number of private companies.
Nevat has a BA in accounting and marketing from the
Business College of Management in Tel Aviv and has
been a member of the Certified Public Accountant
Council in the Justice Department of the State of Israel
since 1991.
strategic
consulting
Dr. Vered Shany, Independent Non-Executive Director
Since March 2002, Vered has managed Tashik
Consultants, providing
and
corporate analysis in the life sciences sector. Previously,
Vered served as managing director of Up-Tech Ventures
Ltd., as a member of the board of directors of the
Weizmann Science Park
Incubator, and as vice
for Arad Technological
president of marketing
Incubator. Prior to that, she was business and
marketing manager of Medun Ltd., a medical start-up
company, from 1995 to 1998. Vered received her
from
masters’ degree
Heriot–Watt University, Edinburgh Business School, and
gained her doctorate of medical dentistry and her
B.Med.Sc. from the Hebrew University of Jerusalem.
in business administration
9
DISPLAYING PERSONAL COMMITMENT TO
ORGANIZATIONAL SUCCESS (CONT.)
Management
Amos Vizer, President & CEO
founding SimiGon, Amos
Prior
to
software
a
Logi-Cali,
founded
development house specializing in data
storage applications. He previously
served as marketing and business
ISYS
development manager
Operational Management Systems, an
international IT company. Amos also previously worked for
the missiles division of RAFAEL Armament Development
Authority Ltd. Additionally, he served ten years in the
Israeli Air Force (IAF) as an F-4 Phantom Fighter navigator,
a flight school course commander, and a Popeye missile
weapons officer. With extensive training in advanced
software development, Amos holds a BA in business
administration.
of
its
in
financial
Efraim Manea, CFO
Mr Manea joined the Company as its
June 2008,
finance controller
aspects
managing
reporting,
financial
including
corporation
tax
and
accounting
preparation, budget and forecasting
and risk management. He has more
than seven years of accounting and management
experience and before
for
approximately four years as an Audit Team Manager at
Ernst & Young's High-Technology sector. Mr Manea is a
Certified Public Accountant and holds a BA in Accounting
and Business Administration
for
Management in Israel.
joining SimiGon served
the College
from
VP
Schverak,
Management,
Programs
John
Mr. Schverak, is a results-oriented,
certified
Project Management
Professional (PMP) with over 20
in Program
years of experience
Management, Project Management,
Product
and
Operations Management. Mr.
Schverak has a proven track record of successfully
developing, managing, and executing project plans to meet
customer and product requirements, including product
features, technical performance, quality standards, and
supportability. He has directed all phases of programs
technical
with
performance, and quality. Mr. Schverak has a MBA in MIS
and BS in Operations Management and Procurement
Management.
responsibility
schedule,
cost,
for
Alon Shavit, VP Business Development
Before joining SimiGon, Alon served 15
years in the Israeli Air Force (IAF), having
flown F-16s for the past 20 years. He
was an instructor in the Operational
Training Unit (OTU) on A-4s for two
years and a commander of the F-16 OTU
for 18 months. His last role in the IAF
was managing the planning, coordination, synchronization,
and monitoring of the training program. Alon holds an MBA
and bachelor’s degrees in economics and psychology.
Koby Ben Yakar, VP Product
Koby, has a distinguished record as an
experienced manager with extensive
technical skills and knowledge. Mr. Ben
Yakar has led a wide range of projects
with cross-functional teams,
including
serving
Information
SimiGon’s
Technology team leader and overseeing
the architecture, design and development of the SIMbox
LCMS Server infrastructure. Mr. Ben Yakar has over 10
years of experience
large training and simulation
technologies enterprise projects with a proven ability to
manage business and technical relationships for large-scale
projects.
as
in
Jeff Annis, VP Sales & Marketing
Mr Annis, joined SimiGon in 2011 and
has a career in the Sales & Marketing
of simulation, training, and software
development technology, primarily in
and
the
Aerospace/Defense
joining
Automotive sectors. Before
SimiGon he held Director positions at
Adacel Systems, Advanced Rotorcraft Technology, and
Engenuity Technologies each specializing
in high-tech,
advanced pilot training software systems. Prior to this Mr.
Annis founded American Data-Pro, a company specializing
in the development of database and network systems. Mr.
Annis has a Bachelor degree
in Management and
Marketing from Troy University in Alabama.
joined SimiGon
Merav Nachmani, Director of Human
Resources
Ms. Nachmani,
in
November 2005 and has been
managing SimiGon’s HR Department
since July 2009. Ms. Nachmani has
more than ten years of experience in
including payroll
financial aspects
controlling, accounts payable, accounts receivable , cash
flow and tax reporting. Before
joining SimiGon Ms.
Nachmani served as a bookkeeping & salary controller in
several High-Technology companies. Ms. Nachmani has a
Bookkeeping&Salary controller diploma.
10
FINANCIALS
SIMIGON LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 (U.S DOLLARS IN THOUSANDS)
INDEX
Corporate Governance
Report on Directors Remuneration
Directors Report
Independent Auditors' Report
Consolidated Statement of Financial Position
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Share Information, Advisers, Contact Information
PAGE
12
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11
CORPORATE GOVERNANCE FOR THE PERIOD ENDED 31 DECEMBER 2011
Ended 31 December 2007
Introduction
SimiGon Ltd. commenced trading on the AIM Market operated by the London Stock Exchange on 2 November 2006.
Although the rules of AIM do not require the Company to comply with the Combined Code on corporate governance
(“the Code”) published by the Financial Reporting Council, the Company fully supports the principles set out in the
Code and will attempt to comply with them wherever appropriate, given the Company’s size, the constitution of the
Board and the resources available to the Company. Details are provided below of how the Company applies those
parts of the Code, which it believes to be appropriate.
Directors
The Board comprises two executive Directors, two Non- Executive Directors and two independent Non-Executive
Directors nominated by the majority shareholders of the Company. The Board generally meets a minimum five times a
year and receives a Board pack comprising a report from senior management together with any other material
deemed necessary for the Board to discharge its duties. It is the Board’s responsibility for formulating, reviewing and
approving the Group’s strategy, budgets, major items of expenditure and acquisitions.
Audit Committee
The audit committee consists of Eitan Cohen, Dr. Vered Shany and Nevat Simon and meets at least twice a year. The
role of the audit committee is to review the management and systems of internal control of the company, including in
consultation with the internal auditor and the company’s independent auditor and to recommend any remedial
action. In addition, the approval of the audit committee is required to effect certain related-party transactions.
Remuneration Committee
The remuneration committee consists of Alistair Rae, Dr. Vered Shany and Nevat Simon. The Remuneration
Committee has a primary responsibility to review the performance of the Company’s executive directors and the
senior employees and to recommend their remuneration and other terms of employment.
Shareholder Relations
The Company meets with its shareholders and analysts periodically to encourage communication with shareholders.
In addition, the Company intends to facilitate communication with shareholders through the annual report and
accounts, interim statement, press releases as required during the ordinary course of business and the Company
website (www.simigon.com).
Going Concern
The directors have satisfied themselves that the Company has adequate resources to continue in operational
existence for the foreseeable future, and for this reason the financial statements are prepared on a going concern
basis.
Internal Control
The Board is responsible for the system of internal control and for reviewing its effectiveness. Such systems are
designed to manage rather than eliminate risks and can provide only reasonable and not absolute assurance against
material misstatement or loss. Each year, on behalf of the Board, the audit committee reviews the effectiveness of
these systems. This is achieved primarily by considering risks potentially affecting the Group and from discussions with
the external auditors. Each year, the Group is subject to internal audit, the results of which are presented to the audit
committee.
A comprehensive budgeting process is completed once a year and is reviewed and approved by the Board. The
Group’s results, as compared against budget, are reported to the Board on a quarterly basis and discussed in detail at
each meeting of the Board. The Group maintains appropriate insurance cover in respect of any legal actions against
the Directors as well as against material loss or claims against the Group and reviews the adequacy of the cover
regularly. To comply with AIM rules, the Company has adopted a code for dealings in its shares by directors and
employees.
12
REPORT ON DIRECTORS REMUNERATION
Remuneration Policy
The remuneration packages for non-executive directors are based principally on annual salaries. The remuneration
packages for independent non-executive directors are based on an annual fixed fee and till October 2009 were
including payment for each Board or Board committee meeting attended. The remuneration packages for executives
are based on annual salaries and benefits.
Executive
Ami Vizer *
Haim Yatim**
Efraim Manea***
Non-Executive
Alistair Rae
Eitan Cohen
Nevat Simon
Dr. Vered Shany
Total
Total 2011
$
402,251
-
107,038
48,080
22,440
24,000
2,000
605,809
Total 2010
$
382,247
96,189
39,679
45,465
22,440
24,000
24,000
634,020
*) Year 2011 amount does not include $39,150 paid in respect of vacation days and does not include $31,107 paid in respect of
transfer of severance allocation. Year 2010 amount does not include $26,100 paid in respect of vacation days and does not
include $48,977 paid in respect of transfer of severance allocation.
**) Till July 2010
***) From August 2010
Please see the Directors Report below for details of options and shares granted to directors.
13
DIRECTORS REPORT
Directors Report
The directors submit their report and the financial statements of the Group for the period ended 31 December 2011.
Incorporation and Admission onto the AIM Market
The Company was incorporated on 1 October 1998. On November 2006 the Company commenced trading on AIM and
issued 6,076,811 new Ordinary Shares of NIS 0.01 at price of £0.88 per share. The number of Ordinary Shares issued
immediately following the admission were 37,250,666.
Shares
As of December 31, 2011 the total numbers of Ordinary Shares Issued were 44,134,769.
Share Options
As of 31 December 2011, the outstanding balance of options granted to certain employees of SimiGon is
approximately 4.5 percent of the Company’s issued and outstanding shares at an average exercise price of $0.315. The
majority of the options vest in four years from the date of grant. The options expire in ten years from the date of
grant.
Review of Business and Future Developments
The business review is given within the Chief Executive Officer’s statement.
Dividends
The Company has not declared a dividend in respect of the relevant period.
Suppliers Payment Policy
The Group does not operate a standard code in respect of payment to suppliers. It has due regard to the payment
terms of suppliers and generally settles all undisputed accounts within 60 days of the date of invoice, except where
different arrangements have been arranged with suppliers.
Efraim Manea was appointed as an executive director on July 30, 2010.
Directors
The following directors have held office during the year:
Amos Vizer has been an executive director of the Company since 4 November 1998.
Alistair Rae, appointed as a director and Chairman of the Board on 27 October 2006.
Nevat Simon, appointed as an independent director on 27 October 2006.
Dr. Vered Shany, appointed as an independent director on 27 October 2006.
Mr. Eitan Cohen was appointed a non-executive director on June 3, 2008.
14
DIRECTORS REPORT (CONT.)
Directors Interest in Shares and Share Options
The interest of directors in the issued share capital of the company at 31, December 2011 were as follows.
Directors
Alistair Rae*)
Eitan Cohen *)
Dr. Vered Shany *)
Nevat Simon *)
Ami Vizer **)
Efraim Manea ***)
Number of Ordinary Shares Capital
70,454
24,000
24,000
24,000
5,838,628
167,155
Percentage of Ordinary shares
0.17
0.06
0.06
0.06
13.23
0.38
Options
0
0
0
0
410,000
132,500
Substantial Shareholdings
At 31, December 2011 the Company was informed of the following interests of 3% or more in its ordinary shares
issued at that date:
Shareholder
Jeffrey Braun
Packet Science Rami Weitz
A. Vizer Holdings A. Vizer **)
G. Poran Holding Ltd
Green Venture Capital Ltd.
Israel Aircraft Industries Ltd
Moldavski High-tech Ltd
Shroder Euroclear Nominees Limited
Number Of Ordinary Shares
6,543,039
6,244,944
5,838,628
3,778,444
3,067,848
2,624,310
1,750,297
1,711,070
Percentage of issued
14.83
14.15
13.23
8.56
6.95
5.95
3.97
3.88
*) On January 2010 the Non-Executive Board members were granted a total of 119,727 Ordinary shares of the Company as part
of a yearly 15% salary reduction, with an equivalent fair value on date of grant of $ 0.165. Messrs. Alistair Rae, Nevat Simon,
Vered Shany and Eitan Cohen, Non-Executive Directors of the Company, were granted 47,727, 24,000, 24,000 and 24,000
Ordinary Shares, respectively; The shares were vested in 12 equal monthly instalments, and as of December 31, 2011 were
fully vested.
The salary reduction of 15% for the Non-Executive Board members remains in effect for additional 2 years. As of December
31, 2011, Messrs. Alistair Rae, Nevat Simon, Vered Shany and Eitan Cohen, Non-Executive Directors of the Company, are to
be granted 47,727, 24,000, 24,000 and 24,000 Ordinary Shares, respectively, in return for the second year salary reduction;
this will represent in aggregate 119,727 Ordinary Shares and 0.27% of the total issued share capital of the Company.
Following this transaction, Messrs. Alistair Rae, Nevat Simon, Vered Shany and Eitan Cohen shall have a beneficial interest
of • Ordinary Shares (0.27%), • Ordinary Shares (0.11%), • Ordinary Shares (0.11%) and • Ordinary Shares (0.11%),
respectively.
**) Not Including 5,415,686 Ordinary shares and Options over Ordinary shares to be granted, under the Share Bonus Plan as
mentioned in Note 10e under the Company’s Annual report for year 2011.
***) Not Including 59,691 Ordinary shares and Options over Ordinary shares to be granted, under the Share Bonus Plan as
mentioned in Note 10e under the Company’s Annual report for year 2011.
Auditors
Kost Forer Gabbay & Kasierer
A member of Ernst & Young Global
3 Aminadav St.
Tel Aviv 67067
Israel
15
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 67067, Israel
Tel: 972 (3)6232525
Fax: 972 (3)5622555
www.ey.com
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
SIMIGON LTD.
We have audited the accompanying consolidated financial statements of SimiGon Ltd. and its subsidiaries
("the Group"), which comprise the consolidated statements of financial position as of December 31, 2011
and 2010, and the consolidated statements of comprehensive income, consolidated statements of changes in
equity and consolidated statement of cash flows for each of the years ended December 31, 2011, 2010 and
2009, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with International Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors' judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the
Group as of December 31, 2011 and 2010, and of its financial performance and cash flows for each of the
years then ended December 31, 2011, 2010 and 2009, in accordance with International Financial Reporting
Standards.
April 3, 2012
Tel-Aviv, Israel
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
- 16 -
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
SIMIGON LTD.
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term bank deposits
Trade receivables
Other accounts receivable and prepaid expenses
Total current assets
NON-CURRENT ASSETS:
Long-term prepaid expenses
Fixed assets, net
Intangible assets, net
Total non-current assets
Total assets
December 31,
2011
2010
Note
U.S. dollars in thousands
3
4
5
6
4,231
508
1,240
410
6,389
23
87
1,324
1,434
7,823
2,110
507
3,377
181
6,175
25
85
1,374
1,484
7,659
The accompanying notes are an integral part of the consolidated financial statements.
- 17 -
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
SIMIGON LTD.
EQUITY AND LIABILITIES
CURRENT LIABILITIES:
Current maturities of loan
Trade payables
Deferred revenues
Other accounts payable and accrued expenses
Total current liabilities
NON-CURRENT LIABILITIES:
Employee benefit liabilities, net
Long-term loan
Other non-current liabilities
Total non-current liabilities
Total liabilities
EQUITY:
Share capital
Additional paid-in capital
Accumulated deficit
Total equity
Total liabilities and equity
December 31,
2011
2010
Note
U.S. dollars in thousands
9
7
8
9
12a
10
188
174
113
762
562
205
409
691
1,237
1,867
108
-
746
854
122
188
460
770
2,091
2,637
105
15,997
(10,370)
5,732
7,823
98
15,644
(10,720)
5,022
7,659
The accompanying notes are an integral part of the consolidated financial statements.
April 3, 2012
Date of approval of the
financial statements
Alistair Rae
Ami Vizer
Non-Executive Chairman Chief Executive Officer
Efi Mena
Chief Financial Officer
- 18 -
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SIMIGON LTD.
Note
14
13a
13b
13c
13d
13e
13f
Revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Total operating expenses
Operating profit (loss)
Finance income
Finance cost
Net income (loss) and total comprehensive
income (loss)
Basic and diluted earnings (loss) per share in
Year ended
December 31,
2010
U.S. dollars in thousands
(except share and per share amounts)
2011
2009
5,484
826
4,658
1,675
1,696
975
4,346
5,207
804
4,403
1,760
1,711
1,478
4,949
312
305
(267)
(546)
75
(207)
6,057
977
5,080
1,833
1,610
1,566
5,009
71
230
(229)
350
(678)
72
U.S. dollars
15
0.01
(0.02)
0.00
Weighted average number of shares used in
computing basic earnings (loss) per share (in
thousands)
Weighted average number of shares used in
computing diluted earnings (loss) per share (in
thousands)
15
42,867
41,361
40,204
15
42,932
41,361
40,660
The accompanying notes are an integral part of the consolidated financial statements.
- 19 -
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
SIMIGON LTD.
Number
of shares
Share
capital
Additional
paid-in
capital
Treasury
shares
Accumulated
deficit
Total
equity
U .S. dollars in thousands (except share amounts)
Balance as of January 1, 2009 37,798,194
90
14,904
-
(10,114)
4,880
Total comprehensive income
-
Issuance of shares (Note 10b) 2,263,383
-
Share-based compensation
-
Treasury shares
1,460,979
Exercise of stock options
-
5
-
-
3
-
(5)
396
-
-
-
*) -
-
(3)
-
72
-
-
-
-
72
-
396
(3)
3
Balance as of December 31,
2009
41,522,556
98
15,295
(3)
(10,042)
5,348
Total comprehensive loss
Issuance of shares (Note 10b)
Share-based compensation
Issuance of Treasury shares
-
119,727
-
-
-
*) -
-
-
-
*) -
320
29
Balance as of December 31,
2010
41,642,283
98
15,644
Total comprehensive income
-
Issuance of shares (Note 10c) 2,444,984
Share-based compensation
-
Exercise of stock options
-
7
-
(Note 10d)
47,502
*) -
-
-
353
-
Balance as of December 31,
2011
44,134,769
105
15,997
-
-
-
3
-
-
-
-
-
-
(678)
-
-
-
(678)
*) -
320
32
(10,720)
5,022
350
-
-
350
7
353
-
*) -
(10,370)
5,732
*)
Represents an amount lower than $ 1 thousand.
The accompanying notes are an integral part of the consolidated financial statements.
- 20 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIMIGON LTD.
Year ended
December 31,
2010
U.S. dollars in thousands
2011
2009
Cash flows from operating activities:
Net income (loss)
350
(678)
72
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Adjustments to the profit or loss items:
Depreciation and amortization
Finance cost
Share-based compensation
Accrued interest on long-term loan and non-current
liabilities
Change in employee benefit liabilities, net
Changes in asset and liability items:
Decrease (increase) in trade receivables
Decrease (increase) in other accounts receivable and
prepaid expenses (including long-term)
Increase (decrease) in trade payables
Increase (decrease) in deferred revenues
Increase (decrease) in other accounts payable and accrued
expenses
Cash paid and received during the year for:
Interest paid
Interest received
85
16
353
(124)
(14)
110
22
320
(33)
21
125
26
396
26
(205)
2,137
(76)
(1,421)
(222)
(31)
(296)
72
1,976
(24)
9
(15)
34
48
204
(39)
611
(33)
7
(26)
(93)
(33)
10
(131)
93
(1,114)
(50)
20
(30)
(1,072)
Net cash provided by (used in) operating activities
2,311
The accompanying notes are an integral part of the consolidated financial statements.
- 21 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIMIGON LTD.
Cash flows from investing activities:
Purchase of fixed assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from treasury shares
Exercise of stock options
Repayment of bank loan
Proceeds from refundable grants
Proceeds from long-term bank loans, net
Net cash provided by (used) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended
December 31,
2010
U.S. dollars in thousands
2011
2009
(37)
(37)
-
*) -
(563)
410
-
(153)
2,121
2,110
4,231
(40)
(40)
32
-
(919)
327
750
190
57
2,053
2,110
(23)
(23)
-
3
(81)
89
-
11
(1,084)
3,137
2,053
(a)
Supplemental disclosure of non-cash financing
activities:
Other Account Receivables Issuance of shares
6
-
-
*)
Represents an amount lower than $ 1 thousand.
The accompanying notes are an integral part of the consolidated financial statements.
- 22 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 1:- GENERAL
a.
b.
c.
The Company commenced its operations on October 1, 1998, and is engaged in
developing advanced learning, training and simulation technologies and applications
for use in professional communities. The Company's registered office is in Herzlia,
Israel.
The Company has two wholly-owned subsidiaries in the United States, SimiGon Inc.,
which is engaged in the marketing of the Company's products in the United States and
National Simulation Services Inc., which is engaged in marketing of the Company's
products in the United States.
On November 2, 2006, the Company completed its Initial Public Offering ("IPO") on
the Alternative Investment Market ("the AIM") on the London Stock Exchange, by
issuing 6,076,811 Ordinary shares of NIS 0.01 par value each at a price of £ 0.88
($ 1.65) per share for a total net consideration of $ 8.4 million.
d.
Definitions:
In these financial statements:
The Group
- SimiGon Ltd. and its subsidiaries.
The Company
- SimiGon Ltd.
Subsidiaries
- Companies that are controlled by the Company.
Related parties - As defined in IAS 24.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Measurement basis:
The Company's financial statements have been prepared on a cost basis, except for the
following:
Employee benefit obligations;
Provisions;
Other non-current liabilities;
- 23 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
b.
Basis of preparation of the financial statements:
SIMIGON LTD.
These financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS"). These Standards comprise:
a)
b)
c)
International Financial Reporting Standards (IFRS).
International Accounting Standards (IAS).
Interpretations issued by the IFRIC and by the SIC.
c.
Consistent accounting policies:
The accounting policies adopted in the financial statements are consistent with those
of all periods presented.
d.
Changes in accounting policies in view of the adoption of new standards:
IAS 24 - Related Party Disclosures:
to simplify
The amendment to IAS 24 ("the Amendment") clarifies the definition of a related
party
to eliminate
inconsistencies in its application. The revised Standard introduces a partial exemption
of disclosure requirements for government-related entities. The Amendment has been
applied retrospectively from January 1, 2011.
identification of such relationships and
the
The retrospective application of the Amendment did not have a material effect on the
Company's financial statements.
IAS 32 - Financial Instruments: Presentation - Classification of Rights Issues:
The amendment to IAS 32 ("the Amendment") provides that rights, options or
warrants to acquire a fixed number of the Company's equity instruments for a fixed
amount of any currency are classified as equity instruments if the Company offers the
rights, options or warrants pro rata to all of its existing owners of the same class of its
non-derivative equity instruments. The Amendment has been applied retrospectively
from January 1, 2011.
The retrospective application of the Amendment did not have any effect on the
Company's financial statements.
- 24 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
IFRS 7 - Financial Instruments: Disclosure:
SIMIGON LTD.
The amendment to IFRS 7 ("the Amendment") clarifies the Standard's disclosure
requirements. In this context, emphasis is placed on the interaction between the
quantitative disclosures and the qualitative disclosures and the nature and extent of
risks arising from financial instruments. The Amendment also reduces the disclosure
requirements for collateral held by the Company and revises the disclosure
requirements for credit risk. The Amendment has been applied retrospectively
commencing from the financial statements for periods beginning on January 1, 2011.
The retrospective application of the Amendment did not have any effect on the
Company's financial statements.
IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction:
The amendment to IFRIC 14 ("the Amendment") provides guidance on measuring the
economic benefit available from a defined benefit plan asset. It allows companies to
account for prepayments of minimum funding requirements as an asset. The
Amendment has been applied retrospectively commencing from the financial
statements for periods beginning on January 1, 2011.
The retrospective application of the Amendment did not have any effect on the
Company's financial statements.
IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments:
IFRIC 19 ("the Interpretation") prescribes the accounting treatment of transactions in
which financial liabilities are settled by issuing equity instruments. According to the
Interpretation, equity instruments issued as a replacement of a debt instrument are
measured at fair value of the equity instruments issued if their fair value can be
reliably measured. If the fair value of the equity instruments issued cannot be reliably
measured, then the equity instruments are measured based on the fair value of the
financial liability when extinguished. The difference between the carrying amount of
the financial liability extinguished and the fair value of the equity instruments issued
is recognized in profit or loss. The Interpretation has been applied retrospectively from
January 1, 2011.
The retrospective application of the Interpretation did not have any effect on the
Company's financial statements.
- 25 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
e.
Significant accounting estimates and assumptions used in the preparation of the
financial statements:
SIMIGON LTD.
Estimates and assumptions:
The preparation of the financial statements requires management to make estimates
and assumptions that have an effect on the application of the accounting policies and
on the reported amounts of assets, liabilities, revenues and expenses. These estimates
and underlying assumptions are reviewed regularly. Changes in accounting estimates
are reported in the period of the change in estimate.
The key assumptions made in the financial statements concerning uncertainties at the
end of the reporting period and the critical estimates computed by the Group that may
result in a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Chief Scientist grants:
Government grants received from the Office of the Chief Scientist at the Ministry of
Industry, Trade and Labor ("OCI") are recognized as a liability if future economic
benefits are expected from the research and development activity that will result in
royalty-bearing sales. There is uncertainty regarding the estimated future cash flows
and the estimated discount rate used to measure the amount of the liability. As for the
accounting treatment of grants received from the OCI, see also Note 12.
Impairment of goodwill:
The Group reviews goodwill for impairment at least once a year. This requires
management to make an estimate of the projected future cash flows from the
continuing use of the cash-generating unit to which the goodwill has been allocated
and also to choose a suitable discount rate for those cash flows. Further details are
given in Note 6.
Pensions and other post-employment benefits:
The liability in respect of post-employment defined benefit plans is determined using
actuarial valuations. The actuarial valuation involves making assumptions about,
among others, discount rates, expected rates of return on assets, future salary increases
and mortality rates. Due to the long-term nature of these plans, such estimates are
subject to significant uncertainty. Further details are given in Note 8.
Determining the fair value of share-based payment transactions:
The fair value of share-based payment transactions is determined using an option-
pricing model. The model's assumptions consist of the share price, exercise price,
expected volatility, expected life, expected dividend and risk-free interest rate.
- 26 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
f.
Functional currency, presentation currency and foreign currency:
The consolidated financial statements are presented in U.S. dollars, which is the
Company's functional and presentation currency. Each entity in the Group determines
its own functional currency and items included in the financial statements of each
entity are measured using that functional currency. Transactions in foreign currencies
are initially recorded at the functional currency rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at the balance sheet
date. All differences are taken to the statement of comprehensive income.
Non monetary items that are measured in terms of historical cost in a foreign currency
are translated using the exchange rates as at the dates of the initial transactions.
Transactions, assets and liabilities in foreign currency:
Transactions denominated in foreign currency (other than the functional currency) are
recorded on initial recognition at the exchange rate at the date of the transaction. After
initial recognition, monetary assets and liabilities denominated in foreign currency are
translated at the end of each reporting period into the functional currency at the
exchange rate at that date. Exchange differences, other than those capitalized to
qualifying assets or recorded in equity in hedging transactions, are recognized in profit
or loss. Non-monetary assets and liabilities measured at cost in a foreign currency are
translated at the exchange rate at the date of the transaction. Non-monetary assets and
liabilities denominated in foreign currency and measured at fair value are translated
into the functional currency using the exchange rate prevailing at the date when the
fair value was determined.
g.
Consolidated financial statements:
The consolidated financial statements comprise the financial statements of companies
that are controlled by the Company (subsidiaries). Control exists when the Company
has the power, directly or indirectly, to govern the financial and operating policies of
an entity. The consolidation of the financial statements commences on the date on
which control is obtained and ends when such control ceases.
Significant intragroup balances and transactions and gains or losses resulting from
intragroup transactions are eliminated in full in the consolidated financial statements.
The financial statements of the Company and of the subsidiaries are prepared as of the
same dates and periods. The consolidated financial statements are prepared using
uniform accounting policies by all companies in the Group.
- 27 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
h.
Cash equivalents:
SIMIGON LTD.
Cash equivalents are considered as highly liquid investments, including unrestricted
short-term bank deposits with an original maturity of three months or less from the
date of acquisition.
i.
Short-term deposits:
Short-term bank deposits are deposits with an original maturity of more than three
months from the date of acquisition. The deposits are presented according to their
terms of deposit.
j.
Allowance for doubtful accounts:
The allowance for doubtful accounts is determined in respect of specific debts whose
collection, in the opinion of the Company's management, is doubtful. Impaired debts
are derecognized when they are assessed as uncollectible.
k.
Financial instruments:
Financial assets:
Financial assets within the scope of IAS 39 are initially recognized at fair value plus
directly attributable transaction costs, except for financial assets measured at fair value
through profit or loss in respect of which transaction costs are recorded in profit or
loss.
After initial recognition, the accounting treatment of investments in financial assets is
based on their classification into one of the following four categories:
financial assets at fair value through profit or loss;
held-to-maturity investments;
loans and receivables; and
available-for-sale financial assets.
- 28 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Receivables:
SIMIGON LTD.
The Group receivables that are financial assets (non-derivative) with
fixed or determinable payments, that are not quoted in an active market.
After initial recognition, loans are measured based on their terms at
amortized cost using the effective interest method taking into account
directly attributable transaction costs. Short-term receivables (such as
trade and other receivables) are measured based on their terms, normally
at face value. Gains and losses are recognized in profit or loss when the
loans and receivables are derecognized or impaired, as well as through
the systematic amortization process.
Interest-bearing loans:
All loans and borrowings are initially recognized at fair value less directly attributable
transaction costs. After initial recognition, interest bearing loans and borrowings are
subsequently measured at amortized cost using the effective interest method.
Financial liabilities:
A financial liability is derecognized when it is extinguished, that is when the
obligation is discharged or cancelled or expires. A financial liability is extinguished
when the debtor (the Group):
discharges the liability by paying in cash, other financial assets, goods or
services; or
is legally released from the liability.
Where an existing financial liability is exchanged with another liability from the same
lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is accounted for as an
extinguishment of the original liability and the recognition of a new liability. The
difference between the carrying amount of the above liabilities is recognized in profit
or loss. If the exchange or modification is not substantial, it is accounted for as a
change in the terms of the original liability and no gain or loss is recognized on the
exchange.
l.
Treasury shares:
Company shares held by the Company are recognized at cost and deducted from
equity. Any gain or loss arising from a purchase, sale, issuance or cancellation of
treasury shares is recognized directly in equity. Voting rights attached to treasury
shares are revoked.
- 29 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
m.
Presentation of statement of comprehensive income:
SIMIGON LTD.
The Company has elected to present a single statement of comprehensive income
which includes both the items of the statement of income and the items of other
comprehensive income.
n.
Leases:
The criteria for classifying leases as finance or operating leases depend on the
substance of the agreements and are made at the inception of the lease in accordance
with the following principles as set out in IAS 17.
The Group as leases:
Operating leases:
Lease agreements are classified as an operating lease if they do not transfer
substantially all the risks and benefits incidental to ownership of the leased asset.
Lease payments are recognized as an expense in profit or loss on a straight-line basis
over the lease term.
o.
Property, plant and equipment:
Property, plant and equipment are measured at cost, including directly attributable
costs, less accumulated depreciation, accumulated impairment losses and any related
investment grants and excluding day-to-day servicing expenses.
Depreciation is calculated on a straight-line basis over the useful life of the assets at
annual rates as follows:
Computers and peripheral equipment
Office furniture and equipment
Leasehold improvements
%
33
7 - 15 (mainly 15%)
Over the term of the lease or the
expected life, whichever is shorter
The useful life, depreciation method and residual value of an asset are reviewed at
least each year-end and any changes are accounted for prospectively as a change in
accounting estimate.
- 30 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SIMIGON LTD.
Depreciation of an asset ceases at the earlier of the date that the asset is classified as
held for sale and the date that the asset is derecognized. An asset is derecognized on
disposal or when no further economic benefits are expected from its use. The gain or
loss arising from the derecognition of the asset (determined as the difference between
the net disposal proceeds and the carrying amount in the financial statements) is
included in profit or loss when the asset is derecognized.
p.
Intangible assets:
Intangible assets acquired in a business combination are included at fair value at the
acquisition date (see Note 6). After initial recognition, intangible assets are carried at
their cost less any accumulated amortization and any accumulated impairment losses.
According to management's assessment, intangible assets have a finite useful life. The
assets are amortized over their useful life using the straight-line method and reviewed
for impairment whenever there is an indication that the asset may be impaired. The
amortization period and the amortization method for an intangible asset with a finite
useful life are reviewed at least at each financial year end. Changes in the expected
useful life or the expected pattern of consumption of future economic benefits
embodied in the asset are accounted for prospectively as changes in accounting
estimates. The amortization of intangible assets with finite useful lives is recognized
in the profit or loss.
Backlog
Technology
Useful lives
Amortization method used
1 year
straight-line basis
10 years
straight-line basis
q.
Research and development:
Research and development costs are charged to profit or loss as incurred as
development costs do not meet the criteria for recognition as an intangible asset.
r.
Impairment of non-financial assets:
The Company evaluates the need to record an impairment of the carrying amount of
non-financial assets whenever events or changes in circumstances indicate that the
carrying amount is not recoverable. If the carrying amount of non-financial assets
exceeds their recoverable amount, the assets are reduced to their recoverable amount.
The recoverable amount is the higher of fair value less costs of sale and value in use.
In measuring value in use, the expected future cash flows are discounted using a pre-
tax discount rate that reflects the risks specific to the asset. The recoverable amount of
an asset that does not generate independent cash flows is determined for the cash-
generating unit to which the asset belongs. Impairment losses are recognized in profit
or loss.
- 31 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SIMIGON LTD.
The following criteria are applied in assessing impairment of these specific assets:
1.
Goodwill in respect of business combination:
For the purpose of impairment testing, goodwill acquired in a business
combination is allocated, at the acquisition date, to each of the Group's cash-
generating units that is expected to benefit from the synergies of the
combination.
The Company reviews goodwill for impairment once a year as of December 31
or more frequently if events or changes in circumstances indicate that there is
impairment.
Goodwill is tested for impairment by assessing the recoverable amount of the
cash-generating unit (or group of cash-generating units) to which the goodwill
has been allocated. An impairment loss is recognized if the recoverable amount
of the cash-generating unit (or group of cash-generating units) to which
goodwill has been allocated is less than the carrying amount of the cash-
generating unit (or group of cash-generating units). Any impairment loss is
allocated first to goodwill. Impairment losses recognized for goodwill cannot be
reversed in subsequent periods.
Effective from January 1, 2010, each unit or group of units to which the
goodwill is allocated shall not be larger than an operating segment determined
in accordance with IFRS 8, "Operating Segments", prior to aggregation for
reporting purposes.
s. Government grants:
Government grants are recognized where there is reasonable assurance that the grant
will be received and the Company will comply with the attached conditions.
Government grants received from the Office of the Chief Scientist ("OCS") and the
Korea Israel Industrial R&D Foundation as support for research and development
projects which grants include an obligation to pay royalties that are conditional on
future sales arising from the project, are recognized upon receipt as a liability if future
economic benefits are expected from the project that will result in royalty-bearing
sales. If no such economic benefits are expected, the grants are recognized as a
reduction of the related research and development expenses. In that event, the royalty
obligation is treated as contingent liability in accordance with IAS 37.
At the end of each reporting period, the Company evaluates, based on its best estimate
of future sales, whether there is reasonable assurance that the liability recognized, in
whole or in part, will not be repaid (since the Company will not be required to pay
royalties). If there is such reasonable assurance, the appropriate amount of the liability
is derecognized and recorded in profit or loss as a reduction of research and
development expenses. If the estimate of future sales indicates that there is no such
reasonable assurance, the appropriate amount of the liability that reflects expected
future royalty payments is recognized with a corresponding adjustment to research and
development expenses.
- 32 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SIMIGON LTD.
Grants received after January 1, 2009, which are recognized as a liability, are
accounted for as forgivable loans, in accordance with IAS 20 (Revised), pursuant to
the provisions of IAS 39, "Financial Instruments: Recognition and Measurement".
Accordingly, when the liability for the loan is first recognized, it is measured at fair
value using a discount rate that reflects a market rate of interest. The difference
between the amount of the grants received and the fair value of the liability is
accounted for upon recognition of the liability as a government grant and recognized
as a reduction of research and development expenses. After initial recognition, the
liability is measured at amortized cost using the effective interest method. Changes in
the projected cash flows are discounted using the original effective interest and
recorded in profit or loss in accordance with the provisions of IAS 39.AG8.
Royalty payments are treated as a reduction of the liability.
t.
Revenue recognition:
Revenues are recognized in profit or loss to the extent that it is probable that the
economic benefits will flow to the Company and the revenues can be reliably
measured. Revenues are measured at the fair value of the consideration received less
any trade discounts, volume rebates and returns.
The Company generates revenues mainly from licensing the software products and
sales of software licenses that require significant customization. The Company also
generates revenues from maintenance, support and training. The resellers usually add
an additional component to the package sold or include the Company's products as
part of a broader package.
Revenues from software licensing that requires significant customization are
recognized by reference to the stage of completion of the transaction at the end of the
reporting period. When the outcome of the transaction cannot be estimated reliably,
revenues are recognized only to the extent of the costs recognized that are recoverable.
A provision for estimated losses on uncompleted contracts is recorded in the period in
which such losses are first identified. As of December 31, 2011, no provision for such
losses has been identified.
Maintenance and support revenue included in multiple element arrangements is
deferred and recognized on a straight-line basis over the term of the maintenance and
support agreement. The fair value of the undelivered elements (maintenance and
support services) is determined based on the price charged for the undelivered element
when sold separately.
Deferred revenue includes unearned amounts received under maintenance and support
contracts, and amounts received from customers but not recognized as revenues.
- 33 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Revenues from software arrangements:
SIMIGON LTD.
Software arrangements contain multiple elements (software, integration, installation,
upgrades, support,
the
arrangement's elements, including those delivered on a "when and if available basis",
in order to determine if the elements can be separately identified.
training, consultation etc.). The Company evaluates
The Company recognizes revenues from the sale of software only after the significant
risks and rewards of ownership of the software have been transferred to the buyer for
which a necessary, but not sufficient condition, is delivery of the software, either
physically or electronically, or providing the right to use or permission to make
copies, of the software. The Company recognizes revenues from providing software
related services when the outcome can be measured reliably by reference to the stage
of completion of the transaction at the end of the reporting period. If the services
consist of a number of activities that are not defined over a specified period of time,
revenues are recognized on a straight-line basis over the specified period, unless there
is evidence that some other method better represents the stage of completion.
u.
Earnings (loss) per share:
Earnings per share are calculated by dividing the net income attributable to equity
holders of the Company by the weighted number of Ordinary shares outstanding
during the period. Basic earnings per share only include shares that were actually
outstanding during the period. Potential Ordinary shares are only included in the
computation of diluted earnings per share when their conversion decreases earnings
per share or increases loss per share from continuing operations. Further, potential
Ordinary shares that are converted during the period are included in diluted earnings
per share only until the conversion date and from that date in basic earnings per share.
The Company's share of earnings of investees is included based on the earnings per
share of the investees multiplied by the number of shares held by the Company.
v.
Provisions:
A provision in accordance with IAS 37 is recognized when the Company has a present
(legal or constructive) obligation as a result of a past event and it is probable that an
outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. If the
effect is material, provisions are measured according to the estimated future cash
flows discounted using a pre-tax interest rate that reflects the market assessments of
the time value of money and, where appropriate, those risks specific to the liability.
- 34 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SIMIGON LTD.
Following are the types of provisions included in the financial statements:
Legal claims:
A provision for claims is recognized when the Group has a present legal or
constructive obligation as a result of a past event, it is more likely than not that an
outflow of resources embodying economic benefits will be required by the Group to
settle the obligation and a reliable estimate can be made of the amount of the
obligation. Where the effect of the time value of money is material, a provision is
measured at its present value.
w.
Employees benefit liabilities:
The Company's liability for severance pay pursuant to the Israel's Severance Pay Law
(for those who elected not to be fully included under section 14 of the Severance Pay
Law, 1963) is based on the last monthly salary of the employee multiplied by the
number of years of employment, as of the date of severance.
The cost of providing severance pay is determined using an independent actuary.
Actuarial gains and losses are recognized immediately in the statements of
comprehensive income in the period in which they occur.
Pursuant to Section 14 of the Severance Pay Law, which covers 75% of most of the
employees' severance pay, monthly deposits with insurance companies release the
Company from any future severance obligations in respect of those employees
(defined contribution). Deposits under Section 14 are recorded as an expense in the
Company's statements of comprehensive income.
x.
Fair value of financial instruments:
The carrying amounts of cash and cash equivalents, short-term bank deposits, trade
receivables, other accounts receivable, short-term bank loans, trade payables and other
accounts payable approximate their fair value due to the short-term maturity of such
instruments.
y.
Share-based payment transactions:
The Company applies the provisions of IFRS 2, "Share-Based Payment". IFRS 2
requires an expense to be recognized where the Company buys goods or services in
exchange for shares or rights over shares ("equity-settled transactions"), or in
exchange for other assets equivalent in value to a given number of shares of rights
over shares ("cash-settled transactions"). The main impact of IFRS 2 on the Company
is
the expensing of employees' and directors' share options (equity-settled
transactions).
- 35 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SIMIGON LTD.
The cost of equity-settled transactions with employees is measured by reference to the
fair value of the equity instruments at the date on which they are granted. The fair
value is determined by using the Black-Scholes option-pricing model taking into
account the terms and conditions upon which the instruments were granted. The fair
values of Ordinary shares for the purpose of calculating the fair values of options and
warrants were determined by management based on a number of factors.
The cost of equity-settled transactions is recognized, together with a corresponding
increase in equity, over the period in which the performance and/or service conditions
are fulfilled, ending on the date on which the relevant employees become fully entitled
to the award ("the vesting date"). The cumulative expense recognized for equity-
settled transactions at each reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Company's best estimate of the number
of equity instruments that will ultimately vest.
The Company's employees/other service providers are entitled to remuneration in the
form of equity-settled share-based payment.
z.
Finance income and expenses:
Finance income includes interest income on amounts invested and exchange rate
gains.
Finance expenses comprise interest expense on bank loan fees and exchange rate loss.
Gain an losses on exchange rate differences are reported on a net basis.
aa. Disclosure of new IFRSs in the period prior to their adoption:
IFRS 10, IFRS 11, IFRS 12, IFRS 13 - Consolidated Financial Statements, Joint
Arrangements, Disclosure of Interests in Other Entities, Fair Value Measurement:
In May 2011, the IASB issued four new Standards: IFRS 10, "Consolidated Financial
Statements", IFRS 11, "Joint Arrangements", IFRS 12, "Disclosure of Interests in
Other Entities" ("the new Standards") and IFRS 13, "Fair Value Measurement", and
amended two existing Standards, IAS 27R (Revised 2011), "Separate Financial
Statements", and IAS 28R (Revised 2011), "Investments in Associates and Joint
Ventures".
The new Standards are to be applied retrospectively in financial statements for annual
periods commencing on January 1, 2013 or thereafter. Earlier application is permitted.
However, if the Company chooses earlier application, it must adopt all the new
Standards as a package (excluding the disclosure requirements of IFRS 12 which may
be adopted separately). The Standards prescribe transition provisions with certain
modifications upon initial adoption.
- 36 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SIMIGON LTD.
The main provisions of the Standards and their expected effects on the Company are
as follows:
IFRS 10 - Consolidated Financial Statements:
IFRS 10 supersedes IAS 27 regarding the accounting treatment of consolidated
financial statements and includes the accounting treatment for the consolidation of
structured entities previously accounted for under SIC 12, "Consolidation - Special
Purpose Entities".
IFRS 10 does not prescribe changes to the consolidation procedures but rather
modifies the definition of control for the purpose of consolidation and introduces a
single consolidation model. According to IFRS 10, in order for an investor to control
an investee, the investor must have power over the investee and exposure, or rights, to
variable returns from the investee. Power is defined as the ability to influence and
direct the investee's activities that significantly affect the investor's return.
According to IFRS 10, when assessing the existence of control, potential voting rights
should be considered only if they are substantive, as opposed to the provisions of IAS
27 prior to its amendment which required consideration of potential voting rights only
if they could be exercised immediately while disregarding management's intentions
and financial ability to exercise such rights.
IFRS 10 also prescribes that an investor may have control even if it holds less than a
majority of the investee's voting rights (de facto control), as opposed to the provisions
of the existing IAS 27 which permits a choice between two consolidation models - the
de facto control model and the legal control model.
IFRS 10 is to be applied retrospectively in financial statements for annual periods
commencing on January 1, 2013, or thereafter.
The Company believes that the adoption of IFRS 10 is not expected to have a material
effect on the financial statements.
IFRS 11 - Joint Arrangements:
IFRS 11 supersedes IAS 31 regarding the accounting treatment of interests in joint
ventures and SIC 13 regarding the interpretation of the accounting treatment of non-
monetary contributions by venturers.
IFRS 11 defines joint arrangements as contractual arrangements over which two or
more parties have joint control.
- 37 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SIMIGON LTD.
IFRS 11 distinguishes between two types of joint arrangements:
-
-
Joint ventures in which the parties that have joint control of the arrangement
have rights to the net assets of the arrangement. IFRS 11 requires joint ventures
to be accounted for solely by using the equity method, as opposed to the
provisions of IAS 31 which allowed the Company to make an accounting policy
choice whether to apply proportionate consolidation or the equity method for
entities under joint control.
Joint operations in which the parties that have joint control of the arrangement
have rights to the assets, and obligations for the liabilities, relating to the
arrangement. IFRS 11 requires the joint operator to recognize a joint operation's
assets, liabilities, revenues and expenses in proportion to its relative share of the
joint operation as determined in the joint arrangement, similar to the current
accounting treatment for proportionate consolidation.
IFRS 11 is to be applied retrospectively in financial statements for annual periods
commencing on January 1, 2013, or thereafter.
The Company believes that the adoption of IFRS 11 is not expected to have a material
effect on the financial statements.
IFRS 13 - Fair Value Measurement:
IFRS 13 establishes guidance for the measurement of fair value, to the extent that such
measurement is required according to IFRS. IFRS 13 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. IFRS 13 also
specifies the characteristics of market participants and determines that fair value is
based on the assumptions that would have been used by market participants.
According to IFRS 13, fair value measurement is based on the assumption that the
transaction will take place in the asset's or the liability's principal market, or in the
absence of a principal market, in the most advantageous market.
IFRS 13 requires an entity to maximize the use of relevant observable inputs and
minimize the use of unobservable inputs. IFRS 13 also includes a fair value hierarchy
based on the inputs used to determine fair value as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - inputs other than quoted market prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3 - unobservable inputs (valuation techniques that do not make use of
observable inputs).
- 38 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SIMIGON LTD.
IFRS 13 also prescribes certain specific disclosure requirements.
The new disclosures, and the measurement of assets and liabilities pursuant to IFRS
13, are to be applied prospectively for periods commencing after the Standard's
effective date, in financial statements for annual periods commencing on January 1,
2013 or thereafter. Earlier application is permitted. The new disclosures will not be
required for comparative data.
The appropriate disclosures will be included in the Company's financial statements
upon initial adoption of IFRS 13.
As for the effect on the financial statements, the Company believes that IFRS 13 is not
expected to have a material impact on its financial statements.
NOTE 3:- SHORT-TERM BANK DEPOSITS
The short-term bank deposits (between three months and a year) as of December 31, 2011
and 2010 (in a total of $ 508 thousand and $ 507 thousand, respectively) bear an annual
interest rate of 0.3% and 0.35%, respectively.
NOTE 4: - TRADE RECEIVABLES
Trade receivables (1)
(1) Net of allowance for doubtful debts
December 31,
2011
2010
U.S. dollars in thousands
1,240
394
3,377
412
Trade receivables are non-interest bearing and are generally on 30 - 90 days' terms.
The aging analysis of trade receivables is as follows:
Past due but not impaired
Neither
past due
nor
impaired
< 30
days
30 - 60
days
60 - 90
day
> 90
days
Total
U.S. dollars in thousands
2011
2010
947
3,018
293
299
-
-
*) -
*) -
1,240
24
36
3,377
*)
Represents an amount lower than $ 1 thousands.
- 39 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 5:- FIXED ASSETS, NET
Composition and movement:
Computers
and
peripheral
equipment
Office
furniture
and
equipment
U.S. dollars in thousands
Leasehold
improvements
Total
Cost:
Balance as of January 1, 2010
Acquisitions during the year
Balance as of December 31, 2010
Disposal during the year
Acquisitions during the year
733
40
773
(111)
24
165
*) -
165
(17)
13
Balance as of December 31, 2011
686
161
Accumulated depreciation:
Balance as of January 1, 2010
Depreciation during the year
Balance as of December 31, 2010
Disposal during the year
Depreciation during the year
Balance as of December 31, 2011
Depreciated cost as of December 31,
2011
Depreciated cost as of December 31,
2010
681
47
728
(111)
26
643
43
45
118
8
126
(17)
9
118
43
39
*)
Represents an amount lower than $ 1 thousands.
54
-
54
-
-
54
49
4
53
-
-
53
1
1
952
40
992
(128)
37
901
848
59
907
(128)
35
814
87
85
- 40 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6:- GOODWILL AND AN INTANGIBLE ASSET
The carrying amount of intangible assets acquired as of December 31, 2011 and 2010 in the
accounts of the Company was as follows:
SIMIGON LTD.
Technology **)
Goodwill
Total
Carrying amount as of
December 31,
2011
2010
U.S. dollars in thousands
256
1,068
1,324
306
1,068
1,374
As the activities of VTSG have been fully integrated into those of the Company, the
goodwill arising in the acquisition of VTSG is evaluated for impairment purposes as
part of the cash generating unit representing the Company. As of December 31, 2011,
the recoverable amount determined based on the value in use exceeded the carrying
amount of the Company's net assets (equity).
**) During the years ended December 31, 2011, 2010 and 2009, the Company recorded
amortization in the amount of $ 50 thousand, $ 51 thousand and $ 51 thousand,
respectively, which was recorded in cost of revenues.
NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Employees and payroll accruals
Accrued expenses
December 31,
2011
2010
U.S. dollars in thousands
351
411
762
341
350
691
- 41 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8:- EMPLOYEE BENEFIT LIABILITIES, NET
SIMIGON LTD.
Employee benefits consist of short-term benefits, post-employment benefits, other long-term
benefits and termination benefits.
a.
Post-employment benefits:
According to the labor laws and Severance Pay Law in Israel, the Company is required
to pay compensation to an employee upon dismissal or retirement or to make current
contributions in defined contribution plans pursuant to Section 14 to the Severance
Pay Law, as specified below. The Company's liability is accounted for as a post-
employment benefit. The computation of the Company's employee benefit liability is
made in accordance with a valid employment contract based on the employee's salary
and employment term which establish the entitlement to receive the compensation.
b.
The amounts recognized in the balance sheet are as follows:
Liability at the beginning of the year
Expense (income) recognized in the profit or loss
Benefits paid
Liability at the end of the year
December 31,
2011
2010
U.S. dollars in thousands
122
(52)
38
108
101
31
(10)
122
b.
Amounts recognized in the statements of comprehensive income are as follows:
December 31,
2010
2011
U.S. dollars in thousands
2
*) -
(54)
(52)
26
6
(1)
31
Current service cost
Interest cost
Net actuarial gain recognized in the year
Total expense included in profit or loss
*)
Represents an amount lower than $ 1 thousand.
- 42 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 8:- EMPLOYEE BENEFIT LIABILITIES, NET (Cont.)
c.
Changes in the present value of defined benefit obligation:
Composition:
Balance at January 1
Interest cost
Current service cost
Benefits paid
Net actuarial gain
Balance at December 31
December 31,
2010
2011
U.S. dollars in thousands
122
*) -
2
38
(54)
108
101
6
26
(10)
(1)
122
*)
Represents an amount lower than $ 1 thousand.
d.
The actuarial assumptions used are as follows:
Year ended
December 31,
2010
2011
2009
Discount rate
4.83%
5.10%
4.66%
Expected rate of return on plan assets
5.10%
5.39%
4.96%
Future salary increases
2%
2%
2%
Average expected remaining working
years
6.38
6.44
6.21
- 43 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 9:- LONG-TERM LOAN
a.
Comprised as follows:
Linkage
terms
Interest rate as of
December 31,
2011
2010
December 31,
2011
2010
U.S. dollars in thousands
Long-term loan from
bank (c)
Less - current
maturities
LIBOR +4%
4.28%
4.26%
-
-
-
750
562
188
b.
The aggregate annual maturities of the long-term loan are as follows:
First year (current maturities)
Second year
December 31,
2011
2010
U.S. dollars in thousands
188
-
188
562
188
750
c.
On November 16, 2008, the Company signed a loan agreement ("the Loan
Agreement") with Bank Mizrahi Ltd. ("Mizrahi"), according to which Mizrahi
provided a loan to the Company in the amount of $ 1 million. The loan bears an
annual interest rate of LIBOR+4% and is repayable in 12 equal monthly payments
commencing December 25, 2009. As part of the Loan Agreement, the Company
issued to Mizrahi 374,240 Ordinary shares, which were recorded as transaction costs,
based on the market price of the shares on the date of issuance. In addition, the
Company paid loan origination fees of $ 10,000. As of December 31, 2009, the fair
value of the loan approximates its carrying amount.
According to the Loan Agreement, the Company is obligated to maintain cash, cash
equivalents and trade receivables at more than 125% of the loan value. The Company
complied with those obligations.
- 44 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9:- LONG-TERM LOAN (Cont.)
SIMIGON LTD.
On May 24, 2010, the Company signed a refinance loan agreement ("Refinance
Loan") with Bank Mizrahi Ltd. ("Mizrahi"), according to which the Company will
repay Mizrahi the initial Loan Agreement in a total of $ 590 thousand and Mizrahi
will provide the Company with a Refinance Loan in a total amount of $ 750 thousand.
The Refinance Loan bears an annual interest rate of LIBOR+4% and is repayable in
12 equal monthly payments commencing April 26, 2011. In addition, the Company
paid loan commission of $ 20 thousand. According to the Loan Agreement, the
Company is obligated to maintain cash, cash equivalents and trade receivables at more
than 150% of the loan value and to maintain a cash and cash equivalent balance of
$ 500 thousand under Mizrahi. As of December 31, 2011, the Company is in
compliance with this obligation.
As of December 31, 2011, the fair value of the loan approximates its carrying amount.
NOTE 10:- EQUITY
a.
b.
On November 2, 2006, the Company completed its Initial Public Offering ("IPO") on
the Alternative Investment Market ("the AIM") on the London Stock Exchange, by
issuing 6,076,811 Ordinary shares of NIS 0.01 par value each at a price of £ 0.88
($ 1.65) per share for a total net consideration of $ 8,411 thousand.
On April 23, 2009, the Board of Directors approved the implementation of a one-year
plan for salary reduction of 15% for senior management and other employees ("the
Reduction Plan"). According to the Reduction Plan, the individuals, in exchange for
the reduction on salary, are to be granted 2,263,383 Ordinary shares of the Company
with an equivalent fair value on date of grant of $ 0.15. The shares which have been
issued and are being held by a trustee will vest in 12 equal monthly installments. Out
of the issued shares, a total of 380,313 Ordinary shares were returned to the Company
due to departure of employees and recorded as treasury shares ("the Treasury Shares").
On November 30, 2010, Mr. Ami Vizer, the Chief Executive Officer of the Company
and also a Director of the Company, acquired the Treasury Shares at a price of
£ 0.0512 ($ 0.7979) per share, reflecting the fair market value of the stock on the
purchase date.
Further to the Reduction Plan, on July 27, 2009, the Non-Executive Board members
also decided to implement a one-year salary reduction of 15% and instead will be
granted 119,727 Ordinary shares of the Company, with an equivalent fair value on
date of grant of $ 0.165, which will vest in 12 equal monthly installments. The shares
were issued to the trustee in January 2010.
The salary reduction of 15% for the Non-Executive Board members will be effective
for additional 2 years, and the Non-Executive Board members will be granted
additional Ordinary shares of the Company.
- 45 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 10:- EQUITY (Cont.)
c.
On November 2, 2010, the Board of Directors approved the implementation of a share
bonus plan ("the Share Bonus Plan").
According to the Share Bonus Plan, the Bonus Compensation will be granted with an
equivalent value of Ordinary shares based on the quoted fair market price of the shares
as of November 2, 2010, which is equal to $ 0.0821 per Ordinary share ("the Bonus
Shares"). The Bonus Shares will vest upon receiving actual payment from the
customer under the relevant PO ("the Bonus Shares Vested Date").
The fair value on date of grant equal to $ 0.08 per Ordinary Share
On July 4, 2011 the Company issued a total of 2,444,984 ordinary shares of 0.01 NIS
each ("Ordinary Shares") to its senior management and other employees. Out of the
shares issued, 1,984,530 and 103,703 Ordinary Shares were issued to the Company's
Chief Executive Officer and Chief Finance Officer, who are also Directors of the
Company, respectively.
As of December 31, 2010, the Company recorded share-based compensation expenses
of $ 212 thousand, in respect of the bonus compensation.
On August 10, 2011, a total of 47,502 options were exercise under the company's
Stock Option Plan at an exercise price of NIS 0.01.
On September 12, 2011, the Board of Directors approved the implementation of a
share bonus plan ("the Share Bonus Plan") for year 2011.
According to the Share Bonus Plan, the Bonus Compensation will be granted with an
equivalent value of Ordinary shares based on the quoted fair market price of the shares
as of September 12, 2011, which is equal to $ 0.0812 per Ordinary share ("the Bonus
Shares"). The Bonus Shares will vest upon receiving actual payment from the
customer under the relevant PO ("the Bonus Shares Vested Date").
The fair value on date of grant equal to $ 0.08 per Ordinary Share
As of December 31, 2011 and based on full vesting, the Company's senior
management and other employees are to be granted a total of 6,040,580 Ordinary
shares and Options at an exercise price of NIS 0.01 per share of the Company. Out of
the shares issued, 5,415,686 and 59,691 Ordinary Shares and Options are expected to
be issued, based on a full vesting, to the Company's Chief Executive Officer and Chief
Finance Officer, who are also Directors of the Company, respectively.
d.
e.
- 46 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 10:- EQUITY (Cont.)
f.
Composition of share capital:
December 31,
2011, 2010
and 2009
Authorized
2011
December 31,
2010
Issued and outstanding
2009
Ordinary shares of
NIS 0.01 par value each
100,000,000
44,134,769 41,642,283 41,522,556
Number of shares
g.
Stock option plan:
In August 2000, the Company's Board of Directors authorized an incentive share
option plan ("the Option Plan") and has since granted options to purchase Ordinary
shares to employees and consultants. Under the Option Plan, options generally vest
ratably over a period of four years, commencing with the date of grant. The exercise
price of the options granted under the Option Plan may not be less than the par value
of the shares. The options generally expire no later than 10 years from the date of the
grant, and are non-transferable, except under the laws of succession. On November 2,
2010, the Company decided to increase its Option Plan reserves by 8,000,000 options
to accumulate a total of 17,500,000. As of December 31, 2011, an aggregate of
2,519,264 Ordinary shares of the Company are still available for future grant.
The fair value of share options is measured at the grant date using the Black-Scholes
option pricing model taking into account the terms and conditions upon which the
options were granted. The following are the inputs to the model used for each of the
three years in the period ended December 31, 2011: risk-free interest rates ranging
from 1.27%-5.09%; a dividend yield of 0%; volatility factor of the expected market
price of the Company's Ordinary shares of 80%; and a weighted average expected life
of the options of 6.5 years.
The weighted average fair values of the options granted in 2011, 2010 and 2009 were
$ 0.15, $ 0.03 and $ 0.09, respectively.
- 47 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 10:- EQUITY (Cont.)
A summary of the activity in options to employees, consultants, and directors
(including the senior management, see j. below) for the years 2011, 2010 and 2009 is
as follows:
2011
Year ended December 31,
2010
2009
Number
of
options
Weighted
average
exercise
price
Number
of
options
Weighted
average
exercise
price
Weighted
average
exercise
price
Number
of options
2,673,444 $ 0.371
315,000 $ 0.148
(47,502) $ 0.002
(110,245) $ 0.617
(837,449) $ 0.453
2,207,822 $ 0.693
1,234,000 $ 0.031
-
-
2,408,069 $ 0.706
477,500 $ 0.089
(442,125) $ 0.002
(110,245) $ 0.461
(658,133) $ 0.741
(235,622) $ 0.886
Outstanding at
beginning of
year
Granted
Exercised
Expired
Forfeited
Outstanding at end
of year
1,993,248 $ 0.315
2,673,444 $ 0.371
2,207,822 $ 0.693
Exercisable
options
648,683 $ 0.834
1,192,198 $ 0.781
1,575,944 $ 0.736
The options outstanding as of December 31, 2011, have been separated into ranges of
exercise price as follows:
Options
outstanding
as of
December 31,
Exercise price
2011
$ 0.003-0.127
$ 0.129-0.630
$ 1.330-2.170
1,190,500
592,748
210,000
1,993,248
Weighted
average
remaining
contractual
life (years)
9.69
5.37
4.98
Options
exercisable
as of
December 31,
2011
156,241
282,442
210,000
648,683
- 48 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10:- EQUITY (Cont.)
h.
Options to the CEO and senior employees:
SIMIGON LTD.
1.
2.
3.
On March 26, 2009, a total of 80,000 options at an exercise price of $ 0.08 per
share were exercised by the Company's senior employees.
On March 29, 2009, a total of 32,978 options at an exercise price of NIS 0.01
per share were exercised by the Company's senior employees.
On January 27, 2010, the Board of Directors granted 1,249,000 options as
follows:
a)
b)
c)
d)
e)
A total of 360,000 options were granted to the CEO at an exercise price
of NIS 0.01 per share.
A total of 312,000 options were granted to senior employees at an
exercise price of NIS 0.01 per share.
A total of 132,000 options were granted to employees at an exercise price
of NIS 0.01 per share.
A total of 304,000 options were granted to employees at an exercise price
of $ 0.13 per share.
A total of 141,000 options were granted to the former CFO at an exercise
price of NIS 0.01 per share.
The options will vest over 3 years in equal annual amounts commencing as of
January 1, 2010 and will be conditional upon the following:
a)
b)
Employee being employed by the Company.
The EBIDTA of the Company (on a consolidated basis) for the relevant
fiscal year shall increase by more than 20% compared to the previous
year.
Vesting will be fully accelerated in the event of any of the following:
a) Merger, acquisition or reorganization of the Company with one or more
other entities;
b)
c)
A sale of all or substantially all of the assets or shares of the Company;
An investment in the Company of at least $ 2 million.
As of December 31, 2011, no options have been vested and the Company did
not record share-based compensation expenses.
- 49 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 10:- EQUITY (Cont.)
4.
On July 28, 2010, the Board of Directors approved that all vested options
granted to the former CFO in total amount of 319,388 options at the date of
termination of his engagement by the Company will be exercisable until
December 31, 2011, or an M&A event (whichever is sooner).
5.
6.
On September 27, 2010, the Board of Directors approved that all vested options
granted to a former senior employee in total amount of 90,171 options at the
date of termination of her engagement by the Company will be exercisable until
December 31, 2011, or an M&A event (whichever is sooner).
The effect of the modification in terms of the options was an increase in their
fair value in the amount of $49 thousand which was recorded as share based
compensation expense in 2010.
On June 29, 2011 the Company’s Board of Directors approved. the extension in
terms of options granted to former senior employee according to which, options
in a total of 75,000 will be exercisable until June 10, 2012 only in case of a
Transaction (as defined in the Company's Share Option Plan). All other vested
options in a total of 85,400 will be exercisable until December 7, 2012 only in
case of a Transaction (as defined in the Company's Share Option Plan).
On November 28, 2011 the Annual General meeting of the Company’s
approved the grant of 40,000 options to purchase ordinary shares of the
Company to Mr. Efraim Manea, a director of the Company and its CFO. Such
options are granted to Mr. Manea in accordance with the Company's
Employees' Stock Option Plan (the “ISOP”) and in the same terms that similar
options are granted to the employees of the Company. The options will be
vested over 36 months commencing September 2012 at an exercise price of
US$0.08. The Vested Options are exercisable only in an event of an Transaction
as defined under the ISOP.
i.
Shares to the CEO and senior employees:
1. The Reduction Plan as mentioned under Note 10b above includes a total of
342,717 and 435,495 Ordinary shares of the Company which were granted to
the CEO and senior management; respectively, with an equivalent fair value on
date of grant of $ 0.15. The shares which have been issued and are being held
by the Company's trustee, will vest in 12 equal installments.
2. The Share Bonus Plan as mentioned under Note 10c includes a total of
1,984,530 and 339,691 Ordinary shares of the Company that were granted to the
CEO and senior management, respectively, with an equivalent fair value on date
of grant equal to $ 0.0821 per Ordinary Share.
As of the date the financial statements were approved 2,318,131and 333,601
Ordinary shares, which were granted to the CEO and the senior management
respectively, are due.
- 50 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 10:- EQUITY (Cont.)
As of December 31, 2010, the Company recorded share-based compensation
expenses in a total of $ 163 thousand and $ 28 thousand in respect to the CEO
and senior management, respectively.
3. The Share Bonus Plan as mentioned under Note 10e includes a total of
5,415,686 and 558,545 Ordinary shares and Options at an exercise price of NIS
0.01 per share of the Company that are expected to be issued, based on full
vesting, to the CEO and senior management, respectively, with an equivalent
fair value on date of grant equal to $ 0.0812 per Ordinary Share.
As of the date the financial statements were approved 1,725,545 and 66,291
shares, which are expected to be granted to the CEO and the senior
management, respectively; are due.
As of December 31, 2011, the Company recorded share-based compensation
expenses in a total of $ 248 thousand and $ 45 thousand in respect to the CEO
and senior management, respectively.
NOTE 11:- INCOME TAXES
a.
Tax benefits under the Law for the Encouragement of Capital Investments, 1959:
The Company has been granted an "Approved Enterprise" status for an original
program and an additional expansion program, ("the programs") under the Law for the
Encouragement of Capital Investments, 1959 ("the Law"). According to the provisions
of the Law, the Company has elected to enjoy the "alternative benefits track" - a
waiver of grants in return for tax holidays. The "Approved Enterprise" status will
allow the Company a tax holiday on undistributed income derived from the "Approved
Enterprise" program. The income derived from this "Approved Enterprise" will be tax-
exempt for a period of two years, and may enjoy a reduced tax rate of 10% to 25%
(based on percentage of foreign ownership) for an additional five years. The seven-
year period of benefits will commence with the first year in which the Company earns
taxable income.
The Company completed the implementation of its original and expansion programs.
The period of tax benefits, detailed above, is subject to limits of the earlier of 12 years
from the commencement of production, or 14 years from receiving the approval. The
period of benefits has not yet commenced, and will expire in the year 2016.
The entitlement to the above benefits is conditional upon the Company's fulfilling the
conditions stipulated by the above Law, regulations published thereunder and the
letters of approval for the specific investments in "Approved Enterprises". In the event
of failure to comply with these conditions, the benefits may be canceled and the
Company may be required to refund the amount of the benefits, in whole or in part,
including interest.
Should the Company derive income from sources other than the "Approved
Enterprise" during the period of benefits, such income shall be taxable at the regular
corporate tax rate.
- 51 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11:- INCOME TAXES (Cont.)
SIMIGON LTD.
If tax-exempt profits are distributed to shareholders, they would be taxed at the
corporate tax rate applicable to such profits as if the Company had not elected the
alternative system of benefits, currently between 10%-25% for an "Approved
Enterprise".
An amendment to the Law, which became effective in 2005 ("the Amendment")
changed certain provisions of the Law. As a result of the Amendment, a company is
no longer obliged to implement an "Approved Enterprise" status in order to receive the
tax benefits previously available under the alternative benefits provisions, and
therefore there is no need to apply to the Investment Center for this purpose
(Approved Enterprise status remains mandatory for companies seeking grants).
Rather, a company may claim the tax benefits offered by the Investment Law directly
in its tax returns, provided that its facilities meet the criteria for tax benefits set out by
the Amendment. A company is also granted a right to approach the Israeli Tax
Authorities for a pre-ruling regarding their eligibility for benefits under the
Amendment.
Tax benefits are available under the Amendment to production facilities (or other
eligible facilities), which are generally required to derive more than 25% of the
company's business income from export. In order to receive the tax benefits, the
Amendment states that a company must make an investment in the beneficiary
enterprise exceeding a minimum amount specified in the Law. Such investment may
be made over a period of no more than three years ending at the end of the year in
which the company requested to have the tax benefits apply to the beneficiary
enterprise ("the Year of Election"). Where a company requests to have the tax benefits
apply to an expansion of existing facilities, then only the expansion will be considered
a beneficiary enterprise and the company's effective tax rate will be the result of a
weighted combination of the applicable rates. In this case, the minimum investment
required in order to qualify as a beneficiary enterprise is required to exceed a certain
percentage of the company's production assets before the expansion. The duration of
tax benefits is subject to a limitation of the earlier of 7 years from the Commencement
Year, or 12 years from the first day of the Year of Election.
Amendments to the Law for the Encouragement of Capital Investments, 1959:
In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic
Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), which
prescribes, among others, amendments in the Law for the Encouragement of Capital
Investments, 1959 ("the Law"). The Amendment became effective as of January 1,
2011. According to the Amendment, the benefit tracks in the Law were modified and a
flat tax rate applies to the Company's entire preferred income. Commencing from the
2011 tax year, the Company will be able to opt to apply (the waiver is non-recourse)
the Amendment and from the elected tax year and onwards, it will be subject to the
amended tax rates that are: 2011 and 2011 - 15% (in development area A - 10%), 2013
and 2014 - 12.5% (in development area A - 7%) and in 2015 and thereafter - 12% (in
development area A - 6%).
- 52 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11:- INCOME TAXES (Cont.)
SIMIGON LTD.
b. Measurement of results for tax purposes under the Income Tax (Inflationary
Adjustments) Law, 1985:
Results for tax purposes are measured in terms of earnings in NIS after certain
adjustments for increases in the Israeli Consumer Price Index ("CPI"). As explained in
Note 2d, the financial statements are presented in U.S. dollars. The difference between
the annual change in the Israeli CPI and in the NIS/dollar exchange rate causes a
difference between taxable income or loss and the income or loss before taxes
reflected in the financial statements.
c.
Tax reconciliation:
In 2011, 2010 and 2009, the main reconciling item between the statutory tax rate of
the Company and the effective tax rate (0%) is carryforward tax losses and tax
exemption for which no deferred taxes were provided.
d.
Carryforward losses:
Domestic:
As of December 31, 2011, 2010 and 2009, the Company had accumulated losses for
Israeli tax purposes of approximately $ 6.5 million, $ 6.8 million and $ 5.2 million,
respectively, which may be carried forward, in order to offset taxable income in the
future, for an indefinite period.
Foreign:
As of December 31, 2011, 2010 and 2009, the federal tax loss carryforwards of the
U.S. subsidiaries amounted to approximately $ 5.5 million, $ 5.9 million and $ 5.7
million, respectively. Such losses are available for offset against future U.S. taxable
income of the subsidiaries and will expire in the years 2023-2026.
Due to the uncertainty of the utilization of these carryforward losses, no deferred tax
assets have been recorded.
e.
Tax rates applicable to the income of the Company and its subsidiaries:
Domestic:
The Israeli corporate tax rate was 26% in 2009, 25% in 2010 and 24% in 2011.
A company is taxable on its real (non-inflationary) capital gains at the corporate tax
rate in the year of sale. A temporary provision for 2006-2009 stipulates that the sale of
an asset other than a quoted security (excluding goodwill that was not acquired) that
had been purchased prior to January 1, 2003, and sold by December 31, 2009, is
subject to corporate tax as follows: the part of the real capital gain that is linearly
attributed to the period prior to December 31, 2002 is subject to the corporate tax rate
in the year of sale as set forth in the Israeli Income Tax Ordinance, and the part of the
real capital gain that is linearly attributed to the period from January 1, 2003, through
December 31, 2009, is subject to tax at a rate of 25%.
- 53 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11:- INCOME TAXES (Cont.)
SIMIGON LTD.
On December 5, 2011, the Israeli Parliament (the Knesset) passed the Law for Tax
Burden Reform (Legislative Amendments), 2011 ("the Law") which, among others,
cancels effective from 2012, the scheduled progressive reduction in the corporate tax
rate. The Law also increases the corporate tax rate to 25% in 2012. In view of this
increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate and the
real betterment tax rate were also increased accordingly.
Foreign:
The subsidiaries were incorporated in Orlando, Florida, U.S.A., and are taxed
according to U.S. tax laws. The statutory federal tax rate is 35%.
f.
Tax assessments:
The Company's tax assessments in Israel for the years until and including 2006 are
considered final, subject to the powers vested with the director of the Tax Authority
pursuant to sections 145, 147 and 152 to the Income Tax Ordinance.
g.
Deferred taxes:
On December 31, 2011, there was no recognized deferred tax liability for taxes that
would be payable on unremitted earnings of the Company and its subsidiaries.
NOTE 12:- CONTINGENT LIABILITIES AND COMMITMENTS
a.
Royalty commitments:
1.
In June 2001, the Company and a third party signed a Cooperation and Project
Funding Agreement with Britech, which is an establishment of the United
Kingdom-Israel Industrial Research and Development Fund.
According to the agreement, Britech agreed to fund, by conditional grant, the
implementation of the proposal submitted by the Company and the third party
for a research and development project in the maximum amount of £ 227
thousand.
The Company shall make repayments to Britech, based on gross sales derived
from the sale, leasing or other marketing or commercial exploitation of the
innovation, including service or maintenance contracts, commencing with the
first commercial transaction. Such payments shall be repaid in Pounds Sterling
at the rate of 2.5% of the first year's gross sales and, in succeeding years, at the
rate of 5% of the gross sales until 100%-150% of the conditional grant and other
sums have been repaid (incremental 50% based upon agreed milestone which
was not fulfilled).
The Company received a total amount of $ 324 thousand, of which $ 150
thousand and $ 174 thousand were deducted from the research and development
expenses in 2001 and 2003, respectively.
- 54 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 12:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
Although the development of technology had been completed by the third party
and the Company, the Company has never received the third party's portion of
the developed technology upon completion of the project although it requested
it from both the third party and Britech. Therefore, since the Company cannot
utilize the developed technology without the essential portion developed by the
third party, the Company has not paid any royalties to Britech and the
Company's management believes that it will not be required to pay royalties in
the future for the abovementioned project. In addition, the Company did not
submit any patent applications in connection with the Britech grant.
2.
On September 1, 2009, the Company and a third party signed a Cooperation and
Project Funding Agreement with KORIL (“the Agreement”), which is an
establishment of the Korea-Israel Industrial Research and Development Fund.
According to the agreement, KORIL agreed to fund, by conditional grant, the
implementation of the proposal submitted by the Company (“the proposal”) and
the third party for a research and development project in the maximum amount
of $ 273 thousand.
As of December 31, 2011, the Company received a total amount of $ 191
thousand.
The Company shall make repayments to KORIL, based on gross sales derived
from the gross invoiced sales value of the products, processes, inventions,
technology, discoveries, improvements, modifications, methods, software,
specifications, or any form of technical information developed or arising from
the proposal (gross sales). Such payments shall be repaid in U.S. dollars at the
rate of 2.5% of the first year's gross sales until 100% of the conditional grant
and other sums have been repaid.
The total non-current liability for the years ended December 31, 2011 and 2010
was $ 208 thousand and $ 168 thousand, respectively.
As of the financial statement approval date, the Company has not paid any
royalties to KORIL as no related gross sales were recorded.
3.
On September 16, 2010, the Company signed a Project Funding Agreement
("the Agreement") with the Israeli Chief Scientist ("the OCS"). According to the
Agreement, the OCS agreed to fund, by conditional grant, the implementation
of the proposal submitted by the Company for a research and development
project in the maximum amount of $ 365 thousand.
On March 29, 2011, the Company signed on a supplement to the Agreement
(“the Supplement”). According to the Supplement, the OCS agreed to fund, by
conditional grant, the implementation of the proposal submitted by the
Company for a research and development continued project in the maximum
amount of $ 278 thousand.
As of December 31, 2011, the Company received total amount of $ 571
thousand.
- 55 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 12:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
The Company shall make repayments to the OCS, based on gross sales derived
from the gross invoiced sales value of the products, processes, inventions,
technology, discoveries, improvements, modifications, methods, software,
specifications, or any form of technical information developed or arising from
the proposals (gross sales). Such payments shall be repaid in NIS at the rate of
3% of the first year's gross sales until 100% of the conditional grant and other
sums have been repaid.
The total non-current liability for the years ended December 31, 2011 and 2010
was $ 479 thousand and $ 292 thousand, respectively.
4.
On April 7, 2011, the Company and a third party signed a Cooperation and
Project Funding Agreement with the Israeli Chief Scientist ("the OCS"), which
is an establishment of the Italian-Israel Industrial Research and Development
Fund. According to the agreement, the OCS agreed to fund, by conditional
grant, the implementation of the proposal submitted by the Company (“the
proposal”) and the third party for a research and development project in the
maximum amount of $ 90 thousand.
As of December 31, 2011, the Company received a total amount of $ 77
thousand.
The Company shall make repayments to the OCS, based on gross sales derived
from the gross invoiced sales value of the products, processes, inventions,
technology, discoveries, improvements, modifications, methods, software,
specifications, or any form of technical information developed or arising from
the proposal (gross sales). Such payments shall be repaid in NIS at the rate of
3% of the first year's gross sales until 100% of the conditional grant and other
sums have been repaid.
The total non-current liability for the year ended December 31, 2011 was $ 59
thousand.
As of the financial statement approval date, the Company has not paid any
royalties to the OCS as no related gross sales were recorded.
b.
Lease commitments:
1. Premises occupied by the Company are rented under various non-cancelable
lease agreements until March 2012. As mentioned under Note 18, the lease was
extended until December 31, 2014.
2. The Company has leased various motor vehicles under cancelable operating
lease agreements, which expire on various dates, the latest of which is in 2014.
3. Premises occupied by the subsidiaries are rented under non-cancelable lease
agreements. The latest rental agreement for the premises expires in March 2016
as determined under the new lease agreement signed on December 14, 2011 by
SimiGon Inc.
- 56 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 12:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)
4. Future minimum rental payments under non cancellable operating leases are as
follows:
Year ended December 31,
U.S. dollars
in thousands
2012
2013
2014
2015
2016
144
66
69
69
69
417
The total expense for the years ended December 31, 2011, 2010 and 2009 was
$ 367 thousand, $ 350 thousand and $ 341 thousand, respectively.
c.
Floating charge:
The Company recorded a first priority unlimited floating charge on all of its assets, in
favor of a bank, in consideration of the loan agreement as described in Note 9.
- 57 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 13:- SUPPLEMENTARY
INFORMATION
TO
THE
STATEMENT
OF
COMPREHENSIVE INCOME
Year ended
December 31,
2010
U.S. dollars in thousands
2009
2011
602
124
(50)
59
8
83
826
1,433
245
16
21
1
(41)
406
132
35
61
6
164
804
1,466
297
32
22
4
(61)
581
147
23
62
64
100
977
1,400
214
38
185
15
(19)
1,675
1,760
1,833
965
105
141
54
106
6
296
23
919
132
241
45
142
10
219
3
882
125
258
58
111
12
67
97
1,696
1,711
1,610
a.
Cost of revenues:
Salaries and related benefits
Lease and office maintenance
Travel expenses, net
Depreciation and amortization
Share-based compensation
Subcontractors
b.
Research and development expenses:
Salaries and related benefits
Lease and office maintenance
Depreciation and amortization
Share-based compensation
Other
Government grants
c.
Selling and marketing expenses:
Salaries and related benefits
Lease and office maintenance
Consultant fees
Advertising and sales promotion
Travel expenses
Depreciation
Share-based compensation
Commission
- 58 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 13:- SUPPLEMENTARY
INFORMATION
TO
THE
STATEMENT
OF
COMPREHENSIVE INCOME (Cont.)
d.
General and administrative expenses:
Salaries and related benefits
Lease and office maintenance
Consultant fees
Travel expenses
Professional fees and public company
expenses
Depreciation
Share-based compensation
Doubtful debt provision
Other
e.
Finance income:
Exchange rate differences
Interest income from banks
f.
Finance cost:
Exchange rate differences
Government grants interest
Bank loans and fees
Year ended
December 31,
2010
U.S. dollars in thousands
2009
2011
539
67
-
21
327
4
28
(18)
7
975
296
9
305
231
3
33
267
547
95
10
22
436
7
73
282
6
716
149
122
31
405
13
80
-
50
1,478
1,566
68
7
75
131
-
76
207
210
20
230
150
-
79
229
- 59 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 14:- REVENUES
The Company manages its business on the basis of one reportable segment.
a.
Revenues:
Software licenses
Software licenses that require
significant customization
Maintenance
Training
Year ended
December 31,
2010
U.S. dollars in thousands
2009
2011
3,954
553
910
67
5,484
3,666
1,161
296
84
5,207
4,093
1,226
738
-
6,057
b.
Geographical information:
Revenues classified by geographical destinations based on the customer location:
EMEA (1)
North America
Asia Pacific
Year ended
December 31,
2010
U.S. dollars in thousands
2011
2009
1,475
3,892
117
5,484
1,388
3,509
310
5,207
2,693
3,201
163
6,057
(1) Europe, Middle East, Australia and Africa.
The carrying amounts of non-current assets (fixed assets, investment property and
intangible assets) in the Company's country of domicile (Israel) and in foreign
countries, based on the location of the assets, are as follows:
2011
December 31,
2010
U.S. dollars in thousands
2009
54
1,357
1,411
60
1,399
1,459
82
1,447
1,529
EMEA
North America
- 60 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 14:- REVENUES (Cont.)
c.
Information about major customers:
Revenues from major customers, each of whom amount to 10% or more of total
revenues reported in the financial statements:
Customer A
Customer B
Customer C
Year ended
December 31,
2010
48%
13%
2%
2011
49%
12%
13%
2009
30%
17%
3%
NOTE 15:- EARNINGS (LOSS) PER SHARE
The following reflects the income (loss) and share data used in the basic and diluted earnings
(loss) per share computations:
Year ended
December 31,
2010
U.S. dollars in thousands
2011
2009
Income (loss) for the year
350
(678)
72
2011
2010
2009
Weighted average number of Ordinary shares
for computing basic earnings (loss) per share
42,867
41,361
40,204
Effect of dilution:
Share options
65
-
456
Weighted average number of Ordinary shares
adjusted for the effect of dilution
42,932
41,361
40,660
There have been no significant transactions involving Ordinary shares or potential Ordinary
shares between the balance sheet date and the date of approval of these financial statements.
Share options and warrants (see Note 10) were not included in the 2010 earnings (loss) per
share calculation due to their antidilutive effect.
- 61 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 16:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES
b.
Compensation of key management
personnel of the Company:
Employee benefits *)
Share-based payments **)
Year ended
December 31,
2010
U.S. dollars in thousands
2009
2011
1,281
314
1,595
1,200
256
1,456
1,300
216
1,516
*)
Includes increase in long-term employee benefits due to change in provision for
severance pay in a total amount of $ 37 thousand, $ 43 thousand and $ 150
thousand for the years ended December 31, 2011, 2010 and 2009, respectively.
Year 2011 and 2010 include the provision for sales bonus in a total of $ 10
thousand and $ 7 thousand to the VP of Business Development, respectively.
Year 2009 includes the provision for sales bonus in a total of $ 75 thousand and
$ 11 thousand to the CEO and to the VP of Business Development, respectively.
It also includes the provision for the CEO severance pay in a total of $ 30
thousand due to the salary increase approved by the Company's Board of
Directors on January 27, 2010 (see Note 16c).
**) Year 2011 includes share-based compensation in a total of $ 248 thousand and
$ 45 thousand due the Share Bonus Plan as described under Note 10e, in respect
to the CEO and senior management, respectively.
Year 2010 includes share-based compensation in a total of $ 163 thousand and
$ 28 thousand due the Share Bonus Plan as described under Note 10c, in respect
to the CEO and senior management, respectively.
- 62 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 16:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.)
c.
Significant agreements with shareholders:
1.
On September 21, 2006, the Company signed an agreement with Mr. Ami
Vizer, the Chief Executive Officer of the Company, according to which Mr.
Ami Vizer is engaged with a current salary of $ 313 thousand per annum
(excluding bonuses and benefits), terminable by either party on nine months'
notice. In addition, pursuant to this agreement, Mr. Vizer received options.
On April 23, 2009, the Board of Directors approved the implementation of a
one-year plan for salary reduction of 15% for senior management and other
employees ("the Reduction Plan"). According to the Reduction Plan, Mr. Ami
Vizer, in exchange for the reduction on salary, was granted 342,717 Ordinary
shares of the Company with an equivalent fair value on date of grant of $ 0.15.
The shares which have been issued and are being held by a trustee will vest in
12 equal monthly installments.
On January 27, 2010, the Board of Directors approved an increase of 10% in his
salary effective January 1, 2010.
Total salary (excluding bonuses mentioned under Note 10e) of Mr. Ami Vizer
during year 2011 amounted to an annual salary of $ 344 thousand. Related
benefits include annual social benefits of $ 43 thousands (12.5% out of his
annual salary), severance pay of $28 thousands, vacation days of $39 thousands
and health insurance of $28 thousands. In addition, the Company has made a
provision for family travel expense of $ 21 thousands and for tax consultancy
services related to his agreement of $ 15 thousands.
On September 27, 2006, the Company signed an agreement with Mr. Simi
Efrati, pursuant to which Mr. Efrati receives a fee of $ 122 thousand per annum
for consulting services. The agreement may be terminated by either party on six
months' written notice. In addition, pursuant to this agreement Mr. Efrati
received options (see Note 10g). Prior to this agreement, Mr. Simi Efrati had
been a Non-Executive director of the Company. The agreement was terminated
effective February 1, 2010.
On September 27, 2006, the Company entered into an agreement with Mr. Rami
Weitz, pursuant to which Mr. Weitz receives a fee of $ 122 thousand per annum
in consideration of consulting services. The agreement may be terminated by
either party by at least six months' written notice. In addition, pursuant to this
agreement, Mr. Weitz received options. Prior to this agreement, Mr. Rami
Weitz had been the Chairman of the Board of Directors of the Company.
2.
3.
- 63 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 17:- FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Capital management:
The primary objective of the Company's capital management is to ensure that it maintains a
strong credit rating and sufficient capital in order to support its business and maximize
shareholder value.
The Company manages its capital structure and makes adjustments to it, in light of changes
in economic conditions.
Financial risks factors:
The Company's activities expose it to various financial risks such as market risk (including
foreign exchange risk), credit risk and liquidity risk.
a.
Foreign exchange risk:
The Company operates in a number of countries and is exposed to foreign exchange
risk resulting from the exposure to different currencies, mainly the NIS. As of
December 31, 2011, balances in foreign currency are immaterial.
b.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents, short-term bank deposits, trade
receivables, current maturities and long-term loan.
Cash and cash equivalents and short-term bank deposits are invested in major banks in
Israel and the United States. Management believes that the financial institutions that
hold investments of the Company and its subsidiaries are financially sound and,
accordingly, minimal credit risk exists with respect to these investments.
The Company trades only with creditworthy customers. The Company performs
ongoing credit evaluation of its customer's financial condition and requires collateral
as deemed necessary.
The Company has no off-balance-sheet concentration of credit risk such as foreign
exchange contracts, option contracts or other foreign hedging arrangements.
The Company has no significant concentrations of credit risk. The Company has a
policy to ensure collection through sales of its products to wholesalers with an
appropriate credit history and through retail sales in cash or by credit card.
- 64 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 17:- FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont.)
Credit risk may arise from the exposure of holding several financial instruments with a
single entity or from entering into transactions with several groups of debtors with
similar economic characteristics whose ability to discharge their obligations will be
similarly affected by changes in economic or other conditions. Factors that have the
potential of creating concentrations of risks consist of the nature of the debtors'
activities, such as their business sector, the geographical area of their operations and
the financial strength of groups of borrowers.
The Company regularly monitors the credit extended to its customers and requires
collateral as security for these receivables. The Company provides an allowance for
doubtful accounts based on the factors that affect the credit risk of certain customers,
past experience and other information.
The Company maintains cash and cash equivalents, and other financial instruments in
various financial institutions. These financial institutions are located in different
geographical areas around the world. The Company's policy is to diversify its
investments among the various institutions. According to the Company's policy, the
relative credit stability of the various financial institutions is evaluated on a regular
basis.
As of December 31, 2011, cash and cash equivalents totaled $ 4,739 thousand.
c.
Liquidity risk:
The Company is required to maintain cash, cash equivalents and trade receivables
equal to at least 150% of the carrying amount of the loan (as described in Note 9c).
The table below presents the maturity profile of the Company's financial liabilities
based on contractual undiscounted payments:
December 31, 2011:
Less than
one year
3 to 4
years
U.S. dollars in thousands
Total
Current maturities
Government grants
Trade payables
Other accounts payable and accrued
expenses
188
49
174
697
1,108
-
746
-
-
746
188
795
174
697
1,854
- 65 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIMIGON LTD.
NOTE 17:- FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont.)
December 31, 2010:
Less than
one year
3 to 4
years
U.S. dollars in thousands
Total
Current maturities
Government grants
Trade payables
Other accounts payable and accrued
expenses
586
33
205
658
1,482
-
460
-
-
460
586
493
205
658
1,942
d.
Interest rate risk:
The Company has a loan which bears interest at a variable rate. The Company
estimates that any reasonably possible changes in the interest rate in the coming year
would not have a material effect on the profit of the Company.
NOTE 18:- SUBSEQUENT EVENT
On March 1, 2012 the Company extended its lease agreement for its Premises occupied in
Israel until December 31, 2014.
- - - - - - - - - - - - - - - - - -
- 66 -
SHARE INFORMATION
SimiGon is listed on the AIM. The shares of the
Company are available through the Crest settlement
system, enabling immediate, secured electronic trading
and registration of shareholders’ assets. Symbol: SIM
Financial Year End: 31 December
CONTACT INFORMATION
To request additional information about SimiGon
and our products, please contact us by telephone,
fax or e-mail:
SimiGon Ltd.
1 Sapir St.
PO Box 12050
Herzliya, Israel 46733
Tel: +972-9-956-1777
Fax: +972-9-951-3566
SimiGon Inc.
12001 Research Parkway
Suite 236
Orlando, FL, USA 32826-3009
Tel: +1 407 737-7722
Fax: +1 321 251-7692
For more information:
info@simigon.com
ADVISERS
Nominated Adviser and Broker
finnCap
60 New Broad St
London, EC2M 1JJ
Registrar
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES
Auditors and Reporting Accountants
Kost Forer Gabbay & Kasierer
A member of Ernst & Young Global
3 Aminadav Street
Tel Aviv 67067
Israel
Solicitor to the Company as to English law
Halliwells LLP
1 Threadneedle Street
London
EC2R 8AW
Counsel of the Company as to Israeli law
Amit, Pollak, Matalon & Co. Advocates and Notary
Nitsba Tower, 19th Floor, 17 Yitzhak Sadeh St.,
Tel Aviv 67775
Israel
WWW.SIMIGON.COM