2019 Annual Report We take distrebuted simulation traning personaly 1 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 air forces and commercial airlines worldwide. Founded in 1998, SimiGon maintains offices in Israel and the United States. Contents 3 5 7 8 13 15 Financial & Operational Highlights, Post Period Event and Coronavirus (COVID-19) Market Solutions CEO and Executive Chairman Review Board & Management Financial 2 TAKING DISTRIBUTED TRAINING SIMULATION PERSONALLY 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, SimiGon offers 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 decreased by 3% to $4.88 million (2018: $5.03 million) • Gross margin decreased to 63% (2018: 81%) • Operating loss increased by 91% to $1.45 million (2018: $0.76 million) • Net loss increased by 44% to $1.45 million (2018: $1.01 million) • Basic and diluted loss per share of $0.03 (2018: loss • per share $0.02) Liquid cash and cash equivalents of $6.04 million as at 31 December 2019 (2018: $6.00 million) Operational Highlights • Awarded a $1.8 million contract from a large international defense electronics company to design, develop and implement a C-130 virtual maintenance training solution. Secured additional $0.85 million contracts in aggregate with key European customers to provide licenses, maintenance and support services for the Customer’s simulation training centers. Signed a Blanket Purchase Agreement (“BPA”) with the U.S. Department of Defense Enterprise Software Initiative to establish agreed pricing and processes for government customers to purchase the Company's products and services. • • • • • • Secured an additional year of software and hardware warranties and support services for the United States Air Force T-6A Level 5 FAA Compliant Flight Training Device, valued at up to $1.41 million over the course of 12 months starting in April 2019. SimiGon was awarded with phase one of a United States Air Force (“USAF”) contract to provide twelve (12) SIMbox-based F-15E Mixed Reality (“MR”) training devices for USAF Air Combat Command (“ACC”). SimiGon has been awarded with a strategic contract with the USAF to provide Virtual Reality (“VR”) systems for Columbus Air Force Base. SimiGon won USAF contracts to provide Extended Reality (“XR”) Solutions for Vance Air Force Base and Sheppard Air Force Base. • Awarded a BPA from the USAF for the supply of XR Systems. • Awarded a strategic contract by the United States Air Force ("USAF") to provide SIMbox-based T-6A MR training devices for USAF Undergraduate Pilot Training (“UPT”) at Laughlin Air Force Base. • Continued to support major military flight training programs including: ➢ The USAF Air Education and Training Command Undergraduate Remotely Piloted Aircraft Training (“URT”); ➢ Support for Lockheed Martin's UK Military Flight Training System ("UKMFTS"); and ➢ Provide software and services as part of long- term relationship with a strategic European customer. 3 TAKING DISTRIBUTED TRAINING SIMULATION PERSONALLY (CONT.) Coronavirus (COVID-19) In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. COVID-19 threatens to be a disruptor to companies, supply chains and the world economy for at least the first half of 2020. In light of the uncertainty as to the severity and duration of the pandemic, the overall impact of COVID-19 on the Company’s future revenues, profitability, liquidity and financial position is difficult to assess at this time. As of the date of approval of 2019 financial statements, there has not been a significant impact on the Company’s operations resulting from the COVID-19 outbreak and the Company had not received any cancelation notices from its customers in relation to active purchase orders as a result of COVID-19. In order to reduce the chances that SimiGon’s employees will be infected with COVID-19 while working inside the Company's offices, while assuring the continued efforts to improve SimiGon’s technology capabilities and active program deliveries, some of SimiGon's employees have been instructed to work remotely from their homes. • Completed multiple delivery milestones for the $2 million Israeli Air Force (“IAF”) F-16 Maintenance Trainer Program (“IAF F16 Maintenance Trainer”) contract announced in June 2016 and for the T6A Simulation Based Trainers to the IAF Flight Academy contract (“IAF T6A”) announced in September 2018. SimiGon has continued its ongoing R&D efforts to enhance simulation-based training across all hardware devices and position the Company to capitalize on new high growth market opportunities. • • Appointment of Jack Sarnicki as Chief Operating Officer of SimiGon Inc., the main trading subsidiary of the Company, and the addition of both Simon Bentley as Non-Executive Director and Ronit Schwartz as Independent Non-Executives Director to strengthen the composition of the Company's board. Post Period Event On January 13, 2020 D.D Goldstein Real Estates and Investment Ltd., which to the Company's knowledge acquired 1,500,000 shares in the Company during 2019, has filed two legal actions in the Tel Aviv District Court - a petition for leave to file a monetary claim concerning salaries on behalf of the Company and an action for prerogative relief concerning resolutions approved at the Company's annual general meeting held on December 30, 2019 regarding the appointment of directors and the determination of their compensation. The legal actions allege certain flaws in the election of Mr. Simon Bentley, Mr. Ran Pappo, Mrs. Ronit Schwartz and Mrs. Deborah Bitman as directors. Upon review of the claims and as of the date of this announcement, SimiGon do not foresee any potential financial obligation to the Company even if the court was to decide that these claims have merit (other than legal expenses of defending the claims). The Company has notified its insurers with respect to allegations against directors and has recorded in year 2019 a provision of $0.08 million for corporate retention to be paid to its insurers. 4 APPLYING ROBUST TRAINING & SIMULATION SYSTEMS FOR MULTIPLE DOMAINS Robust Training and Simulation systems with virtual, mixed and augmented reality (XR) capabilities are needed to improve individual readiness and organization-wide performance. Key Trends The military and civilian training and simulation markets are expected to grow significantly over the next decade due to the combination of new training requirements, emerging technologies such as XR and the proven cost savings training through technologies. advanced delivered Prior to the COVID-19 pandemic, the Military Simulation and Virtual Training market, SimiGon’s traditional core market, was forecasted to reach US$128.5 billion between 2018-2028. The civilian, Smart Education and Learning market, representing new expansion opportunities for SimiGon, is expected to reach $423.2 billion by 2025, a compound growth rate of 15.2%. The simulation-based learning segment is anticipated to exhibit the highest it enables corporations and academic growth as institutions to create realistic training in a controlled environment before they start work in the field, in high stakes, operational environments. This market includes Simulation, eLearning, Virtual Instructor, Collaborative, Adaptive and Blended learning, all core technology components of SimiGon’s training solutions. Commercial training, particularly with XR capabilities, value technology- based solutions that reduce costs, similar to the ongoing Government training trend. Well trained operators are required throughout military and civilian organizations. There are no flights without sufficient and properly trained aircrew, including pilots, technicians and maintainers. Cross-domain training with a scalable delivery platform with a common core, open system architecture, capable of meeting the vast range requirements of each skillset, is highly desirable. No simulator can fully replicate the pilot’s sensation of a night landing on a fast moving aircraft carrier; oil drilling on a deep sea rig; providing maintenance service on a military or civilian flight line; rapidly de-icing a military or commercial aircraft readying for taxi; or customer service training. A large body of research supports simulation based learning and training’s significant usefulness for hard skills and soft skills jobs. Through simulations of operating environments and real world conditions, personnel are better prepared to handle real life situations from basic operations to troubleshooting to emergencies, in a safe, cost effective, environmentally friendly setting. The military sector is driven by new platform acquisitions and technology upgrades requiring advanced training of complex systems. Likewise, the civilian market is driven by a need to reduce accidents and liability through advanced training methods and technologies. Training and simulation is utilized across multiple military and civilian domains to provide realistic, cost-effective training. For example, in military aviation, the cost savings of simulated vs. flight hour is generally 90% or greater. With this enormous cost savings, the Government and Civilian sectors recognize the value of simulation in total training programs. Additional efficiencies delivered through training technologies such as an Intelligent Tutor include a dynamic training capacity capable of adapting to a trainee’s skill level and enabling individual pace learning. The market will continue to seek and require cost effective, advanced technologies and solutions. training and simulation SimiGon’s disruptive training and simulation technologies, solutions and services provide effective and efficient training systems to the market, delivering substantial time and cost savings for customer and partners. Additional, sustainable business is won through system maintenance, upgrades and support contracts for existing training devices as well as technology upgrades and further deployment of training aids, devices and simulators. SimiGon’s technology products and services mix provide added value to customer requirements through improved training efficiencies and training analytics for saving time and money. Business Growth Opportunities SimiGon has several market plays that will lead to near term and long term growth. SimiGon’s role as a Prime Contractor to the US and Government sector as well as a key technology supplier to Tier One integrators, is leading to recurring business with current customers and new business. The Company’s systems are globally recognized as a premium training technology for achieving proficiency in complex skills and operations for individual and collective training. 5 APPLYING ROBUST TRAINING & SIMULATION SYSTEMS FOR MULTIPLE DOMAINS (CONT.) The Company is building on the expertise it has in delivering advanced training solutions to develop near term and long term business in the Government sector. The Company is also successfully expanding into new, targeted vertical markets such as maintenance training, commercial aviation training, oil and gas industry training and homeland security. The defense and aerospace sector, according to BlackRock, prior to the COVID-19 pandemic, “remains the purest way to play any change in defence spending outlook.” Boeing prior to the pandemic, estimated a worldwide requirement for 42,730 new jet airplanes, valued at $6.3 trillion, attributing this to evolving aviation product offerings and growth in emerging markets. According to Fortune Business Insights, military aircraft market size was USD 40.22 billion in 2018 and is projected to reach USD 58.03 billion by 2026. The impact of the pandemic is unknown. This segment is comprised of trainer aircraft, fighter aircraft, transport aircraft and special mission aircraft. The military fixed-wing aircraft market growth is expected to be driven by the replacement of ageing military aircraft, increased internal and external security threats, and modernization strategies. lie Further market opportunities in the collaboration announced by the FAA and USAF, working together to ensure an aviation workforce for the future, and “address any barriers to people realizing their dreams of becoming a pilot or aircraft mechanic,” said Dan Elwell acting FAA administrator. Brig. Gen. Mike Koscheski, USAF’s Aircrew Crisis Task Force director, called the pilot shortage “a wicked problem. The problem is not only ever-changing, it fights back. You can’t just fix one aspect. They’re interrelated.” The Unmanned Aircraft Vehicles (UAV) market was valued at $20.71 billion in 2018. This segment is comprised of fixed wing, multi-rotor, single rotor and Hybrid Vertical Takeoff and Landing (VTOL) UAVs. The applications of UAVs continue to diversify and grow for military, commercial, homeland security, and consumers. The market is forecast to reach $52.3 billion by 2025, with a growth rate of 14.15% between 2018 to 2025. This estimate was made prior to the pandemic. Air carriers, such as Wing, a drone delivery spinoff of Google’s Alphabet, are beginning to receive Government certifications to fly drones as a more cost- effective way of delivering small, high-value orders such as medicine. Diverse companies such as Amazon, UPS and Domino’s, as well as traditional aerospace and defence companies, are investing significantly in this market. its impact long term The global smart education & learning market, expected to includes Learning reach USD 680.1 billion by 2027, Management Systems (LMS) and Intelligent Tutoring capabilities. The COVID-19 pandemic has increased the adoption of e-learning solutions by schools, universities and corporations to ensure continuity in imparting training education and is yet to be determined. Prior to the pandemic, 17.9% market sector growth was expected from 2020 to 2027. Improvements in quality and accessibility has been leading to further growth in corporate and academic sub-markets. Online learning institutions are also witnessing a significant increase in the number of students. The market share of LMS is expected to increase due to its ability to create and deliver course according to customer needs, facilitating students and instructors collaboration 24/7/365 through mobile access. The North American market is expected to hold the largest market share during the forecast period because of the prevalence of smart devices. SimiGon’s high technology training platform fulfills multiple roles in this market, comprised of e-learning, virtual instructor-led training, mobile learning, social learning, simulation-based learning, and adaptive learning. In the civilian aviation sector, prior to the pandemic, Boeing’s 2019 Current Market Outlook (CMO) stated the worldwide commercial aircraft fleet of 22,500 in 2017. Boeing was projecting a demand for 42,000 new airplanes over the next 20 years, worth $6.3 trillion. This type of growth places an extraordinary demand for new airline pilots and technicians. Boeing forecasts that by 2037 the aviation industry will need to supply more than two million new aviation personnel—635,000 commercial airline pilots, 622,000 maintenance technicians, and 858,000 cabin crew. Skilled Instructors will also be required to support this workforce. This market presents the Company with a remarkable and exciting opportunity. SimiGon’s technologies, methodologies and innovative solutions, proven and successful in the military aviation market, are fully transferable to commercial aviation training. The Company’s current and past performance is essential to compete and win new contracts in the Government and Civilian sectors and achieve growth. The ability to leverage SimiGon R&D and technologies for multiple domains remains consistent with the Company’s strategy to be active in multiple vertical markets. SimiGon delivers simulation management systems and services that high skills and professional organizations demand. advanced, training training and the 6 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 – “closes the knowledge gap” for professional users. At the same time, SimiGon’s flexible solutions are easily integrated either by customer organizations or third- party systems integrators for both military and civilian applications. SIMbox SimiGon is the creator of SIMbox, a leading PC-based platform for creating, managing and deploying simulation based content across multiple domains including training, mission debriefing, homeland 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 flexible platform, SIMbox has been deployed and successfully by large training and simulation systems providers, leading military contractors, and multiplied air forces and commercial airlines worldwide. SIMbox is comprised of three main environments: • SIMbox Toolkit development environment: SIMbox Toolkit is an easy-to-use development suite, 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. Major Existing products under SIMbox • XR Aircraft De-icing Simulation System • XR-enabled F-15E Aircrew Training Device • XR-enabled F-16 Maintenance Training Device • XR-enabled F-16 Aircrew Training Device • XR-enabled T-6A Desktop Training Device • T-6A Level 5 Flight Training Device • C-208 – Cessna Caravan Training Device • Sensor Operator Training System • UAS Training Device • XR-enabled Driver Training System • Air Traffic Control Training Device • After Action Review/Playback System • Simulation Development Environment • Learning Management System • Learning and Content Management System • Image Generator KnowBook™ Family KnowBook is a family of PC-based training applications used by leading organisations for training professional for users. KnowBook provides a common platform learning, training, planning and debriefing. 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. Debriefing Systems advanced post-mission SimiGon offers 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. 7 SHARING PERSONAL MESSAGE FROM CORPORATE LEADERSHIP Executive Chairman, President and Chief Executive Officer Review Executive Chairman, President and Chief Executive Officer Review “The combination of contract wins and created ongoing R&D efforts have significant future growth potential and a return to profitability” Amos (Ami) Vizer, Executive Chairman, President & Chief Executive Officer SimiGon made significant strides this year in delivering and winning innovative training programs. While this did not result in higher revenues for the Period as compared to year 2018, the combination of contract wins and ongoing R&D efforts have created significant future growth potential and a return to profitability. The Company is executing its strategy to deliver program milestones of long-term strategic contracts and continuing to position itself in the market as a leading technology provider for Extended Reality training solutions. SimiGon’s ability to identify new markets and their need for cost effective training is exemplified throughout the Period and post-Period with multiple SIMbox-based XR training systems contracts awarded to the Company by the USAF and other customers. The Company entered 2020 with stronger technology and greater utilization of our SIMbox technology across more domains than before. Though the overall impact of the coronavirus (COVID-19) on the Company’s business is hard to assess at the moment, the Company continues to position itself to deliver improved financial performance over the long term. Overview During the Period the Company achieved successful delivery milestones of its strategic contracts. In addition, identify new markets and This includes milestones on the IAF F-16 Maintenance Trainer, C-130 virtual maintenance training solution and T- 6A Simulation Based Trainers programs, Onsite/Offsite and logistics support provided to the USAF for the URT program and continued support for the UK Military Flight SimiGon’s Training System program. capabilities their to requirements for cost effective personal training systems was further demonstrated during the Period, as the Company was able to secure new business and expand product capabilities. Advanced proven technology together with successful deliveries have led SimiGon to be contracted with strategic programs throughout the period which has solidified SIMbox as a major training technology platform. SimiGon’s technology supports industry demand for more realistic training and depth perception provided with XR solutions. Integrated with our Learning Management System and Virtual Instructor, trainees receive high value, self-paced training, saving end user organizations time and money. Over the Period, the Company continued its strategic focus on its three main areas: the baseline - Sustain Successfully delivering Distributed Learning Solutions to our core strategic partners worldwide. SimiGon, directly and through its partners, now has training sites in North America, Europe, Middle East and in the Asia Pacific markets. Expand market reach - Expand the utilization of our SIMbox technology to multiple domains. This was successfully achieved by targeting several high opportunity markets such as maintenance training providers, commercial equipment operators, as well as training and research labs that utilize SIMbox as part of their research. SimiGon’s technology Strengthen capabilities - Improve the technological capabilities of the SIMbox technology in order to enable the growth of the Company as detailed above. Beyond the expansion of our graphics engine, learning management system, we have added and delivered XR solutions to multiple clients around the globe. simulation and • • • 8 SHARING PERSONAL MESSAGE FROM CORPORATE LEADERSHIP (CONT.) The R&D efforts in the Period have focused on utilizing commercial consumer hardware to advance XR technologies for advanced training and simulation, together with continued development of the Company’s simulation software development tools, high fidelity Image Generator, user monitoring and performance tracking with simulation data analytics. The Company’s track record of delivering on time and within budget has led to winning multiple military-related contracts around the world, as well as serving to further entrench the Company with existing customers into new programs. Civilian and Commercial vertical markets This comprehensive solution developed by SimiGon not only provides an immersive, high fidelity training environment, it also provides organizations the ability to see trainee(s) progression rate and areas of difficulty, enabling the curriculum to be tweaked for better training results. SIMbox technologies accelerating the Company’s opportunities and market penetration across military and civilian training markets. training are increasing Operational Review solutions SimiGon’s core technology platform, SIMbox, and support services were developed for large simulation training programs for the Government and Commercial sectors. As the Company evolves into a training systems integrator, SimiGon remains at the forefront of designing, developing, implementing and supporting advanced simulation and Increased to accelerate training learning. operational proficiency lowers safety risks and better prepares operators for real operations, whether they are flights, flight line maintenance tasks or deep sea oil rig operations. Leveraging the robust SIMbox ecosystem, SimiGon and its partners can deliver XR capable simulation- based training content across unlimited domains and across the hardware spectrum, from tablets and laptops/PCs to high fidelity training devices. SimiGon’s strategic, simulation-based training solutions offer flexible licensing models with traditional software licensing or SaaS. SimiGon’s technologies and capabilities provide significant added value to multiple industries. Markets: Aerospace and defense related industry SimiGon’s historical core market is aerospace and defense, particularly military aviation, where the Company continues to illustrate its position as a preferred technology supplier to the world’s largest military training programs. SimiGon’s significant capabilities, proven in the defense sector, are being leveraged to pursue new civilian training contracts. SimiGon’s civilian training market opportunities range from maintenance, safety, energy and other industrial operations skills. The Company’s efforts to grow vertical Government and Civilian training are proceeding. The Company recognizes the growth potential in XR training solutions and is developing and marketing relevant solutions to support this fundamental shift in the training world. The global smart education and learning market size is expected to reach $423.2 billion by 2025 at a 15.2% CAGR, offering extensive expansion opportunities for SimiGon. The enterprise XR training market is expected to reach $393 billion by 2025 with a CAGR of 69.4% between 2019- 2025. Millennials and Generation Z users learning experience is transforming the training industry as students are exposed to digital devices from a young age. Adaptive learning, simulation-based and collaborative learning, all part of SimiGon products, have subsequently evolved to offer users enhanced learning methodologies and experiences. learning, learning, blended The simulation-based learning segment is anticipated to grow at a fast pace, enabling professional organizations and educational institutions to virtually experience real world environments for trainees to practice, navigate, explore, and obtain more information through a virtual medium before they start working on real-life tasks. Growing awareness among people and rising popularity of smart education are encouraging solution providers to invest in research and development for creating more reliable, better, and cost-effective solutions. (“OSA”) software As an Open System Architecture integrate with new framework, SimiGon’s ability to technologies makes its viable long-term training simulation software fully capable of leveraging the immersive training needs of the XR civilian markets. 9 SHARING PERSONAL MESSAGES FROM CORPORATE LEADERSHIP (CONT.) solution software offers an advanced to SimiGon organizations seeking to teach visual and interactive problem solving in far ranging markets such as civilian aviation, technician training, language training, customer service training and corporate leadership. The Company’s technology, experience and personnel, place it in a unique position the cultural shifts democratizing learning and training to reach the wider consumer market. take advantage of to Marketing includes digital and print SimiGon’s marketing mix advertising, social media and booths at four industry symposiums, including the ITEC in Europe, IITSEC, Air Warfare Symposium and TSIS in the US, as well as participation in smaller industry demos for select end users. General The Company continues to further develop its disruptive, baseline, commercial off-the-shelf (“COTS”) product with additional top layer application content and capabilities to reach more end users and vertical markets. Targeted verticals such as commercial aviation maintenance training, security training, language training and vocational training have common requirements to the defense-related industries the Company continues to target. Specifically, they are highly regulated, require complex and specialized skill training and have zero tolerance for error. SimiGon is seeking to increase market share and broaden the end user applications for its base line SIMbox software platform in new domains. Business Model The Company's strategy, is to focus on long-term, high value, stable Software as a Service (“SaaS”) license contracts and services that provide better revenue and profit visibility as a result of distributing over the Period in which they are provided rather than lumpy license sales. With SaaS-based contracts, the recurring maintenance and support stream is already included in the contract terms. In addition, the Company maintains flexibility with its traditional perpetual license fee model where the Company is paid for software license and support, as well as providing turnkey solutions for customers and partners as a Prime contractor or Sub-contractor. Growth Strategy The Company is focused on organic growth with its existing customer base, offering continuous product developments and services; leveraging its experience and IP developed from existing contracts as a Prime Contractor and Subcontractor to win new business and capture sales in established segments; and expanding its core technology’s applicability for new market domains, directly and indirectly. SimiGon’s highly scalable, COTS technology training management system makes it an ideal solution to address new training domains with little customization required. New projects and markets continue to utilize the product infrastructure and developer tools to create the new application content; once developed, they are leveraged to target the wider market. Long term contracts The Company maintained its solid portfolio of long term partnerships: The Company has been awarded a $1.8 million contract from a large international defense electronics company (“Defense Company”) to design, develop and implement a C-130 virtual maintenance training solution. The Contract for the C-130 training system is a new product complementing SimiGon’s current range of VMT solutions, including the F-16 training system which is already used by the IAF. This Contract, along with other ground based training systems using SimiGon technologies in the IAF, including T-6A Virtual Reality systems and the M-346 Advanced SimiGon technologies as the IAF’s primary training technology platform for aircrew academy members. The Contract’s period of performance (excluding 12 months warranty and support) is approximately eighteen (18) months. Jet Trainer, solidifies further The Company has been awarded with a BPA from the USAF for the supply of Virtual and Mixed Reality Systems. The BPA, has a contract ceiling of $6 million over a two-year period. This allows the U.S. Government to rapidly order Virtual Reality (VR) and Mixed Reality (MR) solutions. SimiGon was one of four contractors awarded. 10 SHARING PERSONAL MESSAGES FROM CORPORATE LEADERSHIP (CONT.) its successful support for UKMFTS as a SimiGon continues technology and services provider to Lockheed Martin. The Company continues to deliver under this long term contract, now in its ninth year of support, exceeding partner and end user expectations of SimiGon's technologies and performance. The increase in the cost of sales during the Period was mainly as a result of the purchase of hardware and equipment provided as part of SimiGon’s programs with the USAF and IAF. Ongoing USAF contracts for the continued maintenance and support including onsite hardware and software support for the sixteen SIMbox-based T-6A Level 5 FTDs. Check-6 Inc., one of the leading providers of training solutions to the energy and mining industries, is another example of SimiGon's ability to help companies achieve new growth. Throughout this its agreed contract, SimiGon has successfully executed on deliverables. This relationship continues to yield long term business prospects. The Company continues to support and has further expanded its long-term relationship with a major existing European customer that it has been supplying with software and services since 2009. SimiGon continues its successful support of the SIMbox-based T-6A IAF Flight Simulation Based Trainers units provided to the Academy. Financial Performance Revenue for the year ended 31 December 2019 was $4.88 million, compared to $5.03 million in 2018. 41.5% of SimiGon's revenues came from North America (2018: 29%), 58.44% from Europe, Middle East, South America and Australia (2018: 69%) and 0.06% from the Far East (2018: 2%). During the Period, loss before tax expenses were $1.45 million (2018: loss before tax expenses of $0.78 million). The key contributor to the reported operating loss is the purchase of hardware and equipment in a total of $0.6 million that was provided mainly as part of SimiGon’s programs with the USAF and with IAF (F16 Maintenance Trainer and IAF F16 T6A) and the continued investment in research and development expenses. The Company continues to maintain a strong balance sheet with liquid cash balances of $6.04 million as at 31 December 2019. Gross profit for the year ended 31 December 2019 was $3.09 million, as compared to $4.06 million for the year ended 31 December 2018. Accordingly, gross margins decrease to 63% for the year ended 31 December 2019 as compared to 81% for the year ended 31 December 2018. Total operating expenses for the year ended 31 December 2019 decreased by 6% to $4.53 million as compared to $4.82 million for the year ended 31 December 2018. R&D expenses for year ended 31 December 2019 decreased by 8% to $2.18 million as compared to $2.34 million for the year ended 31 December 2018. Without considering the impact of the adoption of IFRS 16 on the financial reports for year 2019, the decrease in the R&D expenses was mainly due to reductions in salary expenses. Marketing expenses for the year ended 31 December 2019 increased by 16% to $1.19 million as compared to $1.02 million for the year ended 31 December 2018 mainly due to salary expenses. General and administration expenses for the year ended 31 December 2019 decreased by 20% to $1.17 million as compared to $1.46 million the year ended 31 December 2018 mainly due to a provision for doubtful debts recorded in year 2018 of $0.45 million. Operating loss for the year ended 31 December 2019 was $1.45 million, as compared to $0.76 million for the year ended 31 December 2018. The Company has recorded a non cash tax expense of $0.22 million for the year ended 31 December 2018 mainly as a result of a deferred tax asset in relation to the losses against expected utilization of carry forward expected income in future years. As a consequence of the factors above, the net loss for the fiscal year was $1.45 million (2018: net loss of $1.01 million). Net basic and diluted loss per share was $0.03 for the year ended 31 December 2019 as compared to net basic and diluted loss per share of $0.02 for the year ended 31 December 2018. As at 31 December 2019 the Company had cash and cash equivalents of $6.04 million as compared to $6.00 million as at 31 December 2018, with trade receivables net of $1.41 million, out of which, a total of $0.76 million has been collected since the year end. 11 SHARING PERSONAL MESSAGES FROM CORPORATE LEADERSHIP (CONT.) Outlook SimiGon’s outlook is positive primarily due to its current technologies, R&D roadmap and the overwhelming need to provide millennials and Generation Z with XR capable, immersive training solutions. Government and Civilian requirements for proficient operators in multiple domains of zero risk tolerance such as aviation and energy, is a challenge the Company looks forward to capturing, and realizing the growth foreseen by investors. The latest coronavirus (COVID-19) threatens to be a disruptor to companies, supply chains and the world economy for at least the first half of 2020. The overall impact of the virus on the Company’s business is hard to assess at the moment. At the same time, the Company remains agile and able to scale rapidly to support new business and deliver its vision and business strategy. Amos Vizer Executive Chairman, President and Chief Executive Officer 12 DISPLAYING PERSONAL COMMITMENT TO ORGANIZATION SUCCESS Board of Directors (Ami) Vizer, Executive Chairman, Amos President & Chief Executive Officer Ran Pappo, Director Independent Non-Executive Prior to founding SimiGon, Amos founded Logi- Cali, a software development house specializing in data storage applications. He previously served as marketing and business development manager of 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. Mr. Ran Poppo has 25 years of business experience while delivering results worldwide. Mr. Pappo is the Chief Executive Officer of Diva Hirschthal Ltd. a large organization engaged in designing, manufacturing and world wild selling of high quality swimwear. Mr. Pappo also serves as a director in JS Group Srl, supervising its financial activities while reviewing its manuals and focusing on goals. Mr Pappo organizational workflows, forecasting, budgeting, auditing, human resources optimization, production planning and marketing. Mr Pappo has an extensive financial knowledge including budgeting, managing and auditing financial statements for national Organizations. Mr. Pappo holds a BS in Business Administration, Finance and International Marketing, from the College for Management in Israel. is a strategic consultant financial Simon Bentley, Senior Executive Director Independent Non- Ronit Schwartz Independent Non-Executive Director Mr. Bentley is currently Executive Chairman of Dominion ATM Banking Systems Ltd, trading as Cash on the Move, a UK mobile cash operator and a Non-Executive Director of Premier Foods plc. Among previous appointments, Mr Bentley was Chairman and Chief Executive of Blacks Leisure Group plc from 1987 to 2002, Deputy Chairman of law firm Mishcon de Reya from 2002 to 2009 and Senior Independent Non-Executive Director of Sports Direct International plc from 2007 to 2018. Mr Bentley is a certified FCA, having previously been a senior partner at Landau Morley LLP. Mrs. Schwartz has considerable experience at board level of government and publicly-traded companies, and has held a wide variety of executive and non-executive roles during the course of her career. Mrs. Schwartz is currently a director at Petroleum & Energy Infrastructures, Ltd., Elad Canada and Amir Agricultural Investments, Ltd. Mrs. Schwartz has 21 years' experience in banking part of them as a financial executive and deputy director, skilled in finance, credit risk, foreign currency trading, budgeting and corporate governance. Mrs. Schwartz holds a BA in Economics and MBA in Marketing and Finance from Tel Aviv University. Efraim Manea, Chief Financial Officer financial including Mr. Manea joined the Company as its finance controller in June 2008, managing its financial aspects reporting, 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. 13 DISPLAYING PERSONAL COMMITMENT TO ORGANIZATION SUCCESS (CONT.) Management Amos (Ami) Vizer, Executive Chairman, President & Chief Executive Officer Prior to founding SimiGon, Amos founded Logi-Cali, a software development house specializing in data storage applications. He previously served as marketing and business development manager of 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. Jack Sarnicki, Chief Operating Officer Jack Sarnicki has 25 years of experience in the United States Air Force ("USAFR") where he held both operational and technical engineering positions, ending his military career as Chief Evaluation Engineer at the USAF's Simulation & Analysis Facility. Mr. Sarnicki is also an accomplished command pilot having flown five different USAF aircraft types during his military career. In his civilian career, Mr. Sarnicki has held multiple senior level sales and management positions for various aerospace and defense businesses. Before coming to SimiGon, Mr. Sarnicki held the position of Chief Operating Officer of VT-Miltope, where he was responsible for the daily management and operation of a $70 million ruggedized computer manufacturer selling directly to the U.S. government and commercial aerospace companies. Jack Sarnicki’s education includes a BS in Mechanical Engineering, Masters of Business and the issuance of three mechanical patents. Efraim Manea, Chief Financial Officer Mr Manea joined the Company as its finance controller in June 2008, managing its financial aspects including financial reporting, 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 for Management in Israel. from the College Alon Shavit, EVP, 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. 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 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. last role Hagai Pichovich, VP Product Development Mr Pichovich joined the company as a software developer for the LMS team in 2006 and since then carried out various roles such as team lead and Director of R&D. He has an extensive experience large scale project architecture and deep with knowledge with SimBox based solutions and internals. Picho has over 15 years of experience with software development using various technologies and methodologies, and holds a bachelor degree in computer science. Koby Ben Yakar, VP Programs 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 as SimiGon’s Information 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 in large training and simulation technologies enterprise projects with a proven ability to manage business and technical relationships for large-scale projects. Ary Nussbaum, VP Business Development (Americas) Mr. Nussbaum has served in multiple roles with the Company since joining in 2001 and was most recently Director, Business Development. He has built Government and Commercial business through partnerships and direct customer sales in complex business environments. His winning track record spearheading strategic programs in the US, Latin America, Asia, Australia and Europe, including SimiGon’s largest single award program, is part of Mr. Nussbaum’s skillset. He leads the Company’s business development and sales efforts to capture existing and vertical markets in Government and Commercial training sectors in the US, Canada and Latin America. Mr. Nussbaum is an FAA certified pilot with an MBA from Bar Ilan University and a BA from William Paterson University. Merav Nahmani, Director of Human Resources Ms. Nachmani, joined SimiGon in November 2005 and has been managing SimiGon’s HR Department since July 2009. Ms. Nachmani has more than ten years of experience in financial aspects including payroll 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. 14 FINANCIALS CONSOLIDATED FINANCIAL STATEMENTS OF SIMIGON LTD. AND ITS SUBSIDIARIES AS OF DECEMBER 31, 2019 (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 16 - 17 18 19 – 20 21 -22 23 - 24 25 - 26 27 28 - 29 30 – 77 78 15 CORPORATE GOVERNANCE FOR THE PERIOD ENDED 31 DECEMBER 2019 Introduction SimiGon Ltd. commenced trading on the AIM Market operated by the London Stock Exchange on 2 November 2006. Although the rules of the AIM Market 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, one Non- Executive Director and two independent Non-Executive Directors nominated by the shareholders of the Company. The Board generally meets a minimum of five times a year and receives a Board pack comprising a report from senior management together with any other materials deemed necessary for the Board to discharge its duties. It is the Board’s responsibility for, amongst others, formulating, reviewing and approving the Group’s business plan, strategy, budgets, corporate structure, compensation policy, dividend policy, major items of expenditure, acquisitions and financial statements. Audit Committee The audit committee consists of Mr. Simon Bentley, Mrs. Ronit Schwartz and Mr. Ran Pappo and meets at least twice a year. The role of the audit committee, includes reviewing 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 Mrs. Ronit Schwartz and Mr. Ran Pappo. The Remuneration Committee has primary responsibility to review the performance of the Company’s executive directors and the senior employees and to recommend and approve their remuneration and other terms of employment. Shareholder Relations The Company meets and communicate with its principal shareholders periodically to encourage communication with shareholders. In addition, the Company intends to facilitate communication with shareholders through its annual report and accounts, interim statements and press releases as required during the ordinary course of business as well as through information available on the Company’s website (www.simigon.com). Going Concern In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. COVID-19 threatens to be a disruptor to companies, supply chains and the world economy for at least the first half of 2020. In light of the uncertainty as to the severity and duration of the pandemic, these consolidated financial statements have been prepared on a going concern basis which assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. In arriving at this determination, the Company has undertaken a thorough review of the Company’s cash flow forecast and potential liquidity risks. Cash flow projections have been prepared which show that the Company will have sufficient funds to finance its operations and meet its obligations during the period of at least 12 months from the date of approval of the consolidated financial statements. 16 CORPORATE GOVERNANCE FOR THE PERIOD ENDED 31 DECEMBER 2019 (CONT.) 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 and the Audit Committee are responsible for the system of internal controls and for reviewing their 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 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. The Group is subject to internal audit and the results of internal audits 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. 17 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 until October 2009 included payment for each Board or Board committee meeting attended. The remuneration packages for executives are based on annual salaries and benefits. Executive Ami Vizer * Efraim Manea ** Non-Executive Alistair Rae Omer C. Eyal *** Mr. Ran Pappo Deborah M. Bitman Ronit Schwartz Total Total 2019 $ 412,939 149,625 25,959 - 26,400 13,200 10,077 638,200 Total 2018 $ 414,412 148,455 47,350 - 26,400 26,400 - 663,017 * Year 2019 does not include additional cost of $39,165 in respect of vacation days, additional $28,721 paid in respect of severance allocation transfer and additional $38,759 paid in respect to health insurance. Year 2018 does not include additional cost of $39,165 in respect of vacation days, additional $28,721 paid in respect of severance allocation transfer and additional $37,675 paid in respect to health insurance. ** Year 2019 does not include the reimbursement of $49,200, paid in respect to Mr. Efraim Manea relocation costs for his work at the Company’s subsidiary in USA and costs of $13,177 in respect of vacation days. Year 2018 does not include the reimbursement of $49,200, paid in respect to Mr. Efraim Manea relocation costs for his work at the Company’s subsidiary in USA and costs of $13,177 in respect of vacation days. *** On a Board meeting held on September 20, 2018, Mr. Omer Eyal informed the Board that he is respectfully declined any payment for his service to SimiGon as a director and that he has elected to make his membership on the Company’s Board of Directors and Audit Committee as unpaid volunteer positions. Please also see the Directors Report below for details of directors who have held office during the year, options and shares granted to directors. 18 DIRECTORS REPORT The directors submit their report and the financial statements of the Group for the period ended 31 December 2019. Incorporation and Admission onto the AIM Market The Company was incorporated on 1 October 1998. On November 2006 the Company commenced trading on the 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, 2019 the total numbers of Ordinary Shares Issued were 50,863,618 (net of 535,571 Ordinary shares held in treasury). Share Options As of 31 December 2019, the outstanding balance of options granted to certain employees of SimiGon was approximately 1.3 percent of the Company’s issued and outstanding shares (net of treasury shares) at an average exercise price of $0.281. The majority of the options vest over four years from the date of grant. The options expire 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 Further to the Company’s previously declared intention to pay an annual dividend, the following dividend were distributed to its shareholders: • On 11 April 2017 an annual dividend of 0.136 cents per share for a total issued and outstanding shares of 51,394,189, equating to approximately 19% of the Company’s earnings per share and to approximately 19% of the Company's net profit for year 2016 was paid to the Company’s shareholders with respect to year 2016. • On 27 May 2016 an annual dividend of 0.6 cents per share for a total issued and outstanding shares of 50,993,154, equating to approximately 15% of the Company’s earnings per share and to approximately 17% of the Company's net profit for year 2015 was paid to the Company’s shareholders with respect to year 2015. • On 29 May 2015 an annual dividend of 0.6 cents per share for a total issued and outstanding shares of 50,079,690, equating to approximately 20% of the Company’s earnings per share and to approximately 22% of the Company's net profit for year 2014 was paid to the Company’s shareholders with respect to year 2014. • On 30 May 2014 an annual dividend of 0.543 cents per share for a total issued and outstanding shares of 47,292,706, equating to approximately 27% of the Company’s earnings per share and to approximately 30% of the Company's net profit for year 2013 was paid to the Company’s shareholders with respect to year 2013. 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. 19 DIRECTORS REPORT (CONT.) Directors The following directors have held office during the year: • Mr. Amos Vizer has been an executive director of the Company since 4 November 1998. • Mr. Efraim Manea was appointed as an executive director on July 30, 2010. • Mr. Simon Bentley was appointed as Non-Executive Director and serves as Senior Independent Non-Executive Director on August 1 2019, replacing Mr. Alistair Rae, who was appointed as a director and Chairman of the Board on 27 October 2006. • Mr. Ran Pappo was appointed as an independent director on December 30, 2015. • Mrs. Ronit Schwartz was appointed as an independent director, replacing Mrs. Deborah M Bitman, who was appointed as an independent director on December 30, 2015. • Mr. Omer C. Eyal was appointed a non-executive director on April 17, 2018 and held office until October 20, 2019. Directors Interest in Shares and Share Options The interest of directors in the issued share capital of the company at 31, December 2019 were as follows. Directors Ami Vizer Efraim Manea Number of Ordinary Shares Capital 11,365,489 284,346 Percentage of Ordinary Shares * 22.34 0.56 Shares to be issued 125,338 **) 32,564 **) *) Calculated based on a total amount of 50,863,618 Ordinary Shares (net of 535,571 Ordinary shares held in treasury). **) On September 8, 2017 the Company’s shareholders approved the conversion of the 2016 annual cash bonuses approved by the Company’s Board of Directors on April 14, 2016 in accordance to the Company's Compensation Policy Plan to Mr. Ami Vizer the Company's Chief Executive Officer and an executive director in a total amount of US £21,934 and to Mr. Efi Manea the Company's Chief Financial Officer and an executive director in a total amount of US £5,699, into 125,338 and 32,564 Ordinary Shares of 0.01 par value of the Company, respectively, such shares to be issued under the Company's Employees' Share Option Plans. Substantial Shareholdings As of 31 December 2019 the following interests of 3% or more in its issued and outstanding ordinary shares were notified to the Company: Shareholder A. Vizer / A. Vizer Holding Ltd. Jeffrey Braun Herald Investment Management Ltd. Axxion S.A. Green Venture Capital Ltd. Shroder- euroclear nominees limited Number Of Ordinary Shares 11,365,489 6,543,039 5,050,000 3,500,000 3,067,848 1,711,070 Percentage of issued * 22.35% 12.86% 9.93% 6.88% 6.03% 3.36% *) Calculated based on a total amount of 50,858,618 Ordinary Shares (net of 535,571 Ordinary shares held in treasury). Auditors Kost Forer Gabbay & Kasierer A member of Ernst & Young Global 144 Menachem Begin St. Tel-Aviv 6492102, Israel 20 Kost Forer Gabbay & Kasierer 144 Menachem Begin St. Tel-Aviv 6492102, Israel Tel: +972-3-6232525 Fax: +972-3-5622555 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, 2019 and 2018, and the consolidated statements of comprehensive income, changes in equity and cash flows for each of the years ended December 31, 2019, 2018 and 2017, and the related notes to the consolidated financial statements, which, as described in Note 2 to the consolidated financial statements, have been prepared on the basis of International Financial Reporting Standards as adopted by the European Union. 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 as adopted by the European Union; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of 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 auditor considers 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 in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant 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 referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the each of the years ended December 31, 2019, 2018 and 2017, in accordance with International Financial Reporting Standards as adopted by the European Union. 21 Emphasis of Matter – Subsequent Event As more fully described in Note 21 to the consolidated financial statements, the latest coronavirus (COVID- 19) threatens to be a disruptor to companies, supply chains and the world economy for at least the first half of 2020. In light of the uncertainty as to the severity and duration of the pandemic, the impact on the Company’s future revenues, profitability, liquidity and financial position is difficult to assess at this time. Our opinion is not modified with respect to this matter. 22 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION SIMIGON LTD. ASSETS CURRENT ASSETS: Cash and cash equivalents Short-term bank deposit Short-term investments Short-term restricted cash Trade receivables, net Other accounts receivable and prepaid expenses Total current assets NON-CURRENT ASSETS: Restricted cash Long-term prepaid expenses Property, plant and equipment Right-of-use assets Goodwill and intangible asset Total non-current assets Total assets December 31, 2019 2018 Note U.S. dollars in thousands 3 5 4 5 6 7 8 2,974 1,181 1,887 523 1,407 37 8,009 38 27 99 294 1,068 1,526 9,535 3,143 1,014 1,845 278 2,571 93 8,944 559 32 66 - 1,068 1,725 10,669 The accompanying notes are an integral part of the consolidated financial statements. 23 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION SIMIGON LTD. EQUITY AND LIABILITIES CURRENT LIABILITIES: Trade payables Current maturities of lease liabilities Deferred revenues Other accounts payable and accrued expenses Total current liabilities NON-CURRENT LIABILITIES: Lease liabilities Employee benefit liabilities Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: Share capital Additional paid-in capital Treasury shares Accumulated deficit Total equity attributable to equity holders of the Company December 31, 2019 2018 Note U.S. dollars in thousands 7 9 7 10 14a 11 86 245 236 845 159 - 327 691 1,412 1,177 31 362 708 1,101 - 287 712 999 2,513 2,176 125 16,651 (105) (9,649) 7,022 125 16,647 (105) (8,174) 8,493 Total equity 7,022 8,493 Total liabilities and equity 9,535 10,669 The accompanying notes are an integral part of the consolidated financial statements. April 27, 2020 Date of approval of the financial statements Ran Pappo Director Ami Vizer Chief Executive Officer and Executive Chairman of the Board of Directors Efraim Manea Chief Financial Officer and Director 24 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME SIMIGON LTD. Year ended December 31, 2018 U.S. dollars in thousands (except share and per share amounts) 2017 2019 4,882 1,797 3,085 2,175 1,187 1,171 4,533 5,029 973 4,056 2,335 1,019 1,462 4,816 4,335 975 3,360 2,092 1,170 1,056 4,318 Note 16 15a 15b 15c 15d (1,448) (760) (958) 15e 15f 215 215 134 157 126 125 Revenues Cost of revenues Gross profit Operating expenses: Research and development Selling and marketing General and administrative Total operating expenses Operating loss Finance income Finance expenses Loss before income taxes (1,448) (783) (957) Income tax benefit (expense) 13 - (224) 3 Net loss (1,448) (1,007) (954) The accompanying notes are an integral part of the consolidated financial statements. 25 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME SIMIGON LTD. Year ended December 31, 2018 U.S. dollars in thousands (except share and per share amounts) 2017 2019 Note Net loss (1,448) (1,007) (954) Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Remeasurement gain (loss) from defined benefit plan (27) 16 (11) Total comprehensive loss (1,475) (991) (965) Net loss attributable to: Equity holders of the Company Non-controlling interests Total comprehensive loss attributable to: Equity holders of the Company Non-controlling interests Net basic and diluted loss per share attributable to equity holders of the Company in U.S. dollars Weighted average number of shares used in computing basic earnings per share (in thousands) Weighted average number of shares used in computing diluted earnings per share (in thousands) (1,448) (1,013) - 6 (1,448) (1,007) (1,475) - (997) 6 (1,475) (991) (952) (2) (954) (963) (2) (965) (0.03) (0.02) (0.02) 17 51,020 51,259 51,444 17 51,020 51,259 51,444 The accompanying notes are an integral part of the consolidated financial statements. 26 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY SIMIGON LTD. Attributable to equity holders of the Company Number of shares Share capital Additional paid-in capital Treasury shares Accumulated deficit Total Non- controlling interests Total equity U .S. dollars in thousands (except share amounts) Balance as of January 1, 2017 51,394,189 125 16,629 Total comprehensive income Dividend distribution Share-based compensation Balance as of December 31, 2017 - - - - - - - - 10 51,394,189 125 16,639 Total comprehensive loss - Purchase of Treasury shares (see note 11 (f)) (535,571) Shares-based compensation - - - - - - 8 - - - - - - (6,144) 10,610 (963) (963) (70) - (70) 10 (4) (2) - - 10,606 (965) (70) 10 (7,177) 9,587 (6) 9,581 (997) (997) (105) - - - (105) 8 6 - - (991) (105) 8 Balance as of December 31, 2018 *) 50,858,618 125 16,647 (105) (8,174) 8,493 - 8,493 Total comprehensive loss - - Share issuance upon exercise of options Share-based compensation Balance as of December 31, 5,000 **) - - - 1 3 - - - (1,475) (1,475) - 1 3 2019 *) 50,863,618 125 16,651 (105) (9,649) 7,022 - - - (1,475) 1 3 7,022 *) Net of 535,571 shares held in treasury. **) Represents an amount lower than $ 1 thousand. The accompanying notes are an integral part of the consolidated financial statements. - 27 - CONSOLIDATED STATEMENTS OF CASH FLOWS SIMIGON LTD. Year ended December 31, 2018 U.S. dollars in thousands 2017 2019 Cash flows from operating activities: Net loss (1,448) (1,007) (954) Adjustments to reconcile net income(loss) to net cash provided by (used in) operating activities: Adjustments to the profit or loss items: Depreciation and amortization Deferred tax Finance expenses (income), net Financial expenses lease liabilities Share-based compensation 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 308 - (70) 20 3 47 46 226 64 - 8 15 55 (3) (36) - 10 57 1,164 (823) 1,171 61 (74) (91) 146 59 26 (74) - 1,514 (453) (105) 35 (195) 5 994 40 Net cash provided by (used in) operating activities 66 (1,460) The accompanying notes are an integral part of the consolidated financial statements. - 28 - CONSOLIDATED STATEMENTS OF CASH FLOWS SIMIGON LTD. Cash flows from investing activities: Decrease (increase) in restricted cash Increase in short-term bank deposits Increase in long-term deposits Purchase of property, plant and equipment Net cash provided by (used in) investing activities Cash flows from financing activities: Repayment of lease liabilities Proceeds from share issuance upon exercise of options Dividend distribution Purchase of treasury shares Receipt of refundable grants Net cash used in financing activities Decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Year ended December 31, 2018 U.S. dollars in thousands 2017 2019 278 (139) - (88) 51 (287) 1 - - - (286) (169) 3,143 (164) - (2) (16) (182) - - - (105) 22 (83) (300) - - (34) (334) - - (70) - 11 (59) (1,725) 4,868 (353) 5,221 Cash and cash equivalents at end of year 2,974 3,143 4,868 (a) Supplemental disclosure of non-cash activities: Right-of-use assets and corresponding lease liabilities 59 - - The accompanying notes are an integral part of the consolidated financial statements. - 29 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 1:- GENERAL SIMIGON LTD. a. b. 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 a wholly-owned subsidiary in the United States, SimiGon Inc, which is engaged in the marketing of the Company's products in the United States. National Simulation Services Inc, which was a wholly-owned subsidiary of SimiGon Inc, was dissolved on December 20, 2019. SimiGon Pte Ltd., which was a wholly-owned subsidiary of SimiGon Ltd in Singapore and was engaged in the marketing of the Company's products in the Far East, was dissolved on November 1, 2019. SimiGon S.A.S, in which 70% of its shares were held by SimiGon Inc and was located in Colombia for the purpose of marketing the Company's products in South America, has commenced its dissolvement on November 5, 2019. c. The Company's shares are traded on the Alternative Investment Market ("the AIM") on the London Stock Exchange. d. Definitions: In these financial statements: The Company - SimiGon Ltd. The Group - SimiGon Ltd. and its subsidiary. Subsidiaries - Companies that are controlled by the Company, as defined in IFRS 10. Related parties - As defined in IAS 24. Dollar/$ - U.S. dollar e. Assessment of going concern as a result of coronavirus (COVID-19) (see also Note 21): In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. COVID-19 threatens to be a disruptor to companies, supply chains and the world economy for at least the first half of 2020. In light of the uncertainty as to the severity and duration of the pandemic, these consolidated financial statements have been prepared on a going concern basis which assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. In arriving at this determination, the Company has undertaken a thorough review of the Company’s cash flow forecast and potential liquidity risks. Cash flow projections have been prepared which show that the Company will have sufficient funds to finance its operations and meet its obligations during the period of at least 12 months from the date of approval of the consolidated financial statements. - 30 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES SIMIGON LTD. The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated. a. Basis of preparation of the financial statements: These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS as adopted by the EU"). b. Functional currency, presentation currency and foreign currency: The consolidated financial statements are presented in U.S. dollars, which is the Company's functional 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. The functional currency of the subsidiaries is the U.S. dollar. 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. c. Consolidated financial statements: The consolidated financial statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases. 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. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements. - 31 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. Non-controlling interests in subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of other comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statement of financial position. d. Cash equivalents: 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. e. 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. f. Allowance for doubtful accounts (accounting policy applied until December 31, 2017): The allowance for doubtful accounts is determined in respect of specific debts whose collection, in the opinion of the Company's management, is doubtful. The Company did not recognize an allowance in respect of groups of trade receivables that are collectively assessed for impairment due to immateriality. Impaired receivables are derecognized when they are assessed as uncollectible. g. Financial instruments: On January 1, 2018, the Company initially adopted IFRS 9, "Financial Instruments" ("the Standard"). The Company elected to adopt the provisions of the Standard retrospectively without restatement of comparative data. The accounting policy for financial instruments applied until December 31, 2017, is as follows: 1. 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. - 32 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. After initial recognition, the accounting treatment of investments in financial assets is based on their classification into one of the following categories: financial assets at fair value through profit or loss; loans and receivables. a) Financial assets at fair value through profit or loss: This category includes financial assets held for trading (short-term investments in mutual funds). b) Loans and Receivables: Loans and receivables are investments 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 less directly attributable transaction costs using the effective interest method and less any impairment losses. Short-term receivables (such as trade and other receivables) are measured based on their terms, normally at face value. 2. Financial liabilities: Financial liabilities are initially recognized at fair value. After initial recognition, loans and other liabilities are measured at amortized cost based on their terms net of directly attributable transaction costs using the effective interest method. 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. The accounting policy for financial instruments applied commencing from January 1, 2018, is as follows: 1. Financial assets: Financial assets are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss. - 33 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. The Company classifies and measures debt instruments in the financial statements based on the following criteria: - - The Company's business model for managing financial assets; and The contractual cash flow terms of the financial asset. a) Debt instruments are measured at amortized cost when: The Company's business model is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate method, less any provision for impairment. b) Equity instruments and other financial assets held for trading: Investments in equity instruments do not meet the above criteria and accordingly are measured at fair value through profit or loss. Other financial assets held for trading such as derivatives, including embedded derivatives separated from the host contract, are measured at fair value through profit or loss unless they are designated as effective hedging instruments. Dividends from investments in equity instruments are recognized in profit or loss when the right to receive the dividends is established. 2. Impairment of financial assets: The Company evaluates at the end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit or loss. The Company has short-term financial assets such as trade receivables in respect of which the Company applies a simplified approach and measures the loss allowance in an amount equal to the lifetime expected credit losses. An impairment loss on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from the carrying amount of the financial asset. 3. Financial liabilities: a) Financial liabilities measured at amortized cost: Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability. - 34 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. After initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method. 4. Derecognition of financial liabilities: A financial liability is derecognized only when it is extinguished, that is when the obligation specified in the contract is discharged or cancelled or expires. A financial liability is extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability. h. Leases: As described in Note 2w regarding the initial adoption of IFRS 16, “Leases” (“the Standard”), the Company elected to apply the provisions of the Standard using the modified retrospective method, without restatement of comparative data). The accounting policy for leases applied effective from January 1, 2019, is as follows: The Company accounts for a contract as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange for consideration. For leases in which the Company is the lessee, at the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. In calculating the present value of lease payments, the Company uses a single incremental borrowing rate, to a portfolio of leases with reasonably similar characteristics. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured using a revised discount rate, with a corresponding adjustment to the related right-of-use asset, if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. The Company recognizes right-of-use assets at an amount equal to the lease liability. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are amortized on a straight-line basis over the shorter of their estimated useful life and the lease term. Right-of-use assets are subject to impairment. The amortization periods of the right-of-use assets are as follows; facilities – 5 years; Vehicles – 3 years. The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below $5). Lease payments for short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term. - 35 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. In respect of lease payments that depend on the Consumer Price Index, on the commencement date the Company uses the index prevailing on the commencement date to calculate the future lease payments. The aggregate changes in future lease payments resulting from a change in the index are discounted (without a change in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the right-of-use asset, only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to lease payments takes effect). The accounting policy for leases applied until December 31, 2018 is as follows: 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 lessee: 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. i. 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 - 36 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. 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. 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 derecognizing 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. j. Intangible assets: Intangible assets (Technology) acquired in a business combination are included at fair value at the acquisition date. 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 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 is recognized in the profit or loss. The useful life of the Technology is 10 years. k. 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. l. 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. - 37 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. The following criteria are applied in assessing impairment of goodwill in respect of a 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. m. 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. 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 IFRS 9, "Financial Instruments". 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. - 38 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. 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 rate and recorded in profit or loss in accordance with the provisions of IFRS 9. Royalty payments are treated as a reduction of the liability. n. Revenue recognition: On January 1, 2018, the Company initially adopted IFRS 15, "Revenue from Contracts with Customers" ("the Standard"). The Company elected to adopt the provisions of the Standard using the modified retrospective method with the application of certain practical expedients and without restatement of comparative data. The accounting policy for revenue recognition applied until December 31, 2017, is as follows: Revenues are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. When the Company acts as a principal and is exposed to the risks associated with the transaction, revenues are presented on a gross basis. When the Company acts as an agent and is not exposed to the risks and rewards associated with the transaction, revenues are presented on a net basis. Revenues are measured at the fair value of the consideration less any trade discounts, volume rebates and returns. Following are the specific revenue recognition criteria which must be met before revenue Revenues from software arrangements: 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 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 stage of completion cannot be determined reliably, revenues are recognized on a straight- line basis over the agreement period. Software arrangements generally contain multiple sale elements (software, integration, installation, upgrades, support, training, consultation etc.). The Company evaluates 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. - 39 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Revenue from software licensing arrangements: SIMIGON LTD. The Company recognizes revenue from software licensing transactions at a point in time when the Company provides the customer a right to use the Company's intellectual property as it exists at the point in time at which the license is granted to the customer. The Company recognizes revenue from software licensing transactions over time when the Company provides the customer a right to access the Company's intellectual property throughout the license period. The accounting policy for revenue recognition applied commencing from January 1, 2018, is as follows: Revenue recognition: Revenue from contracts with customers is recognized when the control over the goods or services is transferred to the customer. The transaction price is the amount of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third parties (such as taxes). Revenue from rendering of services: Revenue from rendering of services is recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the Company's performance. Revenue is recognized in the reporting periods in which the services are rendered. The Company charges its customers based on payment terms agreed upon in specific agreements. When payments are made before or after the service is performed, the Company recognizes the resulting contract asset or liability. Revenue from customization contracts: At contract inception, the Company identifies the customization work as a performance obligation. Since the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced, the Company recognizes revenue over time. The Company applies a cost-based input method for measuring the progress of performance obligations that are satisfied over time. The Company believes that the use of this input method, according to which revenue is recognized based on the inputs expended by the Company for fulfilling its performance obligations, best reflects the actual revenue earned. In applying this input method, the Company estimates the costs to complete contract performance in order to determine the amount of the revenue to be recognized. These estimated costs include the direct costs and the indirect costs that are directly attributable to a contract based on a reasonable allocation method. Moreover, in measuring the percentage of completion, the Company does not consider costs that do not contribute to the progress in satisfying performance obligations, such as (costs of uninstalled materials, etc.). - 40 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. In certain circumstances, the Company is unable to measure the outcome of a contract, but the Company expects to recover the costs incurred in fulfilling the contract as of the reporting date. In such circumstances, the Company recognizes revenue to the extent of the costs incurred as of the reporting date until such time the outcome of the contract can be reasonably measured. If a loss is anticipated from a contract, the loss is recognized in full regardless of the percentage of completion. Contract balances: The Company charges customers as the work progresses in accordance with the contractual terms. Amounts billed are classified as trade receivables in the statement of financial position. When revenues from performance of a contract are recognized in profit or loss before the customer is charged, these amounts are recorded as contract assets/income receivable. Amounts received from customers in advance of performance by the Company are recorded as contract liabilities/deferred revenues from customers and recognized as revenue in profit or loss when the work is performed. o. Earnings 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. p. 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. - 41 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) q. Employee benefits: SIMIGON LTD. 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. Remeasurements, comprising of actuarial gains and losses, are recognized immediately in the statement of financial position with a corresponding debit or credit to other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. 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. r. Fair value of financial instruments: The carrying amounts of cash and cash equivalents, short-term deposits, short-term investments, trade receivables, restricted cash, other accounts receivable, trade payables and other accounts payable approximate their fair value due to the short-term maturity and high probability of repayment of such instruments. s. 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). The Company's employees/other service providers are entitled to remuneration in the form of equity-settled share-based payment transactions. The cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an acceptable option pricing model. As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted. - 42 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance and/or service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award ("the vesting period"). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The expense or income recognized in profit or loss represents the change between the cumulative expense recognized at the end of the reporting period and the cumulative expense recognized at the end of the previous reporting period. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. t. Finance income and expenses: Finance income includes interest income on amounts invested, government grants and exchange rate gains. Finance expenses comprise interest expense on bank loan, government grants, fees and exchange rate losses. u. Significant accounting judgments, estimates and assumptions used in the preparation of the financial statements. In the process of applying the significant accounting policies, the Group has made the following judgments which have a significant effect on the amounts recognized in the financial statements: 1. Judgments: - Determining the fair value of share-based payment transactions: The fair value of share-based payment transactions is determined upon initial recognition by an acceptable option pricing model. The inputs to the model include share price and exercise price and judgments regarding expected volatility, expected life of share option and expected dividend yield. 2. 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. - 43 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. 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 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 OCS, see also Note 14. - Deferred tax assets: Deferred tax assets are recognized for unused carryforward tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the timing and level of future taxable profits, its source and the tax planning strategy. v. Taxes on income: Current or deferred taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income or equity. 1. Current taxes: The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with the tax liability in respect of previous years. 2. Deferred taxes: Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted by the reporting date. - 44 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Temporary differences for which deferred tax assets had not been recognized are reviewed at each reporting date and a respective deferred tax asset is recognized to the extent that their utilization is probable. Taxes that would apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as long as the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution of dividends does not involve an additional tax liability or since it is the Company's policy not to initiate distribution of dividends from a subsidiary that would trigger an additional tax liability. Deferred taxes are offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority. w. Changes in accounting policies - initial adoption of new financial reporting and accounting standards and amendments to existing financial reporting and accounting standards IFRS 16, "Leases" In January 2016, the IASB issued IFRS 16, Leases. IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model. The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of January 1, 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which the underlying asset is of low value ('low-value assets'). Nature of the effect of adoption of IFRS 16: The Group has lease contracts for various facilities and vehicles. - 45 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which has been applied by the Group. As all of the Group's leases were previously classified as operating leases, the Group recognized right-of-use assets and lease liabilities for these leases, except for short-term leases and leases of low-value assets. The right-of-use assets were recognized based on the amount equal to the lease liabilities. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The Group also applied the available practical expedients wherein it: - Used a single discount rate to a portfolio of leases with reasonably similar characteristics - Relied on its assessment of whether leases are onerous immediately before the date of initial application - Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application - Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease The weighted average rate of interest used to discount the liabilities was 4.82%. The effect of adoption IFRS 16 as of January 1, 2019 is as follows: Assets Right-of-use assets Liabilities Short-term Long-term Total liabilities 485 265 220 485 IFRIC 23, "Uncertainty over Income Tax Treatments": In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income Tax Treatments" ("the Interpretation"). The Interpretation clarifies the rules of recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12, "Income Taxes", in situations of uncertainty involving income taxes. The Interpretation provides guidance on considering whether some tax treatments should be considered collectively, examination by the tax authorities, measurement to reflect uncertainty involving income taxes in the financial statements and accounting for changes in facts and circumstances in respect of the uncertainty. - 46 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) SIMIGON LTD. The Interpretation has been initially applied in these consolidated financial statements. The initial application of the Interpretation did not have a material effect on the consolidated financial statements. NOTE 3:- SHORT-TERM INVESTMENTS December 31, 2019 2018 U.S. dollars in thousands Financial assets classified as held for trading at fair value through profit or loss - Mutual Funds *) 1,887 1,845 *) Short-term investments in mutual funds are considered as highly liquid low risk investments. As of March 31, 2020, the fair value of the financial assets classified as held for trading at fair value through profit or loss was $1,739 thousand. NOTE 4: - TRADE RECEIVABLES Trade receivables (1) December 31, 2019 2018 U.S. dollars in thousands 1,407 2,571 (1) Net of allowance for doubtful debts 446 705 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 U.S. dollars in thousands > 90 days Total Year 2019 (before allowance for doubtful debts) Allowance for doubtful debts Year 2019 (After 653 - 548 - allowance for bad debts) 653 548 23 - 23 - - - 629 1,853 (446) 446 183 1,407 - 47 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 4: - TRADE RECEIVABLES (Cont.) The aging analysis of trade receivables is as follows: SIMIGON LTD. Past due but not impaired Neither past due nor impaired < 30 days 30 - 60 days 60 - 90 day U.S. dollars in thousands > 90 days Total Year 2018 (before allowance for doubtful debts) Allowance for doubtful debts 2,289 - Year 2018 (After allowance for bad debts) 2,289 - - - 16 - 16 27 - 27 944 3,276 (705) (705) 239 2,571 NOTE 5:- RESTRICTED CASH a. b. c. d. e. As part of the regulatory approval received for a $2 million contract with the Israeli Air Force, on May 2, 2017 the Company issued a Performance Bond deposit in a total amount of $ 299 thousand to secure deliveries and receiving payments from the customer. On June 2018 the Performance Bond has been canceled and was replaced with a Performance Bond issued in October 30, 2018 in a total amount of $ 521 thousand. The Performance Bond was held through a deposit bearing annual interest of 0.55% and its balance as of December 31, 2018 and December 31, 2019 amounted to $ 521 thousand and$ 523 thousand, respectively. On March 12, 2020, the Performance Bond has come to an end and expired. On December 12, 2018 an additional Performance Bond was issued in a total amount of $ 22 thousand to secure deliveries and receiving payments from the customer. The Performance Bond was held through a deposit bearing annual interest of 0.56% and its balance as of December 31, 2018 amounted to $ 22 thousand. On September 23, 2019 the Performance Bond has come to an end and expired. As part of the regulatory approval received for a $1.1 million contract with the Israeli Air Force, on September 20, 2018 the Company issued a Performance Bond deposit in a total amount of $ 256 thousand to secure deliveries and receiving payments from the customer. The Performance Bond was held through a deposit bearing annual interest of 0.48% and its balance as of December 31, 2018 amounted to $ 257 thousand. On May 2, 2019 the Performance Bond has come to an end and expired. To operate an ongoing business bank account, the Company is obligated to secure a deposit in the amount of $ 15 thousand in favor of the bank. As part of its premises lease agreement, the Company is obligated to secure a deposit in the amount of $ 23 thousand in favor of the landlord. - 48 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 6:- PROPERTY, PLANT AND EQUIPMENT Composition and movement: SIMIGON LTD. Cost: Balance as of January 1, 2018 Disposal during the year Acquisitions during the year Balance as of December 31, 2018 Disposal during the year Acquisitions during the year Balance as of December 31, 2019 Accumulated depreciation: Balance as of January 1, 2018 Disposal during the year Depreciation during the year Balance as of December 31, 2018 Disposal during the year Depreciation during the year Balance as of December 31, 2019 Depreciated cost as of December 31, 2019 Depreciated cost as of December 31, 2018 Computers and peripheral equipment Office furniture and equipment Leasehold improvements Total U.S. dollars in thousands 778 (10) 13 781 (5) 84 860 745 (10) 22 757 (5) 30 782 78 24 213 - 3 216 - 3 219 181 - 14 195 - 17 212 7 21 97 - - 97 - 1 98 68 - 8 76 - 8 84 14 21 1,088 (10) 16 1,094 (5) 88 1,177 994 (10) 44 1,028 (5) 55 1,078 99 66 NOTE 7:- RIGHT OF USE ASSETS AND LEASE LIABILITIES Set out below, are the carrying amounts of the Group's right-of-use assets and lease liabilities and the movements during the period: Facilities Total ROU assets Vehicles U.S. dollars in thousands Lease liabilities $ 485 $ - $ 485 $ 485 - (235) - 59 (19) - 59 (252) - 59 - (287) (1) 5 2 20 $ 249 $ 45 $ 294 $ 276 As of January 1, 2019 Additions and extensions Depreciation Payments Interest, currency exchange rate and Consumer Price Index As of December 31, 2019 - 49 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 7:- RIGHT OF USE ASSETS AND LEASE LIABILITIES (Cont.) Information on leases: SIMIGON LTD. 1. Premises occupied by the Company are rented under various non-cancelable lease agreements. The latest rental agreement for the premises expires in October 2020 as determined under a lease agreement signed on October 1, 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 January 2022. 3. Premises occupied by the subsidiaries are rented under non-cancelable lease agreements. The latest rental agreement for the premises expires in March 2021 as determined under a lease agreement signed on February 9, 2016 by SimiGon Inc. The total expenses related to premises occupied by the Company for the years ended December 31, 2019 was $179 thousand. The total expenses related to premises occupied by the subsidiaries for the years ended December 31, 2019 was $77 thousand. The total expenses related to various motor vehicles by the Company for the years ended December 31, 2019 was $36 thousand. NOTE 8:- GOODWILL AND INTANGIBLE ASSET Goodwill *) Technology **) Total Carrying amount as of December 31, 2019 2018 U.S. dollars in thousands 1,068 - 1,068 1,068 - 1,068 *) As the activities of Visual Training Solution Group ("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 2019, the recoverable amount which was based on third-party indications of the fair value of the Company, exceeded the carrying amount of the Company's net assets (equity), and therefore, no provision for impairment was recorded. **) During the years ended December 31, 2017 and 2016, the Company recorded amortization in the amount of $ 4 thousand and $ 50 thousand, respectively, which was recorded in cost of revenues. - 50 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 9:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES SIMIGON LTD. December 31, 2019 2018 U.S. dollars in thousands 388 457 845 422 269 691 Employees and payroll accruals Accrued expenses NOTE 10:- EMPLOYEE BENEFIT LIABILITIES, NET 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. Section 14 to the Severance Pay Law, 1963 applies to part of the compensation payments, pursuant to which the fixed contributions paid by the Company into pension funds and/or policies of insurance companies release the Company from any additional liability to employees for whom said contributions were made. These contributions and contributions for benefits represent defined contribution plans - 51 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 10:- EMPLOYEE BENEFIT LIABILITIES, NET (Cont.) . SIMIGON LTD. Year ended December 31, 2018 U.S dollars in thousands 2017 2019 Expenses in respect of defined contribution plans under Section 14 to the Severance Pay Law, 1963 126 126 145 b. Amounts recognized in the statements of comprehensive income are as follows: Current service cost Interest cost Exchange rate Total expense included in profit or loss 58 12 26 96 c. Changes in the present value of defined benefit obligation: Composition: Balance at January 1 Interest cost Exchange rate Current service cost Benefits paid Remeasurement loss (gain) Balance at December 31 287 12 26 58 (48) 27 362 56 10 (22) 44 289 10 (23) 56 (29) (16) 287 53 9 26 88 222 9 26 53 (32) 11 289 d. The actuarial assumptions used are as follows: Discount rate 2.77% 4.05% 3.59% Future salary increases 3.55% 3.57% 3.63% Average expected remaining working years 7.42 7.42 7.47 Remeasurement gain (loss) in respect of defined benefit plan (27) 17 (11) - 52 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 11:- EQUITY a. Share issuance: SIMIGON LTD. 1. 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. Based on full vesting as of December 31, 2011, the Company's senior management and other employees are entitled to a total of 2,889,379 Ordinary Shares and a total of 3,141,288 Options at an exercise price of NIS 0.01 per share of the Company, which Ordinary Shares and Options were issued in 2012. On April 12, 2012 the Company issued a total 2,055,838 Ordinary Shares and 3,141,288 Options at an exercise price of 0.01 NIS each ("Options") to its senior management and other employees. On October 11, 2012, a total of 833,541 Ordinary Shares have been issued to senior management and employees, including 516,921 Ordinary Shares to Mr. Ami Vizer the Chief Executive Officer of the Company and also a Director of the Company. Further to the above, on April 30, 2014 a total of 1,712,429 options were exercised under the Company's Stock Option Plan by senior management into SimiGon's Ordinary Shares at an exercise price of NIS 0.01 each. Out of the shares issued, 1,497,674 and 37,582 Ordinary Shares were issued to the Company's CEO and CFO, who are also Directors of the Company; respectively. On November 11, 2014 a total of 527,554 options were exercised under the Company's Stock Option Plan into SimiGon's Ordinary Shares at an exercise price of NIS 0.01 each by the Company's CEO, who is also Director of the Company. On April 27, 2015, a total of 600,270 options were exercised under the Company's Stock Option Plan by the Company's CEO, Mr. Ami Vizer, who is also a Director of the Company, into Ordinary shares at an exercise price of NIS 0.01 each. On September 27, 2016, a total of 301,035 options were exercised under the Company's Stock Option Plan by the Company's CEO, Mr. Ami Vizer, who is also a Director of the Company, into Ordinary shares at an exercise price of NIS 0.01 each. - 53 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 11:- EQUITY (Cont.) SIMIGON LTD. 2. 3. 4. On February 26, 2015, the Company's Board of directors approved the grant of an annual bonus to key employees and Non-Executive Directors of $150 thousand in recognition of their contribution to the Company's positive financial performance in 2014 and as part of the Company's consistent approach to compensate its key employees and Non-Executive Directors (excluding the Company's CEO and CFO). The bonus was to be granted in shares calculated based on the closing price on the day of announcement of the Company's financial results for 2014. The bonus granted to the Non-Executive Directors was subject to the approval of the Company's shareholders. A provision for this bonus was recorded in the 2014 annual financial statements. Further to the above, on May 21, 2015 the Company issued a total of 285,000 Ordinary shares to the key employees and Non-Executive Directors On September 27, 2016 the Company issued a total of 100,000 Ordinary shares to the Non-Executive Directors, in respect of the above bonus. On January 21, 2015, a total of 3,194 options were exercised under the Company's Stock Option Plan by a by a former employee at an average exercise price of $ 0.19. On April 16, 2015, a total of 25,000 options were exercised under the Company's Stock Option Plan by a by a former employee at an average exercise price of $ 0.12. 5. With respect to fiscal year 2016 and in accordance to the Company's Compensation Policy Plan mentioned below, on April 16, 2016, the Company's Board of directors approved the grant of annual bonuses in the amount of up to $ 125 thousand and up to NIS 125 thousand to Mr. Ami Vizer, the Company's Chief Executive Officer who is also a Director of the Company and to Mr. Efraim Manea, a director of the Company and its CFO; respectively. The granted bonuses are subject to revenues, net profit and share price criteria and milestones. On April 6, 2017 the Company's board of directors approved that the bonuses were to be granted in Ordinary Shares of the Company calculated based on the closing price on the day of announcement of the Company's financial results for 2016 instead of being payable in cash. The grant of bonuses in Ordinary Shares of the Company will also be subject to the approval of the Company's shareholders. A provision for this bonus was recorded in the 2016 annual financial statements. - 54 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 11:- EQUITY (Cont.) SIMIGON LTD. On September 8, 2017 the Company's shareholders approved the conversion of the 2016 annual cash bonuses approved by the Company's Board of Directors on April 14, 2016 in accordance with the Company's Compensation Policy Plan to Mr. Ami Vizer the Company's Chief Executive Officer and an executive director in a total amount of GBP £21,934 and to Mr. Efi Manea the Company's Chief Financial Officer and an executive director in a total amount of GBP £5,699, into the allotment of 125,338 and 32,564 Ordinary Shares of 0.01 par value of the Company, respectively, such shares to be issued under the Company's Employees' Share Option Plans. As of the date of the approval of the financial statements, the shares have not been issued yet. 6. On March 14, 2019, a total of 5,000 options were exercised under the Company's Stock Option Plan by a by a former employee at an average exercise price of $ 0.12. b. Composition of share capital: December 31, 2019, 2018 and 2017 Authorized December 31, 2019 2018 2017 Issued and outstanding Number of shares Ordinary shares of NIS 0.01 par value each 100,000,000 50,863,618 (*) 50,858,618 (*) 51,394,189 (*) Net of 535,571 Ordinary shares held in treasury. c. 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, 2018, an aggregate of 2,463,829 Ordinary shares of the Company are still available for future grant. On April 14, 2016 the Board of Directors approved a total grant of 40,000 options to purchase Ordinary shares of the Company to SimiGon's employees. Such options were granted in accordance with the Company's Employees' Stock Option Plan and will vest quarterly over a period of 4 years commencing from the grant date at an exercise price of $ 0.24. Out of the total approval, the Company granted a total of 35,000 options. - 55 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 11:- EQUITY (Cont.) SIMIGON LTD. On September 21, 2017 the Board of Directors approved a total grant of 170,000 options to purchase Ordinary shares of the Company the SimiGon's employees. Such options were granted in accordance with the Company's Employees' Stock Option Plan and will vest quarterly over a period of 4 years commencing from the grant date at an exercise price of $ 0.236. On November 24, 2013, the Company's Board of directors approved the extension of the Israeli Share and Option Plan for 2003 for additional 10 years under the same terms and conditions. Further to the termination of the US Stock Option Plan from December 2006 (USOP 2006), on November 23, 2016 (followed by a shareholder's approval), the Company's Board of directors approved the adoption of a new US Share and Option Plan (USOP) which will be based on the same terms and conditions of USOP 2006. The new USOP is subject to the approval of the Company's shareholders. 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 the years ended December 31, 2017 and 2016: risk-free interest rate ranging from 0.87% - 2.24%; a dividend yield of 3%; expected volatility of 80%; and a weighted average expected life of the options of 6.25 years. The weighted average fair values of the options granted in 2017 and 2016 were $0.127 and $ 0.13 respectively. A summary of the activity in options to employees, consultants, and directors (including the senior management, see d. below) for the years 2019, 2018 and 2017 is as follows: 2019 Year ended December 31, 2018 2017 Number of options Weighted average exercise price Number of options Weighted average exercise price Weighted average exercise price Number of options Outstanding at beginning of year Granted Exercised Expired Forfeited Outstanding at end of year 784,333 - (5,000) $ 0.247 - $ 0.119 (110,000) $ 0.075 (30,000) $ 0.181 824,333 - - $ 0.265 - - (40,000) $ 0.605 - - 907,833 170,000 - $ 0.372 $ 0.236 - (40,000) $ 1.716 (213,500) $ 0.428 639,333 $ 0.281 784,333 $ 0.247 824,333 $ 0.265 Exercisable options 505,165 $ 0.292 618,497 $ 0.250 523,607 $ 0.312 - 56 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 11:- EQUITY (Cont.) SIMIGON LTD. The options outstanding as of December 31, 2019, have been separated into ranges of exercise price as follows: Exercise price $ 0.002 - $ 0.25 $ 0.335 - $ 1.2 Options outstanding as of December 31, 2019 338,333 301,000 639,333 Weighted average remaining contractual life (years) 4.21 4.53 Options exercisable as of December 31, 2019 209,165 296,000 505,165 d. Options to the CEO and senior employees: Further to Note 11a1, (a) on April 12, 2012, the Company issued 2,926,533 and 182,541 Options to Mr. Ami Vizer, the Company's Chief Executive Officer who is also a Director of the Company, and to senior management, respectively; (b) on December 20, 2012 the Annual General meeting of the Company's approved the grant of 37,582 options to purchase Ordinary Shares to Mr. Efraim Manea, a director of the Company and its CFO and (c) as of December 31, 2014 and 2013, the Company recorded share-based compensation expenses in a total of $ 46 thousand and $ 66 thousand in respect to the CEO, respectively. On April 30, 2014 a total of 1,497,674 and 182,541 Options have been exercised into Ordinary Shares of the Company by Mr. Ami Vizer and to senior management, respectively; On November 11, 2014 a total of 527,554 Options have been exercised into Ordinary Shares of the Company by Mr. Ami Vizer On April 27, 2015, a total of 600,270 Options have been exercised into Ordinary Shares of the Company by Mr. Ami Vizer On September 27, 2016, a total of 301,035 Options have been exercised into Ordinary Shares of the Company by Mr. Ami Vizer e. Shares to the CEO and senior employees: Further to Note 11a1, (a) on April 12, 2012 the Company issued a total 1,972,233 and 66,291 Ordinary Shares to Mr. Ami Vizer the Company's Chief Executive Officer who is also a Director of the Company and to senior management, respectively; (b) On October 11, 2012, a total of 516,921 and 309,711 Ordinary Shares each have been issued, to Mr. Ami Vizer and to senior management, respectively; (c) On April 30, 2014 a total of 1,497,674 and 214,755 Ordinary Shares have been issued, to Mr. Ami Vizer and to senior management, respectively; (d) On November 11, 2014 a total of 527,554 Ordinary Shares have been issued, to Mr. Ami Vizer (e) (f) On April 27, 2015, a total of 600,270 Ordinary Shares have been issued, to Mr. Ami Vizer and (h) On September 27, 2016, a total of 301,035 Ordinary Shares have been issued, to Mr. Ami Vizer. - 57 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 11:- EQUITY (Cont.) SIMIGON LTD. For the year ended December 31, 2015, the Company recorded share-based compensation expenses in a total of $ 28 thousand, in respect to the shares granted to the CEO. f. Shares buyback Program: On September 8, 2017, the Company's shareholders approved that the Company be generally and unconditionally authorised to make one or more irrevocable, non- discretionary market purchases of its own ordinary shares of 0.01 NIS each in the capital of the Company ("Ordinary Shares") (the "Repurchase Programme"). All purchases will be made by way of on-market purchases for the purposes of the rules of the London Stock Exchange through a certified broker, in accordance with the authority conferred by the Articles, the AIM Rules for Companies, this General Meeting and all other applicable rules and regulations, and will be made subject to the following limitations: 1. 2. 3. 4. 5. 6. the absolute maximum value of Ordinary Shares acquired pursuant to the Repurchase Programme shall not, in aggregate, exceed GBP £800,000; there will be no minimum price which may be paid for an Ordinary Share; the maximum price which may be paid for an Ordinary Share is 110 percent of the average of the middle market quotations for an Ordinary Share (as derived from the Daily Official List) for the 5 business days immediately preceding the day on which the Ordinary Share is contracted to be purchased; the minimum and maximum prices per Ordinary Share referred to in sub- paragraphs (ii) and (iii) of this resolution are in each case exclusive of any expenses payable by the Company; any Ordinary Shares purchased under the Repurchase Programme will be held in treasury and will be notified to a Regulatory Information Service in accordance with the AIM Rules for Companies; and the authority conferred by this resolution shall expire at the end of the General Meeting in 2018. - 58 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 11:- EQUITY (Cont.) SIMIGON LTD. A summary of the Company’s purchasing through finnCap Ltd (acting as the Company's broker) of its Ordinary Shares for 2018 is as follows: Date March 2, 2018 June 6, 2018 August 17, 2018 September 7, 2018 October 10, 2018 Number of Ordinary Shares Repurchased Price per Ordinary Share of 0.01 NIS Purchase amount (in thousand) 225,000 30,000 100,000 117,000 63,571 535,571 $ 0.212 $ 0.229 $ 0.203 $ 0.212 $ 0.212 47 6 18 21 13 105 total number of Ordinary Shares outstanding after the Repurchase 51,169,189 51,139,189 51,039,189 50,922,189 50,858,618 The Repurchased shares, along with any other Ordinary Shares purchased by the Company pursuant to the Programme, will be held in treasury. NOTE 12:- JOINT VENTURES 1. On March 30, 2014 SimiGon's subsidiary ("the Subsidiary") entered into a Joint Venture agreement ("the Joint Venture") with a company based in China that will provide the Joint Venture with aviation services. Under the terms of the Joint Venture agreement, the Subsidiary will provide the SIMbox licenses enabling the Joint Venture to develop its own training solutions. The Subsidiary will invest $ 30 thousand in the Joint Venture representing an interest of 4% in its shares. The Joint Venture never commenced operations and on November 10 2016, it has been dissolved. 2. On April 20, 2016, SimiGon's subsidiary ("the Subsidiary") entered into an agreement with Team Systems International LLC (TSI) in which both parties will establish a Joint Venture for business cooperation ("the Agreement"). Under the term of the Agreement, the Subsidiary will hold 49% of the Joint Venture while TSI will hold 51%. On February 22, 2017 the Joint Venture was established under the name TSIM LLC. The Joint Venture never commenced operations and on June 18, 2019, it has been dissolved. - 59 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 13:- INCOME TAXES a. Tax benefits under the Law for the Encouragement of Capital Investments, 1959: SIMIGON LTD. 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 benefits. The "Approved Enterprise" status will allow the Company a tax benefit 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 programs. 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. If tax-exempt profits derived from "Approved Enterprise" 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. The change in the tax rate will have immaterial effects on the Company. 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). - 60 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 13:- INCOME TAXES (Cont.) SIMIGON LTD. 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 benefited 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 benefited 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 benefited 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 2012 - 15% (in development area A - 10%), 2013 - 12.5% (in development area A - 7%) and in 2014 and thereafter - 16% (in development area A - 9%). 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 2b, 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. - 61 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 13:- INCOME TAXES (Cont.) c. Carryforward losses: Domestic: SIMIGON LTD. As of December 31, 2019, 2018 and 2017, the Company had accumulated losses for Israeli tax purposes of approximately $ 4.5 million, $ 2.6 million and $ 1.9 million, respectively, which may be carried forward, in order to offset taxable income in the future, for an indefinite period (See Note f below). Foreign: As of December 31, 2019, 2018 and 2017, the federal tax loss carryforwards of the U.S. subsidiaries amounted to approximately $ 4.1 million, $ 4.3 million and $ 5.1 million, respectively. Such losses are available for offset against future U.S. taxable income of the subsidiaries and will expire in the years 2024-2027. As of December 31, 2018 and 2017, the tax loss carryforwards of the Singaporean subsidiary amounted to approximately $ 87 thousand and $ 81 thousand, respectively, which may be carried forward, in order to offset taxable income in the future, for an indefinite period. As of December 31, 2019, the Singaporean subsidiary did not have tax loss carryforwards, as it was dissolved on November 1, 2019. As of December 31, 2018 and 2017, the tax loss carryforward of the Colombian subsidiary amounted to approximately $ 35 thousand and $ 38 thousand, respectively, which may be carried forward, in order to offset taxable income in the future, for an indefinite period. As of December 31, 2019, the Colombian subsidiary did not have tax loss carryforwards, as it was dissolved on November 5, 2019 As of December 31, 2018, no deferred tax assets have been recorded in respect of carryforward operating losses due the uncertainty as to their realization. d. Tax rates applicable to the income of the Company and its subsidiaries: Domestic: The Israeli corporate income tax rate was 24% in 2017, 23% in 2018 and 23% in 2019. In January 2016, the Law for Amending the Income Tax Ordinance (No. 216) (Reduction of Corporate Tax Rate), 2016 was approved, which includes a reduction of the corporate tax rate from 26.5% to 25%, effective from January 1, 2016. In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018. - 62 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 13:- INCOME TAXES (Cont.) SIMIGON LTD. A company is taxable on its real capital gains at the corporate income tax rate in the year of sale. Foreign: The U.S. 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%. e. Tax assessments: The Company's tax assessments in Israel for the years until and including 2014 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. f. Tax reconciliation: In 2019 and 2017, the main reconciling item between the tax benefit assuming loss before taxes was taxed at the statutory tax rate of the Company, and the tax expense recorded in profit or loss is carryforward tax losses for which no deferred taxes were provided. In 2018 the main reconciling item is the derecognition of prior years' deferred tax benefits due to the uncertainty as to their realization. NOTE 14:- OTHER LIABILITIES, COMMITMENTS AND CONTINGENCIES 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. 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. - 63 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 14:- OTHER LIABILITIES, COMMITMENTS AND CONTINGENCIES (Cont.) SIMIGON LTD. 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, 2019, the Company received a total amount of $ 254 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, 2019 and 2018 was $ 196 thousand and $ 192 thousand, respectively. 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, 2019, the Company received total amount of $ 611 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 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. - 64 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 14:- OTHER LIABILITIES, COMMITMENTS AND CONTINGENCIES (Cont.) SIMIGON LTD. The total non-current liability for the years ended December 31, 2019 and 2018 was $ 406 thousand and $ 413 thousand, respectively. 4. On April 7, 2011, the Company and a third party signed a Cooperation and Project Funding Agreement with 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 $ 91 thousand. As of December 31, 2019, the Company received a total amount of $ 95 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, improvements, modifications, methods, software, technology, discoveries, 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, 2019 and 2018 was $ 66 thousand and $ 66 thousand, respectively. 5. On November 24, 2015, the Company and a third party signed a Cooperation and Project Funding Agreement with 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 $ 62 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. As of December 31, 2019, the Company received a total amount of $ 57 thousand. The total non-current liability for the year ended December 31, 2019 and 2018 was $ 40 thousand and $ 41 thousand, respectively. - 65 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 14:- OTHER LIABILITIES, COMMITMENTS AND CONTINGENCIES (Cont.) SIMIGON LTD. OCS liabilities (including current liabilities): Balance as of the beginning of the year Grants during the year Paid during the year Income Receivables Interest and time value Balance as of the year end Year ended December 31, 2019 2018 U.S. dollars in thousands 754 - (1) - (13) 740 746 22 - (2) (12) 754 b. Litigation: On January 13, 2020 D.D Goldstein Real Estates and Investment Ltd., which to the Company's knowledge acquired 1,500,000 shares in the Company during 2019, has filed two legal actions in the Tel Aviv District Court - a petition for leave to file a monetary claim concerning salaries on behalf of the Company and an action for prerogative relief concerning resolutions approved at the Company's annual general meeting held on December 30, 2019 regarding the appointment of directors and the determination of their compensation. Upon review of the claims and based on the opinion of its attorneys, the Company does not foresee any potential material financial obligation to the Company even if the court was to decide that these claims have merit. The Company has notified its insurers with respect to allegations against directors and has recorded in its financial statements for the year ended December 31, 2019, a provision of $75 thousand for Corporate Retention to be paid to its insurers. - 66 - CONSOLIDATED STATEMENTS OF CASH FLOWS SIMIGON LTD. NOTE 15:- SUPPLEMENTARY INFORMATION TO THE STATEMENT OF COMPREHENSIVE INCOME Year ended December 31, 2018 U.S. dollars in thousands 2019 2017 a. Cost of revenues: Salaries and related benefits Lease and office maintenance Travel expenses 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 Government grants c. Selling and marketing expenses: Salaries and related benefits Lease and office maintenance Advertising and sales promotion Travel expenses Depreciation and amortization Share-based compensation Commission and Consultant fees d. General and administrative expenses: Salaries and related benefits Lease and office maintenance Travel expenses Professional fees and public company expenses Depreciation and amortization Doubtful debt provision Other 790 48 74 74 *) - 811 1,797 1,982 59 184 2 (52) 2,175 1,024 22 42 51 32 1 15 1,187 655 16 37 419 23 - 31 581 71 111 12 1 194 973 2,092 246 21 4 (28) 2,335 852 47 45 66 7 2 - 689 101 69 22 1 94 975 1,892 219 22 2 (43) 2,092 948 50 38 61 7 2 64 1,019 1,170 666 33 13 284 5 446 15 626 28 34 356 4 - 8 1,171 1,462 1,056 *) Represents an amount lower than $ 1 thousand. - 67 - CONSOLIDATED STATEMENTS OF CASH FLOWS SIMIGON LTD. NOTE 15:- SUPPLEMENTARY INFORMATION TO THE STATEMENT OF COMPREHENSIVE INCOME (Cont.) e. Finance income: Exchange rate differences Interest income from banks and short term investments f. Finance cost: Exchange rate differences Government grants Right of use assets Bank loans and fees Year ended December 31, 2018 U.S. dollars in thousands 2019 2017 66 149 215 121 56 18 20 215 128 6 134 108 32 - 17 157 56 70 126 104 13 - 8 125 NOTE 16:- REVENUES The Company manages its business on the basis of one reportable segment. a. Revenues: Software licenses Customization Recurring Maintenance & Support Training Year ended December 31, 2018 U.S. dollars in thousands 2019 2017 1,981 2,111 790 - 4,882 2,975 1,300 656 98 5,029 2,473 1,000 862 - 4,335 - 68 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 16:- REVENUES (Cont.) b. Geographical information: Revenues classified by geographical destinations based on the end-users location: SIMIGON LTD. North America Asia Pacific Rest of the world (1) Year ended December 31, 2018 U.S. dollars in thousands 2019 2017 2,026 3 2,853 4,882 4,094 107 828 5,029 1,750 797 1,788 4,335 (1) Europe, South America, Middle East and Australia. The carrying amounts of non-current assets (property, plant and equipment, Right-of-use assets and intangible assets) based on the location of the assets are as follows: Asia Pacific and rest of the world North America 2019 December 31, 2018 U.S. dollars in thousands 2017 199 1,262 1,461 24 1,110 1,134 26 1,136 1,162 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 Customer D Year ended December 31, 2018 23% 13% 18% 33% 2019 13% 38% 27% 18% 2017 45% 7% 4% 10% - 69 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 17:- EARNINGS PER SHARE SIMIGON LTD. The following reflects the income and share data used in the basic and diluted earnings per share computations: Year ended December 31, 2018 U.S. dollars in thousands 2019 2017 Net income (loss) for the year (1,448) (1,007) (952) Share data (in thousands): Weighted average number of Ordinary shares for computing basic earnings (loss) per share (*) 51,020 (*) 51,259 (*) 51,444 Effect of dilution: Share options (**) (**) (**) Weighted average number of Ordinary shares adjusted for the effect of dilution 51,020 51,259 51,444 *) Weighted average number of shares includes shares in respect of the Company's obligation to issue approximately 157,902 Ordinary shares to two officers of the Company in lieu of cash bonus – see Note 11a5. Weighted average number of shares is net of 535,571 Ordinary shares of the Company held in treasury under the Repurchase Programme as described in Note 11f. **) All share options are excluded from the calculation of diluted earnings per share because their effect on the calculation is antidilutive. NOTE 18:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES Year ended December 31, 2018 U.S. dollars in thousands 2017 2019 37 14 15 11 77 3 3 42 6 17 12 77 3 3 37 15 15 8 75 3 3 a. Expenses to related party of a shareholder: Cost of revenues *) Research and development *) Selling and marketing *) General and administration *) b. Balances to related party of a shareholder: Other accounts receivable and prepaid expenses *) - 70 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 18:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.) SIMIGON LTD. *) On February 9, 2016 the Company's subsidiary signed an office lease agreement for a period of 60 months commencing March 15, 2016 for annual rent of $75 thousand with TwoChi LLC, a company owned (directly and together with relatives) by Mr. Ami Vizer the Chief Executive Officer of the Company, a Director and a shareholder holding 22% of the issued share capital of the Company. b. Compensation of key management personnel of the Company: Non- Executive directors benefits Employee benefits *) Share-based payments Year ended December 31, 2018 U.S. dollars in thousands 2017 2019 98 1,687 **) - 1,785 100 1,540 2 1,642 124 1,574 3 1,701 *) Includes long-term employee benefits in the amount of $68 thousand, of $67 thousand and $ 67 thousand for the years ended December 31, 2019, 2018 and 2017, respectively. Years 2019 and 2018 include bonus to EVP Biasness Development in the amount of $ 32 thousand and $ 7 thousand, respectively. Years 2019, 2018 and 2017 include bonus to VP R&D in the amount of $ 13 thousand $7 thousand and $ 3 thousand, respectively. Year 2018 and year 2017 include bonus provision to VP Products in the amount of $ 1 thousand and $8 thousands, respectively. **) Represents an amount lower than $ 1 thousand. - 71 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 18:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.) c. Balances with Directors and Officers: SIMIGON LTD. The Company's liability balances to directors and officers as of December 31, 2019, 2018 and 2017 amount to $312 thousand, $ 308 thousand and $ 333 thousand; respectively, out of which, a total of $ 188 thousand, $ 180 thousand and $ 208 thousand is related to severance, vacation and recovery liabilities for key employees as of December 31, 2019, 2018 and 2017; respectively. d. Compensation policy for the Company's Directors and Officers: On November 24, 2013, the Company's Board of directors approved the adoption of a Compensation policy for the Company's Directors and officers (the "Compensation Policy Plan") as required by the Israeli Companies Law in order to provide the Company the ability to attract, retain, reward and motivate highly skilled Officers and to assure that the compensation structure meets the Company's interests and its overall financial and strategic objectives. The Compensation policy for the Company's Directors and officers was approved at SimiGon Annual General Meeting for year 2013 held on December 30, 2013. The Compensation Policy Plan has been re- approved on the Annual General Meeting held on December 29, 2016 and on the General Meeting held on April 16, 2020. e. Agreement with CFO: On February 26, 2015, the Board of Directors approved the grant of a one-time cash bonus to Mr. Efraim Manea, a director of the Company and its CFO with respect to fiscal year 2015 in accordance to the Company's Compensation Policy Plan mentioned above. The granted bonus is in the amount of up to $ 35 thousand, subject to revenues, net profit and share price criteria and milestones. As of December 31, 2015, the Company has made a provision of $ 16 thousand in respect of its CFO annual bonus for year 2015. The actual bonus was paid on May 2016 and amounted to $ 16 thousand. On April 14, 2016, the Board of Directors approved the grant of a one-time cash bonus to Mr. Efraim Manea, a director of the Company and its CFO with respect to fiscal year 2016 in accordance to the Company's Compensation Policy Plan mentioned above. The granted bonus is in the amount of up to $ 35 thousand, subject to revenues, net profit and share price criteria and milestones. On April 6, 2017 the Company's board of directors approved that the bonus was to be granted in shares calculated based on the closing price on the day of announcement of the Company's financial results for 2016. The grant of bonus in Ordinary Shares of the Company will also be subject to the approval of the Company's shareholders. For the year ended December 31, 2016, the Company recorded share based compensation of $ 9 thousand in respect of its CEO annual bonus for year 2016. - 72 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 18:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.) SIMIGON LTD. On September 8, 2017 the Company's shareholders approved the conversion of the 2016 annual cash bonuses to Mr. Efi Manea the Company's Chief Financial Officer and an executive director in a total amount of GBP £5,699, into the allotment of 32,564 Ordinary Shares of 0.01 par value of the Company, such shares to be issued under the Company's Employees' Share Option Plans. As of the date of the approval of the financial statements, the shares have not been issued yet. Commencing August 1 2017, the Company is reimbursing Mr. Efraim Manea for his children's education expenses as part of his relocation together with his family to work at the Company's subsidiary in USA. In the annual meeting held on December 7, 2018, the shareholders approved an additional monthly compensation of $ 4,100 commencing August 1, 2017, to Mr. Efraim Manea, the Company's Chief Financial Officer who also serves as a director of the Company, for his relocation costs as part of his work for the Company’s subsidiary in the USA. f. Significant agreements with shareholders: 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 January 27, 2010, the Board of Directors approved an increase of 10% in his salary effective January 1, 2010. On December 6, 2012, the Board of Directors approved a one-time cash bonus grant to Mr Ami Vizer with respect to fiscal year 2011 in the amount of $ 30 thousand. It has also approved the grant of a one-time cash bonus to Mr Ami Vizer with respect to fiscal years 2012 and 2013 in the amount of up to $ 125 thousand per year, subject to revenues, net profit and share price criteria and milestones (the "Conditions"). Based on the Conditions above, the Company recorded as of December 31, 2012, a provision of $ 114 thousand in respect to Mr Ami Vizer bonus for year 2012. The actual bonus was paid on April 2013 amounted to $ 120 thousand. On November 24, 2013, the Board of Directors approved the grant to Mr. Ami Vizer, the Company's Chief Executive Officer and executive director of a one-time cash bonus to with respect to fiscal year 2014 in accordance with the Company's Compensation Policy Plan mentioned above. The granted bonus is in the amount of up to $ 125 thousand, subject to revenues, net profit and share price criteria and milestones. On December 30, 2013 the Company's Annual General Meeting for year 2013, approved 2014 bonus grant to Mr Ami Vizer. The actual bonus was paid on May 2015 and amounted to $ 80 thousand. - 73 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 18:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.) SIMIGON LTD. In the annual general meeting for year 2013 held on December 30, 2013, the shareholders, reapproved the employment agreement of Mr. Ami Vizer as the Company's Chief Executive Officer and an executive director. On February 26 2015, the Board of Directors approved the grant to Mr. Ami Vizer, the Company's Chief Executive Officer and executive director of a one-time cash bonus to with respect to fiscal year 2015 in accordance with the Company's Compensation Policy Plan mentioned above. The granted bonus is in the amount of up to $ 125 thousand, subject to revenues, net profit and share price criteria and milestones. As of December 31, 2015, the Company has made a provision of $ 63 thousand in respect of Mr. Ami Vizer annual bonus for year 2015. The actual bonus was paid on May 2016 and amounted to $ 63 thousand. Further to the approval of the Company's Board of Directors from November 24, 2015, on February 9, 2016 the Company's subsidiary signed an office lease agreement for a period of 60 months commencing March 15, 2016, with TwoChi LLC, a company owned (directly and together with relatives) by Mr. Ami Vizer the Chief Executive Officer of the Company, a Director and a shareholder holding 22% of the issued share capital of the Company. The total office lease costs in year 2018 amounted to $77 thousand. On April 14, 2016, the Board of Directors approved the grant of a one-time cash bonus to Mr. Ami Vizer, a director of the Company and its CEO with respect to fiscal year 2016 in accordance to the Company's Compensation Policy Plan mentioned above. The granted bonus is in the amount of up to $ 125 thousand, subject to revenues, net profit and share price criteria and milestones. On April 6, 2017 the Company's board of directors approved that the bonus was to be granted in Ordinary Shares of the Company calculated based on the closing price on the day of announcement of the Company's financial results for 2016 instead of being payable in cash. The grant of bonus in Ordinary Shares of the Company will also be subject to the approval of the Company's shareholders. For the year ended December 31, 2016, the Company recorded share based compensation of $ 37 thousand in respect of its CEO annual bonus for year 2016. On September 8, 2017 the Company's shareholders approved the conversion of the 2016 annual cash bonuses to Mr. Ami Vizer the Company's Chief Executive Officer and an executive director in a total amount of GBP £21,934, into the allotment of 125,338 Ordinary Shares of 0.01 par value of the Company, respectively, such shares to be issued under the Company's Employees' Share Option Plans. As of the date of the approval of the financial statements, the shares have not been issued yet. Total salary including employer tax of Mr. Ami Vizer during year 2019 amounted to an annual salary of $ 360 thousand, annual social benefits of $ 43 thousand (12.5% of his annual salary), expenses allowance and car insurance of $ 9 thousand, recovery fees of $ 1 thousand, severance pay of $ 29 thousand, vacation days of $ 39 thousand and health insurance of $ 39 thousand. - 74 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 19:- DIVIDEND DISTRIBUTION SIMIGON LTD. a. b. In May 2016 the Company paid a dividend in an amount of $306 thousand ($ 0.6 cents per share, equating to approximately 15% of the Company's earnings per share and to approximately 17.2% of the Company's net income for year ended December 31, 2015). In May 2017 the Company paid a dividend in an amount of $70 thousand ($ 0.136 cents per share, equating to approximately 19% of the Company's earnings per share and to approximately 19% of the Company's net income for the year ended December 31, 2016). NOTE 20:- 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, 2018, 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 deposits, restricted cash, short-term investments, trade receivables and other accounts receivables. Cash and cash equivalents, including restricted cash and short-term 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. - 75 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 20:- FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont.) SIMIGON LTD. 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. As of December 31, 2019, cash and cash equivalents together with the Company's short- term bank deposits and short-term investments amounted to $ 6,042 thousand. c. Liquidity risk: The table below presents the maturity profile of the Company's financial liabilities based on contractual undiscounted payments: December 31, 2019: Less than one year Between 2 to 4 years U.S. dollars in thousands More than 4 years Government grants Lease liability Trade payables Other accounts payable and accrued expenses 29 251 86 816 1,173 192 39 - - 227 December 31, 2018: Total 737 290 86 816 516 - - 516 1,929 Less than one year Between 2 to 4 years U.S. dollars in thousands More than 4 years Government grants Trade payables Other accounts payable and accrued expenses 30 159 661 850 155 - - 155 557 - - 557 Total 742 159 661 1,562 - 76 - CONSOLIDATED STATEMENTS OF CASH FLOWS NOTE 21: SUBSEQUENT EVENT SIMIGON LTD. In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. COVID-19 threatens to be a disruptor to companies, supply chains and the world economy for at least the first half of 2020. As of the date of approval of these financial statements, there has not been a significant impact on the Company’s operations resulting from the COVID-19 outbreak and the Company had not received any cancelation notices from its customers in respect of active purchase orders as a result of COVID-19. In light of the uncertainty as to the severity and duration of the pandemic, the overall impact of COVID-19 on the Company’s future revenues, profitability, liquidity and financial position is difficult to assess at this time. - - - - - - - - - - - - - - - - - - - 77 - SHARE INFORMATION CONTACT 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 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. 111 S. Maitland Avenue, Suite 210, Maitland, Florida 32751 Phone: +1 (407) 951-5548 Fax: +1 (407) 960-4794 For more information: info@simigon.com ADVISERS Nominated Adviser and Broker finnCap 1 Bartholomew Close, London, UK EC1A 7BL 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 144 Menachem Begin St. Tel-Aviv 6492102 Israel Counsel of the Company Amit, Pollak, Matalon & Co. Advocates and Notary Nitsba Tower, 19th Floor, 17 Yitzhak Sadeh St., Tel Aviv 67775 Israel - 78 - WWW.SIMIGON.COM
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