We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register to chat with like-minded investors on our interactive forums.
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Atia Grp | LSE:ATIA | London | Ordinary Share | IL0005410118 | ORD ILS1.0 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 5.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
Hot Features
Premium
RNS Number:7176R
Atia Group Limited
06 April 2008
ATIA GROUP LTD.
(Formerly: KIDRON INDUSTRIAL HOLDINGS LTD)
FINANCIAL STATEMENTS
31st DECEMBER 2007
ATIA GROUP LTD.
(Formerly: KIDRON INDUSTRIAL HOLDINGS LTD)
FINANCIAL STATEMENTS AS AT 31st DECEMBER 2007
TABLE OF CONTENTS
Page
Report of the Board of Directors A - K
Auditor's Report 2 - 4
Balance Sheets 5
Statements of Net Assets in Liquidation 6
Consolidated Profit and Loss Accounts 7
Company Profit and Loss Accounts 8
Consolidated Statements of Recognised Gains and Losses 9
Statements of Changes in Shareholders' Equity (Deficit) 10 - 11
Consolidated Statements of Cash Flows 12 - 13
Company Statements of Cash Flows 14 - 15
Notes to the Financial Statements 16 - 72
Appendix-List of Group Companies 73
ATIA GROUP LTD.
Report of the Board of Directors
for the year ended 31st December 2007
We take pleasure in presenting the Report of the Board of Directors of the Atia
Group Ltd. for the year ended 31st December 2007.
A. A condensed description of the Company and its business environment
- Atia Group Ltd. (formerly - Kidron Industrial Holdings Ltd.)
(hereinafter - the "Company") is a public company, the major activities of which
until the beginning of 2007 were the manufacture, import and marketing of
plastic products.
- During 2006, the Company experienced financial difficulties, as a
result of which, in December 2006, the Company ceased meeting its agreements
with banks in connection with the repayment of its debts.
- On 4 February 2007, the Company was forced to cease its major activity
- the manufacture and marketing of plastic products.
- On 7 February 2007, the Company issued termination notices to the vast
majority of its employees.
- On 15 February 2007, at the request of the Company, the Nazareth
District Court issued a stay of proceedings order.
The court appointed Alon Fredkin, CPA (Isr.) as special executive and
trustee for the period of the stay and granted him the powers of the board of
directors.
- On 10 June 2007, the Nazareth District Court approved the creditors
arrangement proposed by the trustee of the creditors arrangement.
- On 5 July 2007, the general shareholders meeting ratified that
creditors arrangement that was approved by the court.
- The trustee for the period of the stay confirmed that, commencing on 15
July 2007, all of the pre-conditions for the going into effect of the creditors
arrangement had been fulfilled.
- On 3 September 2007, 172,034,669 shares of the Company were allotted to
Appswing Ltd. in a private placement, pursuant to an agreement dated 19 July
2007, whereby Appswing Ltd. undertook to convert all of the amounts the Company
owes it into 107,518,540 shares to be allotted to it against the aforementioned
debts.
In addition, the Company allotted Appswing 64,516,129 shares in return
for a cash amount of NIS 8,570 thousand.
After the allotment of the shares to Appswing and further to the going
into effect of the creditors agreement, the shareholders' equity of the Company
amounted to more than NIS 8 million.
- On 16 October 2007, the Company announced that it submitted to the
Israel Securities Authority an initial draft of a prospectus to raise capital
from the public. On 20 November 2007, the Company announced that it had not yet
completed the process of preparing the prospectus and, therefore, it does not
expect to issue the prospectus on the basis of the 30 June 2007 financial
statements and that it expects to issue the prospectus on the basis of the
financial statements as at 30 September 2007.
- On 30 October 2007, the general shareholders meeting of the Company
approved a placement of 907,934,502 shares as follows:
- 734,060,505 shares were allotted to Emvelco Corporation against the purchase
of shares of a company that manages a real estate project in the U.S.
- 172,873,997 shares were allotted to AP Holdings against the purchases of
shares in a company that has contractual rights in property in Croatia.
The aforementioned shares were allotted on 2 November 2007 in return
for 75,000 shares of Verge Living Corporation (hereinafter - "Verge") and 20,000
shares of Sitnica (hereinafter - "Sitnica"), which constitute 100% of the share
capital of those companies, respectively. The allotted shares constitute 72% of
the issued shares of the Company.
Verge is a company incorporated under the laws of the State of Nevada,
U.S., and it is engaged in property development in the U.S. The major asset of
Verge is land in Las Vegas, Nevada, on which it intends on building a project to
include 318 condominium apartments (number of units may be changed due to
alignment) covering an area of approximately 28,800 square meters and commercial
space covering an area of approximately 3,600 square meters, as well as
underground parking for approximately 650 vehicles.
Sitnica is a company incorporated under the laws of Croatia and it is
engaged in the development and sale of real estate in Croatia. Sitnica is the
owner of contractual rights in real estate covering an area of approximately
74,700 square meters in the central Croatian city of Samobor.
- Commencing on 1 November 2007, the Company hired Mr. Yosef Atia
(controlling shareholder and CEO of Emvelco Corporation) and Mr. Shalom Atia
(controlling shareholder and CEO of AP Holdings Ltd.) as CEO and VP - European
Operations, respectively, for a total cost to the Company in respect of each one
of $10,000. In addition, each of the above individuals will be entitled to an
annual bonus of 2.5% of the annual net pre-tax income of the Company in excess
of NIS 8 million.
- On 2 November 2007, the Company granted a shareholders loan of $1.8
million to the Verge subsidiary for a period of 12 months. The loan is in
dollars and bears annual interest of 12%.
- The Company approved the granting of writs of indemnification and
exemption to senior officers of the Company and the purchase of senior officer
indemnification insurance.
- On 15 November 2007, the Company changed its name to Atia Group Ltd.
- Commencement of work on the Las Vegas Project
On 12 December 2007, Verge Living Corporation, a wholly-owned
subsidiary of the Company, commenced preparatory work on the Verge Project in
Las Vegas. The preparatory work includes demolition and removal of the building
which is located on the property designated for the project, and the moving of
electricity cables and pipes that pass through the lot, so as to allow for
construction of the project.
- Trading in the shares of the Company on the Tel Aviv Stock Exchange:
On 17 January 2005, the Company was given notice by the Tel Aviv Stock
Exchange as to its lack of compliance with the preservation rules set down in
the Stock Exchange's Regulations and guidelines.
In September 2006, the board of directors of the Stock Exchange
decided to transfer the securities of the Company to the preservation list.
On 14 February 2007, trading of the shares of the Company on the Tel
Aviv Stock Exchange was suspended, as a result of the appointment of a receiver
for a former subsidiary of the Company.
On 12 August 2007, the Company petitioned the Stock Exchange and the
Israel Securities Authority to restart the trading of the shares of the Company
as part of the preservation list, in view of the going into effect of the
creditors arrangement. In addition, the Company requested that, in the event
that the share allotment to Appswing Ltd. is completed by 3 September 2007 and
the minimum shareholders' equity requirements of the Company regarding the
percentage of Company shares held by the public are met, the renewal of trading
of the shares of the Company on the regular list would be approved.
On 15 August 2007, trading of the shares of the Company was renewed on
the preservation list.
Following the private placement on 3 September 2007 and the receipt of
confirmation of the compliance of the Company with the requirements of the Stock
Exchange regarding minimum shareholders' equity and the percentage of Company
shares held by the public, trading in the shares of the Company was renewed on
the regular list, commencing on 6 September 2007.
On 6 September 2007, the Company entered into a market making
agreement with Excellence Nashua Stock Exchange Services Ltd.
B. Financial position as at 31 December 2007
As at 31 December 2007, the Group's cash amounted to NIS 1,249 thousand.
The Group has accounts receivable and debit balances of NIS 842 thousand as at
31 December 2007, which includes mainly advances to services providers and
prepaid expenses in connection with the construction project in Las Vegas.
Current assets of the Group as at 31 December 2007 amounted to NIS 63,216
thousand, including the buildings under construction and restricted cash.
- The Group's buildings under construction as at 31 December 2007 amounted to
NIS 43,819 thousand and includes the costs accrued as at 31 December 2007 in
respect of the Las Vegas construction project.
- Cash that may not be withdrawn, in an amount of NIS 17,306 thousand,
constitutes the deposits of the Group in a trust account in respect of advances
received from the purchasers of apartments in the Las Vegas Project.
The Group's investment real estate as at 31 December 2007 includes the fair
value as at 31 December 2007 of the land in Samobor, Croatia, in an amount of
NIS 69,121 thousand, on the basis of a valuation carried out by an external
appraiser. The cost of the aforementioned land in an amount of NIS 50,827
thousand includes the tax applicable to the purchase of the land.
Current liabilities as at 31 December 2007 amounted to NIS 71,007 thousand and
include mainly an amount of NIS 17,306 thousand in respect of advances from
apartment purchasers in the Las Vegas construction project, a liability to
suppliers and other accounts payable of NIS 3,677 thousand mainly in respect of
the Las Vegas construction project, a liability to pay the balance of the
consideration to the sellers of the land in Samobor, Croatia, in an amount of
NISS 42,570 thousand, and a liability to interested parties in an amount of NIS
7,454 thousand in respect of financing received from them in respect of the Las
Vegas and Samobor projects.
Long-term liabilities as at 31 December 2007 include a reserve for deferred
taxes in an amount of NIS 3,035 thousand in respect of deferred taxes, net.
The shareholders' equity of the Company as at 31 December 2007 amounted to NIS
58,420 thousand. The increase in shareholders' equity derives from the
following amounts: NIS 8.5 million from the issuance of shares to Appswing Ltd.,
NIS 39 million in respect of an allotment of shares to companies controlled by
the Atia family against the purchase of 100% of the shares of Sitnica d.o.o. and
100% of the shares of Verge Living Corporation, NIS 11 million from the
allotment of shares against the conversion of a liability to Appswing Ltd., and
the net income for the year in an amount of NIS 43,244 thousand.
C. Results of operations of the Group in 2007
Consolidated profit and loss accounts
Year ended 31 Year ended 31
December 2007 December 2006
NIS'000 NIS'000
Change in fair value of investment real estate 18,294 -
Selling and marketing expenses 106 -
General and administrative expenses 2,175 -
_______ _______
Operating income before financing 16,013 -
Financing expenses, net (749) -
_______ _______
Operating income after financing and before tax 15,264 -
Taxes on income (3,541) -
_______ _______
Income from continuing operations 11,723 -
Income (loss) from discontinued operations including income from 31,521 (18,383)
creditors arrangement
_______ _______
Net income (loss) for the year 43,244 (18,383)
_______ _______
_______ _______
D. Analysis of the results of operations for year ended 31 December 2007
Selling and marketing expenses
In the year ended 31 December 2007, the Group's selling and marketing expenses
amounted to NIS 106 thousand. These expenses included the selling and marketing
costs of the Las Vegas construction project which cannot be capitalized.
General and administrative expenses
In the year ended 31 December 2007, the Group's general and administrative
expenses amounted to NIS 2,175 thousand. In addition to the costs of the
Company in Israel, these expenses included expenses in respect of professional
services, payroll and office costs of the subsidiaries in Croatia and the U.S.
Financing expenses
In the year ended 31 December 2007, the Group's financing expenses amounted to
NIS 749 thousand. These expenses included, among other things, the financing
required by the U.S. subsidiary for purposes of purchasing the land in Las Vegas
and to finance the additional costs of the project. They were included on the
basis of the actual credit received by Verge.
Taxes on income
For the year ended 31 December 2007, income tax expenses amounted to NIS 3,541
thousand in respect of deferred taxes, net.
Income from discontinued operations including income from creditors arrangement
Further to the difficulties plaguing the Company and the stay of proceedings and
the creditors arrangement that were approved for the Company by the court, the
Company ceased its plastics-related activities at the beginning of 2007. As a
result, the results of the discontinued operations and the creditors arrangement
are presented in an item entitled "Income from discontinued operations including
income from creditors arrangement". The income from discontinued operations
including income from creditors arrangement amounted to NIS 31,521 thousand,
compared with a loss from discontinued operations of NIS 18,383 thousand last
year. The increase in income derived from the fact that the income from the
erasure of liabilities as part of the creditors arrangement was included in the
profit and loss accounts of the Group in 2007.
E. Sources of financing
The Group financed its activity from the proceeds received from the issuance of
shares to Appswing Ltd. in an amount of NIS 8.5 million. The sources of
financing in the financial statements as at 31 December 2007 also include the
shareholders' equity of the Company deriving from the investment in the shares
of Verge and the shares of Sitnica, in consideration of an allotment of shares
of the Company to companies controlled by the Atia family, loans from interested
parties in an amount of NIS 7.5 million, and advances from purchasers of
apartments in the Las Vegas project in an amount of NIS 17 million.
F. Qualitative report on the exposure to and management of market risks
The person responsible for management of market risks in the Company is Mr.
Yosef Atia, the CEO of the Company. He is assisted by the Deputy CEO of the
Company, Mr. Shalom Atia, in respect of market risks in Croatia, and by the VP -
Finance of the Company, Mr. Danny Ofer, in respect of the market risks in
Israel.
As at 31 December 2007, the Company has no positions in derivatives.
As at 31 December 2007, the Company's cash balances amounted to NIS 1,249
million, of which an amount of NIS 963 thousand was held in unlinked shekel
deposits, amount of NIS 211 thousand was linked to the dollar, an amount of NIS
39 thousand was linked to the pound sterling and an amount of NIS 36 thousand
was linked to the Croatian Kuna.
The following table presents sensitivity analyses of the fair value of the
Group's financial instruments as at 31 December 2007 (in NIS thousands):
Sensitivity analysis of changes in the exchange rate of the U.S. dollar
Profit (loss) on the change in Fair value of Profit (loss) on the change in
market factor asset market factor
The sensitive instrument 10%+ 5%+ Asset (liability) 5%- 10%-
Cash and cash equivalents 21 11 211 (11) (21)
Loans from interested parties (297) (149) (2,972) 149 297
Suppliers and other accounts (94) (47) (940) 47 94
payable
____ ____ ____ ____ ____
Total financial instruments not for (370) (185) (3,701) 370 185
hedging purposes
____ ____ ____ ____ ____
____ ____ ____ ____ ____
Sensitivity analysis of changes in the exchange rate of the Croatin Kuna
Profit (loss) on the change in Fair value of Profit (loss) on the change in
market factor asset market factor
The sensitive instrument 10%+ 5%+ Asset (liability) 5%- 10%-
Cash and receivables 29 14 293 (14) (29)
Loans from interested parties (448) (224) (4,482) 224 448
Sellers of land (4,257) (2,128) (42,570) 2,128 4,257
Suppliers and service providers (189) (94) (1,887) 94 189
____ ____ ____ ____ ____
Total financial instruments not for (4,865) (2,432) (48,646) 2,432 4,865
hedging purposes
____ ____ ____ ____ ____
____ ____ ____ ____ ____
1. The subsidiary-prime crisis
The mortgage credit markets in the U.S. have been experiencing
difficulties as a result of the fact that many debtors are finding it difficult
to obtain financing (hereinafter - the "Sub-prime crisis"). The sub-prime
crisis derived from a number of factors, as follows: the increase in the volume
of repossessions of houses and apartments, the increase in the volume of
bankruptcies of mortgage companies, the significant decrease in accessible
resources for purposes of mortgage financing, and the decrease in the prices of
dwelling units.
According to the review report of other auditors (that was included in
the financial statements of the Company), the auditors draw attention to Note -
pertaining to the fact that the financing of the construction project of the
Verge subsidiary is contingent upon the future impact of the sub-prime crisis on
the financial institutions operating in the U.S. The sub-prime crisis may
affect the ability of the Verge subsidiary to procure the financing needed to
complete the construction project and on the terms of the procured financing,
should such be procured. In addition, the crisis may affect the ability of the
customers of the Company to obtain mortgages, should they be necessary, and on
the terms of such mortgages.
2. Estimate of fair value of investment real estate
In the opinion of Company management, based on, among other things,
the position of the appraiser, the fair value of real estate is affected by
changes in the exchange rates of the euro and the kuna (Croatian currency) that
are relevant in Croatia and less affected by changes in the exchange rate of the
dollar. Therefore, in the opinion of Company Management, a decline in the
exchange rate of the dollar will have no effect on the fair value of the real
estate.
3. Changes in exchange rates
A significant portion of the activity of the Company is expected to be
conducted in various currencies, including the U.S. dollar and the Croatian kuna
(which is affected by the euro) and, as such, the Company is exposed to the
risks of changes in exchange rates.
4. The economic condition in countries in which the subsidiaries operate
The demand for housing in the areas in which the subsidiaries operate
is affected to a great extent from the local economic condition and may have a
negative impact on the operations of the companies.
5. Legal and regulatory requirements
The subsidiaries are subject to the legal and statutory requirements
in connection with issues involving the areas in which they operate.
Linkage balances of the Company
The following table presents the linkage balance sheet of the Group as at 31
December 2007:
Linked Linked to Linked to Unlinked Non-monetary Total
to US$ the kuna Pound Sterling assets
NIS'000 NIS'000 NIS'000 NIS'000 NIS'000 NIS'000
Assets
Cash and cash equivalents 211 36 39 963 - 1,249
Accounts receivable and debit - 257 - 15 570 842
balances
Restricted cash 17,306 - - - - 17,306
Buildings under construction - - - - 43,819 43,819
Fixed assets - - - - 47 47
Other assets - - - - 78 78
Investment real estate - - - - 69,121 69,121
______ ______ ______ _____ _______ _______
Total assets 17,517 293 39 978 113,635 132,462
--------- --------- --------- -------- ----------- ----------
Liabilities
Loans from interested parties 2,972 4,482 - - - 7,454
Sellers of land - 42,570 - - - 42,570
Suppliers and service providers 434 1,883 45 157 - 2,519
Accounts payable and credit balances 506 4 - 648 - 1,158
Advances from customers 17,306 - - - - 17,306
Deferred taxes - - - - 3,035 3,035
-
______ ______ ______ _____ _______ _______
Total liabilities 21,218 48,939 45 805 3,035 74,042
--------- --------- --------- -------- ----------- ----------
______ ______ ______ _____ _______ _______
Excess of assets over liabilities (3,701) (48,646) (6) 173 110,600 58,420
(excess of liabilities over assets)
______ ______ ______ _____ _______ _______
______ ______ ______ _____ _______ _______
G. Critical accounting estimates
When preparing financial statements in accordance with generally accepted
accounting principles, Company Management is required to use estimates and
assessments in connection with transactions or matters, the final impact of
which on the financial statements cannot be accurately determined when the
estimates or assessments are made. The major basis for the determination of the
quantitative value of these estimates are assumptions which management decides
to adopt, taking into consideration certain circumstances in connection with the
estimate and the best knowledge available to Company Management at the time the
assumption is made. By their very nature, due to the fact that these estimates
and assumptions are results of discretion used in an environment of uncertainty,
sometimes very significant, changes in the underlying assumptions as a
derivative of changes which are not necessarily dependent upon Company
Management, as well as additional information in the future that was not in the
possession of the Company when the estimates were made, may result in changes in
the quantitative value of the estimate and also impact on the financial position
of the Company and the results of its operations. Therefore, even though
estimates and assumptions may be made using the best discretion of Management,
the final quantitative impact on transactions and matters which require
estimation may come to light only when such transactions or matters have been
completed. In certain circumstances, the final result of the matter involving
the estimate may be significantly different, especially from the quantitative
amount that was determined at the time the estimate was made.
The following are the accounting estimates that have a potentially significant
impact, which the Company has to address when preparing its financial
statements.
Estimate of the fair value of the investment real estate
The fair value of the property as at 31 December 2007 is NIS 69,121 thousand.
The fair value of the property was determined on the basis of a valuation
conducted by Dr. Ali Kreisberg, a partner in the firm of Giza, Zinger Even, a
professional appraiser in Israel, as at 11 July 2007. The appraisal was based
on the method of comparing the market value of the assets with similar assets
having similar characteristics in similar transactions, all at the time the
appraisal was made.
This information was based on a visit to the area of the property in Samobor,
Croatia. Additional information was provided by other appraisers and real
estate sites on the Internet. According to the valuation, the value of a square
meter of property which was purchased is 1,182 Croatian Kuna.
In making his evaluation, the appraiser assumed the following:
A. There are no rental agreements in respect of the property.
B. Since the property is comprised of adjacent lots, the property was
appraised as a single lot.
H. Donations
The Company has no explicit policy regarding donations. During the reporting
period, the Company made no donations.
I. Subsequent events
a. Investment agreement with Trafalgar
In January 2008, the Company entered into a Committed Equity Facility
agreement with an international investment fund, Trafalgar Capital Specialized
Investment Fund (hereinafter - "Trafalgar") (hereinafter - the "Investment
Agreement" or "CEF"), whereby Trafalgar undertook to invest in the capital of
the Company an amount of NIS 46,685 thousand over a three-year period, in return
for an allotment of ordinary shares of the Company. The major principles of the
agreement were as follows:
1. The investment in the capital of the Company by Trafalgar will be done in
stages, as required by the Company from time to time.
2. Against every amount invested by Trafalgar, the Company will allot to
Trafalgar ordinary shares of the Company at a price equal to 94% of the average
stock market price of the shares of the Company during the five days following
the demand notification of the Company that it requires funds pursuant to the
investment agreement.
3. Unless agreed upon otherwise with Trafalgar, every amount invested shall
be limited in such a way that the aggregate investment amount during a calendar
week does not exceed the lower of the following: (1) an amount that grants
Trafalgar an allotment of shares equal to 15% of the market trading volume in
the Company's shares during the five consecutive day period preceding the
investment amount demanded by the Company; or (2) an amount that grants
Trafalgar an allotment of the quantity of shares equal to 2.99% of the total
number of shares issued as of that date.
4. In return for its commitment to invest in the Company pursuant to the
CEF, Trafalgar is entitled to an allotment of shares, without consideration,
with a value of up to $1,500 thousand, to be allotted to Trafalgar over a
ten-month period, on the basis of the market price of the share on the date the
agreement was signed. 45% - 55% of the payment will be paid on the basis of the
market price of the share on the date of the signing of the agreement, and the
balance will be paid on the basis of the average market price of the share
during the week preceding the date of the allotment. Notwithstanding the above,
in the event that the approval of the publication of the shelf-prospectus is not
forthcoming from the Israel Securities Authority, all of the shares will not be
allotted during the aforementioned 10 month period, and 32.5% of the payment
will be paid through allotments to be made after receipt of approval of the
aforementioned authority.
5. The Company undertook to obtain all of the approvals required by law for
the allotment, including to have the allotted shares listed for trade.
6. Trafalgar will be entitled to receive from the Company a commission of 4%
of all investment amounts demanded by the Company, which commission shall be
deducted from any investment amount transferred to the Company pursuant to the
agreement.
7. A condition for the performance of any investment by Trafalgar is that
the Company issue a shelf-prospectus whereby Trafalgar is entitled to sell the
shares it is allotted under the agreement during the course of trading on the
stock market. The Company intends on taking the steps to issue a
shelf-prospectus on the basis of its 31 December 2007 financial statements.
Trafalgar entered into an agreement with Emvelco Corporation, one of the
controlling shareholders of the Company, whereby in the event that the Company
is unable to issue a shelf-prospectus, Emvelco will sell Trafalgar shares from
the available for trading shares held by Emvelco, of a quantity that is
identical to the quantity of the shares to be allotted to Trafalgar, against the
shares to be allotted to Trafalgar which will be transferred to the ownership of
Emvelco.
8. Notwithstanding the above, it was agreed between the parties that, in the
event that the shelf-prospectus is issued by the Company no later than 30 June
2008, the discount rate to which Trafalgar will be entitled from the price of
the share (as mentioned in 2 above) will be 5% instead of 6% and the commission
rate due Trafalgar as per item 6 above will be 3% (instead of 4%).
9. Trafalgar undertakes not to sell the shares of the Company short.
Concurrent with the signing of the investment agreement, as above, the
Company entered into a loan agreement with Trafalgar whereby Trafalgar would
lend the Company an amount of $500 thousand, bearing interest at an annual rate
of 8.5% to be repaid in installments in the form of an allotment of shares in
accordance with the mechanism set out in the investment agreement described
above, until 30 April 2009. Alternatively, the amount of the loan will be
repaid in equal installments commencing in July 2008 through April 2009.
Trafalgar shall be entitled to a commission of 10% of each amount of the loan
that is repaid in cash. The Company has the right to repay part of the loan in
cash and the rest of the loan in shares, in accordance with the CEF.
Subsequent to the balance sheet date, the Company received the
aforementioned loan.
10. Further to the signing of the investment agreement with Trafalgar, the
board of directors of the Company decided to allot Trafalgar 69,375,000 ordinary
shares of the Company, no par value each (the "offered shares") which, following
the allotment, will constitute 5.22% of the capital rights and voting rights in
the Company, both immediately following the allotment and fully diluted. For
details of this private placement, see the immediate filing dated 28 March 2008
(ref. no. 2008-01-087906).
The offered shares will be allotted piecemeal, at the following dates:
18,920,454 shares will be allotted immediately following receipt of
approval of the stock exchange to the listing for trade of the offered shares.
22,227,273 of the offered shares will be allotted immediately following
receipt of all of the necessary approvals in order for the offered shares to be
swapped on 30 April 2008 against a quantity of shares equal to those held by
Emvelco Corp. at that same date.
The balance of the offered shares, a quantity of up to 25,277,272
shares, will be allotted immediately after receipt of the approval of the Israel
Securities Authority for the issuance of a shelf prospectus. Notwithstanding,
if the approval of the shelf prospectus is not granted by the Israel Securities
Authority by the beginning of May 2008, only 12,613,636 shares will be allotted
to Trafalgar at that same date.
b. Agreement for the management of the project in Las Vegas
In January 2008, the subsidiary, Verge Living Corporation, entered into
an agreement with TWG Consultants LLC (a third party, unrelated to the Company),
a project management company operating in Las Vegas (hereinafter - "TWG"),
whereby TWG will provide management, consultancy, representation and control
services in connection with the Verge project in Las Vegas (hereinafter - the "
Project"), during the entire duration of the project, including handling the
various aspects involving the general contractor, professional consultants, and
the authorities, will cost the project and will supervise the performance of its
budget, monitor the project timetables, supervise the carrying out of various
tasks involving the project and assist in the bookkeeping of the project.
In return for the services to be provided by TWG under the agreement, it
will be entitled to the following amounts:
1. Reimbursement of expenses, including the salary of an engineer and/or
supervisor as required and an administrative employee in a part-time position
(at a total cost estimated at $12,500 a month) and reimbursement of office
overhead expenses up to an amount of $20,000 a month.
2. A monthly payment of $24,750.
3. An additional bonus of the higher of $1,000,000 or 5% of the EBITDA. The
bonus will be paid on the basis of the progress of the work, commencing on the
date that the accompanying loan is granted to the project, with the final amount
to be paid upon receipt of the temporary approvals for occupancy of 85% of the
units in the project.
The term of the agreement was set at the earlier of 5 years or 6 months
prior to the completion of the project. Notwithstanding the above, each of the
parties is entitled to terminate the agreement for any reason whatsoever, upon
advance notice of 30 days.
c. Agreement between Sitnica d.o.o., a subsidiary ("Sitnica"), and Mr.
Shalom Atia, a controlling shareholder of the Company
Mr. Shalom Atia, a controlling shareholder of the Compay, will furnish
Sitnica, d.o.o., a subsidiary of the Company, credit in an amount of Euro1.2
million as a bridge loan.
The bridge loan will be euro-denominated and will be non-interest
bearing. The loan shall be repaid at the demand of Mr. Shalom Atia, within 10
days following the furnishing of a payment demand.
The agreement to provide the loan is solely for the benefit of the
Company.
The bridge loan is required by Sitnica to enable it to make a payment on
account of the balance of the consideration for the property in Samobor to third
parties from whom the property was purchased, in accordance with the terms of
the purchase agreement. At present, Sitnica does not have liquid assets that
would enable it to make the payment from its own resources and it requires
external financing. Financing through the bridge loan from a controlling
shareholder will be the least expensive form of financing over any other
alternative and it will not place any restrictions or undertakings on the
Company, except for the repayment of the loan principal.
The furnishing of the loan to the company by Mr. Shalom Atia is a
transaction between a public company and its controlling shareholder and, as
such, it requires the approval of the audit committee of the Company.
d. On 26 March 2008, Mr. Meir Matana , who served as an external shareholder
of the Company, tendered his resignation. Following Mr. Matana's resignation,
only one external director is on the board and, therefore, according to article
279 of the Companies Law, the audit committee is unable to grant its required
approval to the transaction.
The Company intends on convening a general shareholders meeting of the
Company as soon as possible, on the agenda of which will be the appointment of a
new external director to the board of directors of the Company. Following the
appointment of the new external director, the Company intends on having the
audit committee vote on approving the transaction, following which it will be
submitted to the board for approval.
The credit in the transaction (Euro12 million) has already been furnished
to the company. In the event that the transaction is not approved, the Company
will refund the credit to the controlling shareholder.
J. Non-compliance with the preservation rules
On 14 January 2008, the Company was notified by the Tel Aviv Stock Exchange that
it was in non-compliance with the preservation rules, on the basis of the 31
December 2007 data, due to the fact that the percentage of Company shares held
by the public as at 31 December 2007 was 9.5%, lower than the required 15%.
The Company was notified as above and was granted a 6 month extension, until 30
June 2008 to comply with the rules.
K. Internal auditor of the Company
On 29 August 2007, Ms. Sharon Tabiv, CPA (Isr.) of the firm of Ziv Haft BDO was
appointed to the position of internal auditor of the Company. Ms. Tabiv
(hereinafter - the "Internal auditor") has a bachelors degree in business
administration from the College of Management, a masters degree in public
administration, majoring in internal auditing, and is a certified public
accountant. The internal auditor is a partner in the accounting firm of BDO and
is not an employee of the Company.
The audit plan will be formulated together with Company Management and the audit
committee, with the goal of having most of the issues that are material to the
Company audited, focusing at first on the issues that are high-risk. The
considerations on which the audit plan was determined include the following:
- Potential for savings and efficiency
- Risks that are inherent in the activities of the Company
- Regulations and ordinances that apply to the Company
- Weak points that management, the audit committee, or the internal auditor
believe exist - on a regular basis.
The internal auditor will conduct the audit in accordance with generally
accepted auditing standards. The auditor will be provided with unrestricted and
constant access to the information system and financial data for purposes of the
audit.
The internal auditor will report directly to the chairman of the board of
directors, in coordination with the audit committee.
To date, the internal auditor has not yet conducted any audit work at the
Company. Nevertheless, the Company intends on starting internal auditing during
the first quarter of 2008. The first task of the auditor is to conduct a risk
assessment, from which an intelligent multi-year audit plan will be derived.
L. Sole authorized signatories
The Company does not have a sole authorized signatory. However, the
subsidiaries, Verge Living Corporation and Sitnica d.o.o. have sole authorized
signatories as follows:
Verge has two sole authorized signatories - Yosef Atia, the CEO of the company
and one of its controlling shareholders, and Mr. Darren C. Dunckel, the business
manager of Verge and a director of Emvelco Corp., the controlling shareholder of
the Company.
Sitnica has one sole authorized signatory - Mr. Shalom Atia, the CEO of the
company and one of its controlling shareholders.
M. Peer review
In July 2005, the Israel Securities Authority issued instructions requiring
companies to provide disclosure of their consent to participate in a "peer
review", the goal of which is to advance a process of control pertaining to the
work of the external auditors and an assessment of the implementation of the
procedures required during the course of their audit work, all with the goal of
contributing to the existence of a progressive capital market.
During 2006, the Company, granted its in-principle consent to the transfer of
the material required in the performance of a peer review.
N. Fee of the external auditors
The following is a breakdown of the fees of the external independent auditors of
the Company:
2007 2006
Hours NIS'000 Hours NIS'000
Auditing services 1,510 375 1,480 178
Tax services 20 5 20 2
__________ __________ __________ __________
Total 1,530 380 1,500 180
__________ __________ __________ __________
__________ __________ __________ __________
The following is a breakdown of the fees of the external independent auditors of
the Croatian subsidiary (Sitnica):
2007
Hours NIS'000
Auditing services 18 15
__________ __________
__________ __________
O. Directors having financial accounting expertise
In accordance with the Companies Regulations (Conditions and Tests of a Director
having Accounting and Financial Expertise and a Director having Professional
Qualifications) - 2005, the board of directors of the Company decided, in
accordance with article 92(A)(12) of the Companies Law and taking into
consideration the nature and scope of the activities of the Company, that the
minimum number of directors having accounting and financial expertise would be
two.
In the opinion of the board of directors, this minimum would permit it to meet
its obligations under law and in accordance with the articles of association of
the Group, especially in connection with its responsibility to examine the
financial position of the Group and to prepare and approve the financial
statements.
The directors having accounting and financial expertise that currently serve on
the board of directors are: Yosef Atia, Gil Hod, Iftach Mazor, and Meir Matana.
P. Adoption of International Financial Reporting Standards (IFRS)
In July 2006, the Israel Accounting Standards Board issued Accounting Standard
No. 29 - "Adoption of IFRS" (hereinafter - "Standard No. 29"). Standard No 29
stipulates that companies subject to the Securities Law - 1968 and that report
thereunder shall present their financial statements in accordance with IFRS,
commencing with reporting periods beginning on January 1, 2008.
According to the Standard, the Company has to include as part of the notes to
the annual financial statements as at 31 December 2007 the balance sheet data as
of December 31, 2007 and the income statement data for the year then ended after
subjecting such data to the rules of recognition, measurement and presentation
of IFRS standards.
Q. The process of approval of the Company's financial statements
The board of directors of the Company is the organ that holds deliberations on
the financial statements of the Company and approves them, after the members of
the board receive the draft of the financial statements a few days prior to the
meeting at which financial statements are to be approved.
The meetings of the board of directors at which the financial statements are
discussed and approved are attended by representatives of the Company's external
auditors and representatives of the Company's legal counsel. These
representatives usually add clarifications, as required, regarding the issues
that arise in connection with the financial statements to be approved and are at
the disposal of the members of the board regarding any questions or
clarifications that may be needed prior to the approval of the financial
statements.
Following the discussions and responses to the questions that were either
prepared in advance by the directors or that arise during the meeting, the
members of the board of directors vote to approve or disapprove the financial
statements.
On 28 November, 2007, the board of directors passed a resolution to appoint a
balance sheet committee to be comprised of members of the audit committee of the
Company. From that date and henceforth, the members of the balance sheet
committee will hold detailed discussions in the presence of the external auditor
and the legal counsel, will hear a review of the CFO, will clarify the major
issues and will recommend to the board of directors that they approve the
financial statements, after giving expression to the comments made during the
discussion. At the meeting of the board of directors, at which the external
auditor is also present, the financial statements shall be reviewed in brief by
the CFO and all of the members of the board of directors may ask questions in
connection with the financial statements.
Yosef Atia Shalom Atia Dan Ofer
CEO, director, chairman of the board Director CFO
30 March 2008
The Board of Directors of
Atia Group Ltd.
(Formerly: Kidron Industrial Holdings Ltd.)
Ramat Gan
AUDITORS' REPORT
To the shareholders of
ATIA GROUP LTD.
(FORMERLY: KIDRON INDUSTRIAL HOLDINGS LTD.)
We have audited the accompanying Company and Consolidated balance sheets of Atia
Group Ltd. (formerly: Kidron Industrial Holdings Ltd.) (hereinafter - the
"Company") as at 31 December 2007, and the statement of net assets in
liquidation as at 31 December 2006, and the related profit and loss accounts,
statements of changes in shareholders' equity and statements of cash flows - of
the Company and the Consolidated - for each of the three years in the period
ended 31 December 2007.
Respective Responsibilities of Directors and Auditors
These financial statements are the responsibility of the Company's board of
directors and management. The financial statements are presented in accordance
with the accounting standards issued by the Israel Accounting Standard Board.
Our responsibility is to express an opinion on these financial statements based
on our audit in accordance with the auditing standards issued by the Institute
of Certified Public Accountants in Israel
We did not audit the financial statements of a subsidiary, whose assets included
in the consolidation constitute approximately 47% of total consolidated assets
as at 31 December 2007, and whose expenses included in the consolidation
constitute approximately 34% of total consolidated pre-tax expenses for the year
then ended.
The financial statements of that company were audited by other auditors, whose
reports have been furnished to us, and our opinion, insofar as it relates to
amounts included for that company, is based on the reports of the other
auditors.
Basis of Opinion
We conducted our audit in accordance with auditing standards issued by the
Institute of Certified Public Accountatnts in Israel, including those prescribed
by the Auditors' Regulations (Auditor's Mode of Performance), 1973. Those
standards require that we plan and perform the audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by the board of
directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
Emphasis of Matter
As disclosed in Note 1B of the financial statements, in December 2006, the
Company gave notice of its non-compliance with the repayment dates of loans
obtained from banking institutions, which gave the banking institutions cause to
demand immediate repayment of the liabilities of the Company. In February 2007,
a stay of proceedings order was issued and a special manager was appointed for
the period of the stay. On 10 June 2007, the Nazareth District Court approved
the creditors arrangement that was proposed by the trustee of the creditors
arrangement. On 15 July 2007, all of the pre-conditions were fulfilled for the
entering into force of the creditors arrangement. As a result of these
processes, the Company changed its accounting policy as from 31 December 2006
and started reporting in accordance with accounting principles for businesses in
liquidation.
As detailed in Notes 1A(3) and 1A(4), upon consummation of the creditors
arrangement and the allotment of shares to Appswing Ltd., the Company returned
to report in the format of a "going concern", commencing with the financial
statements as at 30 September 2007.
Opinion
In our opinion, based on our audit and the aforementioned reports of other
auditors, the financial statements referred to above present fairly, in
accordance with generally accepted accounting principles, including accounting
principles applicable to a business in liquidation, in reference to the
statement on net assets in liquidation as at 31 December 2006, in all material
respects, the financial position - of the Company and the Consolidated - as at
31 December 2007, and the results of operations, changes in shareholders' equity
and cash flows - of the Company and the Consolidated - for each of the three
years in the period ended 31 December 2007. Furthermore, in our opinion, the
financial statements referred to above are prepared in accordance with the
Securities Regulations (Preparation of Annual Financial Statements), 1993.
Pro Forma Information
In addition, we have audited the pro forma consolidated profit and loss accounts
for 2007 and for the period from 13 February 2006 until 31 December 2006,
presented in Note 20 to the financial statements. These financial statements
are the responsibility of the Company's board of directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
Our audit was conducted in accordance with the procedures outlined in the Basis
of opinion above.
We did not audit the financial statements of a subsidiary, whose expenses
included in the pro forma profit and loss accounts for 2007 and for the period
from 13 February 2006 until 31 December 2006 constitute approximately 0% and
100%, respectively.
The financial statements of that company were audited by other auditors, whose
reports have been furnished to us, and our opinion, insofar as it relates to
amounts included for that company, is based on the reports of the other
auditors.
Opinion on Pro Forma Information
In our opinion, based on our audit and the aforementioned reports of other
auditors, the pro forma financial statements referred to above present fairly,
in accordance with generally accepted accounting principles in Israel, on the
basis of the assumptions set out in Note 20 to the financial statements, in all
material respects, the pro forma results of consolidated operations for the year
ended 31 December 2007 and for the period from 13 February 2006 until 31
December 2006.
Emphasis of Matter
As explained in note 2A, the financial statements are presented in reported
amounts in accordance with the accounting standards of the Israel Accounting
Standard Board.
We draw attention to Note 16B regarding the fact that the financing for the
construction project of the Verge subsidiary is contingent upon the future
impact of the sub-prime crisis on the financial institutions operating in the
U.S. The sub-prime crisis may impact on the ability of the Verge subsidiary to
procure the financing required to complete the construction project and on the
terms of such financing, if procured, and may have an impact on the ability of
the customers of the Company to procure mortgages, if necessary, and on the
terms under which such mortgaged will be procured.
In addition, we draw attention to Note 2C of the financial statements regarding
the fact that the statements of operations for the year 2007 were presented in
order to retroactively reflect the results of operations of the Sitnica
subsidiary in accordance with a method similar to the "Pooling of Interests"
method of accounting.
Fahn Kanne & Co.
Certified Public Accountants (Isr.)
The accompanying notes are an integral part of the financial statements.
BALANCE SHEETS
Convenience
translation
into £ (Note 2)
Consolidated Company Consolidated
31 December 31 December 31 December
Note 2007 2007 2007
NIS' 000 NIS' 000 £' 000
A S S E T S
Current Assets
Cash and cash equivalents 1,249 1,002 162
Accounts receivable and debit balances 3 842 153 109
Restricted cash 4 17,306 - 2,244
Buildings under construction 4 43,819 - 5,684
_______ _______ _______
Total current assets 63,216 1,155 8,199
----------- ----------- -----------
Long-term Assets and Investments
Investments in investee companies 5 - 58,115 -
Fixed assets 6 47 - 6
Other assets 7 78 - 10
Investment real estate 8 69,121 - 8,965
_______ _______ _______
Total long-term assets and investments 69,246 58,115 8,981
----------- ----------- -----------
_______ _______ _______
132,462 59,270 17,180
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Loans from interested parties 18 7,454 - 967
Sellers of land 9 42,570 - 5,521
Suppliers and service providers 10 2,519 202 327
Accounts payable and credit balances 11 1,158 648 150
Advances from customers 4 17,306 - 2,244
_______ _______ _______
Total current liabilities 71,007 850 9,209
----------- ----------- -----------
Long-term Liabilities
Deferred taxes 14 3,035 - 394
_______ _______ _______
Total long-term liabilities 3,035 - 394
----------- ----------- -----------
Commitments, liens and contingent liabilities 15
Shareholders' Equity 13 58,420 58,420 7,577
----------- ----------- -----------
_______ _______ _______
132,462 59,270 17,180
_______ _______ _______
_______ _______ _______
Yosef Atia Shalom Atia Dan Ofer
CEO, director, deputy chairman of Director CFO
the board, in accordance with the
consent of the board given
on 30 March 2008
Date of approval of financial statements: 30 March 2008.
The accompanying notes are an integral part of the financial statements.
STATEMENT OF NET ASSETS IN LIQUIDATION
31 December
Note 2006
NIS' 000
A S S E T S
Assets attributed of discontinued operations 21 37,710
_______
_______
LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities attributed of discontinued operations 21 80,231
----------
Shareholders' Deficit 13 (42,521)
----------
_______
37,710
_______
_______
Yosef Atia Shalom Atia Dan Ofer
CEO, director, deputy chairman of Director CFO
the board, in accordance with the
consent of the board given
on 30 March 2008
Date of approval of financial statements: 30 March 2008.
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Convenience
translation
into £ (Note 2)
Year ended Year ended
31 December 31 December
Note 2007(*) 2006 2005 2007
NIS' 000 NIS' 000 NIS' 000 £' 000
Change in fair value of investment real estate 18,294 - - 2,373
--------- --------- --------- ---------
Selling and marketing expenses 17A 106 - - 14
General and administrative expenses 17B 2,175 - - 282
______ ______ ______ ______
2,281 - - 296
--------- --------- --------- ---------
______ ______ ______ ______
Operating income before financing 16,013 - - 2,077
Financing expenses, net 17C (749) - - (97)
______ ______ ______ ______
Operating income after financing and before 15,264 - - 1,980
taxes on income
Taxes on income 14 (3,541) - - (459)
______ ______ ______ ______
Income from continuing operations 11,723 - - 1,521
Income (loss) from discontinued operations 21 31,521 (18,383) (14,993) 4,088
including income from creditors arrangement
______ ______ ______ ______
Net income (loss) for the year 43,244 (18,383) (14,993) 5,609
______ ______ ______ ______
______ ______ ______ ______
Earnings (loss) per share - in NIS
From continuing operations 0.03 - - -
From discontinued operations 0.08 (0.10) (0.08) 0.01
______ ______ ______ ______
0.11 (0.10) (0.08) 0.01
______ ______ ______ ______
______ ______ ______ ______
Quantity of shares used in calculating the 387,865 179,198 179,198 387,865
earnings (loss) per share in thousands
________ ________ ________ ________
________ ________ ________ ________
(*) See Note 2C regarding the accounting method used in respect of the
investment in the Sitnica subsidiary.
The accompanying notes are an integral part of the financial statements.
COMPANY PROFIT AND LOSS ACCOUNTS
Year ended
31 December
Note 2007 2006 2005
NIS' 000 NIS' 000 NIS' 000
General and administrative expenses 17B 1,520 - -
______ ______ ______
Operating loss before financing (1,520) - -
Financing expenses, net 17C (69) - -
______ ______ ______
Operating loss after financing (1,589) - -
Share of Company in income of investee companies, 13,312 - -
net(*)
______ ______ ______
Income from continuing operations 11,723 - -
Income (loss) from discontinued operations and 21 31,521 (18,383) (14,993)
creditors arrangement
______ ______ ______
Net income (loss) for the year 43,244 (18,383) (14,993)
______ ______ ______
______ ______ ______
Earnings (loss) per share - in NIS
From continuing operations 0.03 - -
From discontinued operations 0.08 (0.10) (0.08)
______ ______ ______
0.11 (0.10) (0.08)
______ ______ ______
______ ______ ______
Quantity of shares used in calculating the earnings 387,865 179,198 179,198
(loss) per share in thousands
________ ________ ________
________ ________ ________
(*) See Note 2C regarding the accounting method used in respect of the
investment in the Sitnica subsidiary.
CONSOLIDATED STATEMENTS OF RECOGNISED GAINS AND LOSSES
Convenience
translation
into £ (Note 2)
Year ended Year ended
31 December 31 December
2007 2006 2005 2007
NIS' 000 NIS' 000 NIS' 000 £' 000
Total recognized gains (losses) for the year 43,244 (18,383) (14,993) 5,609
______ ______ ______ ______
______ ______ ______ ______
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Year ended 31 December 2007
Share Share Capital Capital reserve Adjustments Accumulated Total
capital premium reserve from transactions deriving from deficit
with controlling the translation
shareholders of the
financial
statements of
investee
companies
operating in
foreign
currency
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 January 42,724 71,166 327 - - (156,738) (42,521)
2007
Changes in 2007:
Adjustments deriving from - - - - (1,165) - (1,165)
the translation of the
financial statements of
investee companies
operating in foreign
currency
Issuance of shares against - 11,000 - - - - 11,000
conversion of liabilities
(1)
Issuance of shares against - 8,556(*) - - - - 8,556
cash (1)
Issuance of shares against - 38,910 - - - - 38,910
investment in shares of
subsidiaries (2)
Capital reserve from - - - 396(**) - - 396
transactions with
controlling shareholders
Net income for the year - - - - - 43,244 43,244
______ ______ ____ _______ _______ _______ _______
Balance as of 42,724 129,632 327 396 (1,165) (113,494) 58,420
31 December 2007
______ ______ ____ _______ _______ _______ _______
______ ______ ____ _______ _______ _______ _______
(*) Net of issuance costs of NIS 14 thousand.
(**) See Note 1B(5)7.
(1) See Note 1C.
(2) See Notes 1D and 2C.
Year ended 31 December 2006
Share Share Capital Accumulated Total
capital premium reserve deficit
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 January 2006 42,724 71,166 327 (138,355) (24,138)
Changes in 2006:
Loss for the year - - - (18,383) (18,383)
______ ______ ____ _______ _______
Balance as of 31 December 2006 42,724 71,166 327 (156,738) (42,521)
______ ______ ____ _______ _______
______ ______ ____ _______ _______
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Year ended 31 December 2005
Share Share Capital Accumulated Total
capital premium reserve deficit
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balance as of 1 January 2005 42,724 71,166 327 (123,362) (9,145)
Changes in 2005:
Loss for the year - - - (14,993) (14,993)
______ ______ ____ _______ _______
Balance as of 31 December 2005 42,724 71,166 327 (138,355) (24,138)
______ ______ ____ _______ _______
______ ______ ____ _______ _______
Convenience translation into £ (Note 2)
Year ended 31 December 2007
Share Share Capital Capital reserve Adjustments Accumulated Total
capital premium reserve from transactions deriving from deficit
with controlling the translation
shareholders of the
financial
statements of
investee
companies
operating in
foreign
currency
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as of 1 January 5,541 9,230 42 - - (20,328) (5,515)
2007
Changes in 2007:
Adjustments deriving from - - - - (151) - (151)
the translation of the
financial statements of
investee companies
operating in foreign
currency
Issuance of shares against - 1,427 - - - - 1,427
conversion of liabilities
(1)
Issuance of shares against - 1,110(*) - - - - 1,110
cash (1)
Issuance of shares against - 5,046 - - - - 5,046
investment in shares of
subsidiaries (2)
Capital reserve from - - - 51(**) - - 51
transactions with
controlling shareholders
Net income for the year - - - - - 5,609 5,609
______ ______ ____ _______ _______ _______ _______
Balance as of 5,541 16,813 42 51 (151) (14,719) 7,577
31 December 2007
______ ______ ____ _______ _______ _______ _______
______ ______ ____ _______ _______ _______ _______
(*) Net of issuance costs of £2 thousand.
(**) See Note 1B(5)7.
(1) See Note 1C.
(2) See Notes 1D and 2C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Convenience
translation
into £ (Note 2)
Year ended Year ended
31 December 31 December
2007 2006 2005 2007
NIS' 000 NIS' 000 NIS' 000 £' 000
Net cash flows from operating activities
Net income (loss) for the year 43,244 (18,383) (14,993) 5,609
Adjustments required to reconcile net cash from (3,607) - - (467)
continuing operating activities (Appendix A)
Adjustments required to present cash flows from - 19,341 11,044 -
discontinued operations
______ ______
Net cash provided by continuing operating activities 39,637 - - 5,142
______ ______
Net cash provided by (used in) discontinued operating (45) 958 (3,949) (6)
activities
______ ______ ______ ______
Net cash provided by (used in) operating activities 39,592 958 (3,949) 5,136
--------- --------- --------- ---------
Cash flows from investment activities
Amounts transferred to investment real estate (50,712) - - (6,577)
Purchase of companies consolidated for the first time 273 - - 35
(Appendix C)
______ ______ ______ ______
Net cash used in continuing investment activities (50,439) - - (6,542)
Net cash provided by (used in) discontinued investment - (406) 955 -
activities
______ ______ ______ ______
Net cash provided by (used in) investment activities (50,439) (406) 955 (6,542)
--------- --------- --------- ---------
Cash flows for financing activities
Receipt of loans from interested parties, net 3,801 - - 493
Issuance of shares (*) 8,556 - - 1,110
______ ______ ______ ______
Net cash provided by continuing financing activities 12,357 - - 1,603
Net cash provided by (used in) discontinued financing - (1,637) 2,985 -
activities
______ ______ ______ ______
Net cash provided by (used in) financing activities 12,357 (1,637) 2,985 1,603
--------- --------- --------- ---------
Translation differences in respect of cash balances of (306) - - (40)
autonomous investee companies
--------- --------- --------- ---------
______ ______ ______ ______
Increase (decrease) in cash and cash equivalents 1,204 (1,085) (9) 157
Cash and cash equivalents, beginning of the year 45 1,130 1,139 5
______ ______ ______ ______
Cash and cash equivalents, end of the year 1,249 45 1,130 162
______ ______ ______ ______
______ ______ ______ ______
(*) Less issuance costs of NIS 14 thousand (£2 thousand).
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
Appendix A - Adjustments required to reconcile net cash from continuing
operating activities
Convenience
translation
into £ (Note 2)
Year ended Year ended
31 December 31 December
2007 2007
NIS'000 £' 000
Income and expenses not constituting a current flow of funds:
Income from discontinued operations including income from creditors arrangement (31,521) (4,088)
Change in fair value of investment real estate (18,294) (2,373)
Depreciation and amortization 10 2
Deferred taxes, net 3,541 459
______ ______
(46,264) (6,000)
--------- ---------
Changes in assets and liabilities:
Decrease in accounts receivable and debit balances 645 84
Increase in restricted cash (572) (74)
Increase in buildings under construction (1,683) (218)
Increase in sellers of land 42,256 5,480
Increase in suppliers and service providers 2,561 332
Decrease in accounts payable and credit balances (1,122) (145)
Increase in advances from customers 572 74
______ ______
42,657 5,533
--------- ---------
______ ______
(3,607) (467)
______ ______
______ ______
Appendix B - Non-cash transactions
Conversion of liability to Appswing Ltd. into share capital 11,000 1,427
______ ______
______ ______
Transfer to capital reserve from transaction with controlling shareholders 396 51
______ ______
______ ______
Conversion of loans of interested parties into the share capital of a subsidiary 4,771 619
______ ______
______ ______
Appendix C - Purchase of Company consolidated for the first time
Working capital, net, excluding cash (33,731) (4,374)
Fixed assets (52) (7)
Other assets (83) (11)
Issuance of shares 34,139 4,427
______ ______
Net cash provided by purchase of company consolidated for the first time 273 35
______ ______
______ ______
COMPANY STATEMENTS OF CASH FLOWS
Year ended
31 December
2007 2006 2005
NIS' 000 NIS' 000 NIS' 000
Net cash flows from operating activities
Net income (loss) for the year 43,244 (18,383) (14,993)
Adjustments required to reconcile net cash from continuing (43,632) - -
operating activities (Appendix A)
Adjustments required to present cash flows from discontinued - 19,415 13,031
operations
______
Net cash used in continuing operating activities (388) - -
______ ______
Net cash provided by (used in) discontinued operating activities (45) 1,032 (1,962)
______ ______ ______
Net cash provided by (used in) operating activities (433) 1,032 (1,962)
--------- --------- ---------
Cash flows from investment activities
Granting loan to a subsidiary (7,166) - -
______ ______ ______
Net cash used in continuing investment activities (7,166) - -
Net cash used in discontinued investment activities - (406) (1,067)
______ ______ ______
Net cash used in investment activities (7,166) (406) (1,067)
--------- --------- ---------
Cash flows for financing activities
Issuance of shares (*) 8,556 - -
______ ______ ______
Net cash provided by continuing financing activities 8,556 - -
Net cash provided by (used in) discontinued financing activities - (1,637) 3,934
______ ______ ______
Net cash provided by (used in) financing activities 8,556 (1,637) 3,934
--------- --------- ---------
______ ______ ______
Increase (decrease) in cash and cash equivalents 957 (1,011) 905
Cash and cash equivalents, beginning of the year 45 1,056 151
______ ______ ______
Cash and cash equivalents, end of the year 1,002 45 1,056
______ ______ ______
______ ______ ______
(*) Less issuance costs of NIS 14 thousand.
The accompanying notes are an integral part of the financial statements.
COMPANY STATEMENTS OF CASH FLOWS (cont.)
Appendix A - Adjustments required to reconcile net cash from continuing
operating activities
Year ended
31 December
2007
NIS'000
Income and expenses not constituting a current flow of funds:
Income from discontinued operations including income from creditors arrangement (31,521)
Interest and erosion on loan to subsidiary 108
Company's share in income of investee companies (13,312)
______
(44,725)
---------
Changes in assets and liabilities:
Increase in accounts receivable and debit balances (153)
Increase in suppliers and service providers 202
Increase in accounts payable and credit balances 1,044
______
1,093
---------
______
(43,632)
______
______
Appendix B - Non-cash transactions
Investments in subsidiaries against allotment of shares 38,910
______
______
Conversion of debt to Appswing ltd. into share capital 11,000
______
______
Transfer to capital reserve from transaction with controlling shareholders 396
______
______
NOTE 1 - GENERAL
A. Company activities
1. Atia Group Ltd (formerly: Kidron Industrial Holdings Ltd.) (hereafter -
"the Company") is a public company which, until the beginning of 2007, engaged
primarily in the manufacture, importing, and marketing of plastic products.
Upon the completion of the allotment of shares against the purchase of
the subsidiaries as detailed in Note 1D below, the Company operates in the
residential construction business in the U.S. through a subsidiary and holds
real estate in Croatia through a subsidiary.
2. On 31 August 2004, the Company changed its name from "Technolast
Industries Ltd." To "Kidron Industrial Holdings Ltd."
On 11 November 2007, the Company changed its name from "Kidron
Industrial Holdings Ltd." to its current name.
3. On 15 February 2007, at the request of the Company, the Nazareth
District Court issued a stay of proceedings order (equivalent of U.S. Chapter 11
protection).
The court appointed Alon Fredkin, CPA (Isr.) as special executive and
trustee for the period of the stay and granted him the powers of the board of
directors (for details, see B below).
As a result of these processes, the Company changed its accounting policy
commencing with the financial statements as at 31 December 2006 and started
reporting in accordance with the accounting principles applicable to a business
in liquidation.
On 10 June 2007, the Nazareth District Court approved the creditors arrangement
proposed by the trustee of the creditors arrangement.
On 5 July 2007, the general shareholders meeting ratified the creditors
arrangement that was approved by the court.
The trustee for the period of the stay confirmed that, commencing on 15 July
2007, all of the pre-conditions for the going into effect of the creditors
arrangement had been fulfilled.
4. The Company continued reporting in accordance with accounting principles
for businesses in liquidation up to and including the interim financial
statements as at 30 June 2007 and for the six and three-month periods ended 30
June 2007. As detailed in length below, on 10 June 2007, the creditors
arrangement was ratified by the Nazareth District Court and it went into effect
in July 2007. During the month of September 2007, the liabilities of the
Company toward Appswing Ltd. were converted into capital, and shares were
allotted to Appswing in return for an amount of NIS 8 million (see Note 1C,
below). Therefore, the Company once again began reporting as a "going concern"
commencing with the financial statements as at 30 September 2007 and for the
nine and three-month periods ended on 30 September 2007.
Further to the entry of the creditors arrangement into force in July
2007 and further to the allotment of shares to Appswing Ltd. In September 2007,
all of the liabilities of the Company were erased and its shareholders' equity
amounted to over NIS 8 million. In addition, in view of the creditors
arrangement, all of the liabilities (including contingent and including future)
and commitments of the Company which existed prior to the creditors arrangement
are no longer valid.
5. On 30 October 2007, the general shareholders meeting of the Company
ratified the allotment of 907,934,502 shares against the purchase of the shares
of Verge Living Corporation (hereinafter - "Verge"), a company that owns a real
estate project in the U.S., and the shares of Sitnica D.O.O. (hereinafter -
"Sitnica"), a company that has contractual rights in property in Croatia. See
also Note 1D below.
As detailed in Note 2C, the investment in Verge was treated as a
reverse acquisition and the investment in Sitnica was treated in accordance with
the principles of Decision 2-10 of the Israel Securities Authority, "Treatment
of Business Combination Transactions under Common Control", in a method similar
to the "Pooling of Interests" method of accounting.
NOTE 1 - GENERAL (cont.)
B. 2007 creditors arrangement
1. Non-compliance with the repayment dates of the loans received from
banking institutions
On 20 December 2006, the Company announced that 14 December 2006 was
one of the quarterly repayment dates of the refinanced loan in an amount of NIS
420 thousand, due to Bank Leumi LeIsrael Ltd. (hereinafter - "Bank Leumi" or the
"Bank"). The Company did not make the aforementioned payment to Bank Leumi and,
as at the same date, the Company reported that it was experiencing a real
difficulty in making the payment. The Company conducted negotiations with the
Bank Leumi regarding the postponement of the payment date and a meeting was set
for 14 January 2007. The reply of Bank Leumi dated 12 December 2006 (two days
before the repayment date) was that the Company was requested to comply with the
provisions of the interbank agreement, including the payment of the
aforementioned amount on time.
Since the receipt of that letter, the Company has been making efforts
to postpone the payment date but, notwithstanding, the Bank remained firm with
the demands presented in its letter of 12 December 2006.
In view of the above and in accordance with the interbank agreement,
Bank Leumi and/or any of the other banks have grounds to demand the immediate
repayment of the debts and liabilities of the Company, which grounds arose 14
days after receipt of the written notice from Bank Leumi and/or any of the other
banks regarding the breach.
Please note that the Company also did not meet the entire quarterly
payment of the fourth quarter of 2006 in an amount of NIS 420 thousand to
Discount Bank. However, regarding that payment, the Company obtained the
consent of the bank to postpone the payment.
2. Freezing the business activity of the plastics division
On 4 February 2007, the Company announced that, in view of its
difficult financial position and the lack of financial resources to meet its
liabilities on a regular basis, Company Management decided to freeze, for the
time being, the business activity of the plastics division which is engaged
solely in the manufacturing of plastic products using the injection method, at
the Company's site in Migdal Haemek.
On 7 February 2007, the Company gave dismissal notices to the vast
majority of its employees.
3. Demand for the immediate repayment of the liabilities of Kidron Plastics
Marketing Ltd. to banking institutions
On 8 February 2007, the Company announced that in accordance with the
agreement from 11 November 2004 and the addendum to the agreement dated 22
February 2006 between Kidron Plastics Marketing Ltd. (hereinafter - "Plastics
Marketing"), a wholly-owned subsidiary of the Company at that time, and First
International Bank of Israel Ltd. (hereinafter - "FIBI"), FIBI granted credit in
favour of Plastics Marketing, secured by a floating charge in favour of FIBI
(hereinafter - the "Agreement").
In view of the difficult financial position of the Company and of
Plastics Marketing and the lack of financial sources to meet their liabilities
on a regular basis, including the liability of Plastics Marketing to FIBI, on 7
February 2007, representatives of the Company met with FIBI and reported to the
bank regarding the financial positions of the Company and Plastics Marketing, on
the functioning of the two companies and on the possibility of seeking Chapter
11 protection.
On 7 February 2007, Plastics Marketing received a letter from FIBI
demanding that Plastics Marketing comply with the provisions of the Agreement.
In view of the financial positions of the Company and of Plastics Marketing at
that time and the ramifications thereof on the assets pledged in favour of FIBI
and in accordance with the provisions of the Agreement, grounds arose for FIBI
to demand the immediate repayment of the debts and liabilities of Plastics
Marketing. In its letter, FIBI stated that it would take immediate steps to
enforce its rights.
On 7 February 2007, FIBI sent a letter to Mr. Michael Zuz, the former
controlling shareholder in the Company and the guarantor for the debts of
Plastics Marketing, demanding immediate repayment of the debts of Plastics
Marketing within 15 days of the date of the letter or, alternatively, that FIBI
be presented within that timeframe with a plan for the repayment of the debt.
NOTE 1 - GENERAL (cont.)
B. 2007 creditors arrangement (cont.)
3. Demand for the immediate repayment of the liabilities of Kidron Plastics
Marketing Ltd. to banking institutions (cont.)
On 7 February 2007, Plastics Marketing received a letter from Bank
Igud LeIsrael Ltd. (hereinafter - "Bank Igud") whereby, in accordance with terms
of the credit of the Company in Bank Igud and the loan agreement, Bank Igud has
grounds to demand the immediate repayment of the debts and liabilities of
Plastics Marketing, within nine days of the sending of the letter.
On 8 February 2007, the Company announced that it believes that
Plastics Marketing will be unable to meet its liabilities towards FIBI and
towards Bank Igud under the agreement and the loan agreement, respectively, and
that Plastics Marketing will be unable to comply with the demand for immediate
repayment.
On 13 February 2007, the Company was served with an urgent request to
appoint a temporary receiver for the assets of Plastics Marketing. The request
had been filed that same day to the Tel Aviv District Court on behalf of FIBI
and Bank Igud (hereinafter - the "Banks", the "Petition to Appoint a Temporary
Receiver", respectively).
Concurrent with the filing of the request to appoint a temporary
receiver, the Banks filed a petition with the Tel Aviv District Court to enforce
pledges and to appoint a receiver for the assets of Plastics Marketing.
On 13 February 2007, a decision was handed down on the petition to
appoint a temporary receiver by the Honourable Justice D. Keret, ordering the
appointment of attorney Amir Bartov as the temporary receiver of the assets of
Plastics Marketing.
4. Appointment of Special Managers for the shares of Kidron Plastics Ltd.
On 16 May 2005, FITE - First Israel Turnaround Enterprise (Delaware)
L.P. and the limited partnerships in FITE (hereinafter - together the "Fund")
and the Company signed a loan agreement for a period of five years, whereby the
Fund lent an amount of $3.5 million to the Company (hereinafter - the "Loan" and
the "Loan Agreement", respectively). For purposes of guaranteeing its
commitments to the Fund, on 27 July 2005, the Company signed promissory notes in
favour of the Fund, in an amount equal to the amount of the loan and placed a
fixed, first-degree pledge (hereinafter - the "Pledge"), unlimited in amount, on
all of its shares in Kidron Plastics Ltd. (hereinafter - "Plastics").
On 11 February 2007, the Company was served with a demand to enforce
the fixed pledge, which had been filed on that same day with the Tel Aviv
District Court on behalf of the Fund (hereinafter - the "Demand"), claiming that
the Company failed to meet its commitments under the loan agreement.
In the Demand, the Fund requested that the Court issue an order for
the enforcement and consolidation of the pledge and to permit the Fund to sell
the pledged shares.
In addition, on 11 February 2007, the Company was served with an
urgent request to appoint a temporary receiver for the pledge, which had been
filed by the Fund (in a one-sided action) with the Tel Aviv District Court
together with the Demand.
On 20 February 2007, the Tel Aviv District Court stayed the hearing on
the motion of the FITE Fund for the enforcement of the fixed pledge on the
shares of Kidron Plastics Ltd. until receipt of the approval of the Nazareth
District Court regarding the proceedings instituted by the FITE Fund, in view of
the stay of proceedings order issued on 15 February 2007 by the Nazareth
District Court.
Further to the decision of the Tel Aviv District Court, on 21 February
2007, the FITE Fund filed a motion with the Nazareth District Court to permit
the Fund to realize the fixed pledge the Fund has on the shares of Kidron
Plastics.
NOTE 1 - GENERAL (cont.)
B. 2007 creditors arrangement (cont.)
4. Appointment of Special Managers for the shares of Kidron Plastics Ltd.
(cont.)
On 22 February 2007, the FITE Fund (hereinafter - the "Petitioner")
and the trustee of the Company, Alon Fredkin, CPA, reached the following
agreements:
- The ongoing management of Kidron Plastics Ltd. will be carried out by a
representative of the petitioner and a representative of the trustee. In the
event of a dispute between the two, the representative of the petitioner shall
have the decisive vote.
- The trustee will appoint himself or someone on his behalf, and the
petitioner will appoint Mrs. Neomi Enoch, unless they decide to appoint someone
else on their behalf.
- The trustee has the right to appeal to the court any decisions made by the
representative of the petitioner.
- Regarding any matters that are not connected with the ongoing management of
Kidron Plastics Ltd., including the realization of Kidron Plastics or its
shares, decisions will be made with the full consent of both the trustee and the
petitioner, and will be subject to court approval.
As a result of the aforementioned, in February 2007, Mrs. Neomi Enoch
and Mr. David Shacham were appointed as special managers of Kidron Plastics.
As part of the creditors arrangement detailed in 5 below, it was
determined that the shares of Plastics are to be transferred to the Fund.
5. The creditors arrangement (2007)
On 28 February 2007, an invitation was issued to the public on behalf
of the trustee of the stay of proceedings of the Company, to submit bids to
purchase the Company and/or its shares and/or its activity and/or its assets,
including its "stock market shell", equipment from the plant located in the
Ramat Gavriel industrial zone in Migdal Haemek and the property it owns in
Migdal Haemek and in the "Barakan" industrial zone.
On 10 June 2007, the Nazareth District Court approved the creditors
arrangement proposed by the trustee of the creditors arrangement. The major
features of the approved creditors arrangement are as follows:
- Polymer Logistics (Israel) Ltd. (hereinafter - "Polymer") will purchase the
fixed assets of the Company's Migdal Haemek plant (except for moulds located at
the Company's plant), including real estate in Migdal Haemek, for an amount of
NIS 17 million plus VAT.
- Appswing Ltd. (hereinafter - "Appswing") will purchase a minimum of 126
million shares of the Company, representing at least 70% of the issued and
paid-in capital of the Company, fully diluted, for an amount of NIS 7.3 million.
The purchase must be concluded by 15 July 2007.
- A company acting on behalf of Zuk Bazelet Investment Ltd. (hereinafter - "
Zuk Bazelet") will purchase real estate in the Barakan Industrial Zone and the
moulds located in the Company's plant, for an amount of NIS 5.3 million, plus
VAT.
- In accordance with the creditors arrangement, the shares of the following
subsidiaries will not be sold: the shares of Kidron Plastics will be transferred
to the FITE Fund (see below); and a temporary receiver was appointed for Kidron
Plastics Marketing Ltd. (see B(3) above).
NOTE 1 - GENERAL (cont.)
B. 2007 creditors arrangement (cont.)
5. The creditors arrangement (2007) (cont.)
The following pre-conditions apply to the creditors arrangement:
The proposal is contingent on the fulfilment of all of the following
conditions by 15 June 2007, or by dates set out below:
1. Receipt of the approval of the arrangement by the meeting of the various
types of creditors of the Company and the meetings of the shareholders of the
Company, including the meeting of the public shareholders. The arrangement is
to include, among other things, the sale of the purchased assets as per the
proposal;
2. The waiver of all of the rights of the holders of the existing options
in the Company's issued share capital;
3. Receipt of the approval of the court to the creditors arrangement to
include, among other things, approval of the sale of the purchased assets and
the relevant court orders:
Commencing from the date of the closing, as defined below, the Company
will have no debt or liability towards any third parties whatsoever.
The rights of the creditors of the Company which are not suppliers for
VAT purposes (such as banking institutions), in respect of any owed amount that
is not settled in cash under the creditors arrangement, will be purchased by
Appswing for a symbolic amount of NIS 1, to be paid to the trustee upon the
payment of the balance of the aforementioned consideration. This is subject to
the condition that the rights of the creditors in connection with the possible
demand of a refund in respect of a "bad debt" toward the VAT Authority are not
impaired.
In accordance with the above, the trustee of the creditors arrangement
announced that he estimates that the balance of the liabilities of the Company
toward Appswing Ltd. after the creditors arrangement is implemented will amount
to between NIS 5 million - NIS 19 million.
On 2 December 2007, a letter was received from the trustee, whereby he
estimates that the balance of the liabilities of the Company to Appswing, as
mentioned above, amount to NIS 11 million. The trustee announced that this
amount is purely an estimate and the actual amount may change in the future.
4. 70% of the issued shares of the Company will be sold to Appswing, at the
closing date, subject to the provisions of section 2 above. The shares are to
be free and clear of any third party right whatsoever.
5. Until the closing date, the Company will prepare and submit all of the
reports it is required to by law, including a periodic report for the reporting
year ended 31 December 2006 and the quarterly financial statements for the
quarter ended 31 March 2007.
6. a. The closing date of the transaction will be no later that 15
June 2007.
b. Appswing agrees that if there is a delay in the fulfilment of
the pre-conditions until 12 July 2007, the amount it has to pay will be reduced
by an amount of NIS 400,000.
7. It should be made clear that Appswing and Zuk Bazelet undertook to pay
all of the expenses needed to preserve the stock exchange shell in Israel and
abroad, including the costs of the accountant, attorney, etc., both in Israel
and abroad, both in the past and in the future.
In respect of the above, a capital reserve from a transaction with the
controlling shareholder was recorded in the financial statements as at 31
December 2007, in an amount of NIS 396 thousand. The reserve was recorded in
respect of expenses borne by Appswing for purposes of preserving the stock
exchange shell in Israel and abroad.
8. Please note that Zug Bazelet and Appswing will not be guarantors and/or
will not be responsible for the fulfilment of the second part of the
arrangement, even though the arrangement will be subject to the consummation of
the transactions with the two bidders. Please note further that the proposed
arrangement is for the purchase of the purchased assets detailed above as a
package deal and it does not relate to any of the assets separately.
NOTE 1 - GENERAL (cont.)
B. 2007 creditors arrangement (cont.)
5. The creditors arrangement (2007) (cont.)
The major features of the creditors arrangement are as follows:
Secured creditors:
- Banking institutions will be paid an amount of NIS 22,350 thousand.
- The FITE Fund will receive the shares of Kidron Plastics Ltd. In the event
that the transfer is taxed, the tax will not be borne by Appswing (the company
purchasing the shares). In any event, the FITE Fund will be able to file a debt
claim in respect of the tax, as a regular creditor.
In addition, as part of the arrangement, the option that the FITE Fund has
to convert the debt it is owed into shares of the Company will be cancelled,
unless the parties reach another agreement.
Creditors in respect of priority:
Income tax and employees - Payment of 100% of the debt approved by the
trustee.
National Insurance and municipal real estate tax - Payment of 50% of
the debt approved by the trustee.
Ordinary creditors:
Payment of 5% to ordinary creditors. Regarding the creditors in the
old arrangement (the creditors arrangement from 2004), the amount is 5% of the
total gross debt of this group.
Payment of NIS 1.5 million to creditor banks of Mr. Michael Zuz, the
former controlling shareholder of the Company, which have pledges on his
holdings in the shares of the Company.
On 5 July 2007, the extraordinary general meeting of the shareholders
of the Company approved the aforementioned creditors arrangement, as approved by
the Nazareth District Court on 10 June 2007.
In addition, on that date, the extraordinary general shareholders
meeting passed a resolution that the shareholders of the Company will have no
more claims and/or demands of the Company and/or any of its subsidiaries, the
grounds for which derive, in whole or in part, from the period preceding the
date that the arrangement was approved by the court.
In accordance with the notification of the trustee of the stay of
proceedings period, on 15 July 2007 all of the pre-conditions were fulfilled for
the entering into force of the creditors arrangement.
Accordingly, at the date on which the conditions were fulfilled (after
15 June 2007) the consideration paid by Appswing was reduced by an amount of NIS
400 thousand. Appswing and the trustee agreed between themselves regarding an
additional postponement of the postponed date for the fulfilment of the
pre-conditions, as above.
C. Agreement in respect of the allotment of shares to Appswing
On 20 July 2007, the Company issued an invitation for a general
shareholders meeting of the Company, on the agenda of which is the approval of
the agreement for the allotment of the shares of the Company to Appswing Ltd.
The details of the agreement are as follows:
On 19 July 2007, the Company entered into an agreement with Appswing,
the controlling shareholder of the Company at that time (the "allotment
agreement"), whereby Appswing undertook to convert all of the amounts the
Company owes it into 107,518,540 shares, to be allotted to it against the
aforementioned debts.
NOTE 1 - GENERAL (cont.)
C. Agreement in respect of the allotment of shares to Appswing (cont.)
The amounts which the Company owes Appswing derive from the Company's
creditors arrangement, as part of which Appswing purchased the rights of the
creditors of the Company which are not suppliers for VAT purposes (such as
banking institutions), in respect of any amount due that was not settled by cash
as part of the creditors arrangement. The amount of such debts to Appswing is
not known as of the date of this report, since it will be determined finally
after the trustee of the creditors arrangement decides in the matter of the
proof of debt that was submitted to him as part of the arrangement. The trustee
submitted his assessment to Appswing and to the Company, whereby the volume of
the debts will be between NIS 5 million and NIS 19 million. The quantity of
shares to be allotted to Appswing against the aforementioned conversion of debts
will remain constant, regardless of the final amount of the debt due Appswing,
as will be determined on the basis of the results of the creditors arrangement,
with the entire debt being converted to capital.
On 2 December 2007, a letter was received from the trustee in which he
stated that, in his opinion, the balance of the liabilities of the Company to
Appswing, as above, amounts to NIS 11 million. The trustee stipulated that this
amount is solely an estimate and that the actual amount could change in the
future.
In addition, the allotment agreement stipulated that the Company will
allot 64,516,129 shares to Appswing for an amount of NIS 8,570 thousand in cash.
The allotment agreement was approved by the audit committee and the
board of directors of the Company and by the general shareholders meeting of the
Company.
D. Agreements for the purchase of companies in Croatia and the U.S. against
an allotment of shares
On 19 July 2007, after receipt of approval of the audit committee (on
the same date), the board of directors of the Company decided to approve and
recommend to the general meeting the implementation of a private placement and
related agreements with Emvelco Corporation, a public company, the shares of
which are registered for trade in the U.S., and AP Holdings Ltd. (hereinafter -
the "Investors"). In accordance with the resolution, the Investors will sell
the Company 75,000 shares of Verge Living Corporation (hereinafter - "Verge"),
constituting 100% of the issued capital of Verge, and 20,000 shares of Sitnica
D.O.O. (LLC) (hereinafter - "Sitnica"), constituting 100% of the issued capital
of Sitnica, respectively, against a private placement of 907,934,502 shares of
the Company, constituting 72% of the issued capital of the Company following the
completion of the aforementioned allotments.
Verge is a company incorporated under the laws of the State of Nevada,
U.S., and it is engaged in property development in the U.S. The major asset of
Verge is land in Las Vegas, Nevada, on which it intends on building a project to
include 318 condominium apartments (number of units may be changed due to
alignment) covering an area of approximately 28,800 square meters and commercial
space covering an area of approximately 3,600 square meters, as well as
underground parking for approximately 650 vehicles.
Sitnica is a company incorporated under the laws of Croatia and it is
engaged in the development and sale of real estate in Croatia. Sitnica is the
owner of contractual rights in real estate covering an area of approximately
74,700 square meters in the central Croatian city of Samobor.
The investors will be jointly referred to herein as the "Offerees".
Upon completion of the allotments detailed above, Appswing is entitled
to receive a payment of US$ 1,000 thousand from the Investors, in respect of
consulting and initiation fees in connection with the allotment. Immediately
prior to the date of approval of the financial statements as at 30 June 2007,
the Investors paid Appswing US$ 250 thousand, as an advance payment on account
of the abovementioned amount.
The board of directors of the Company approved the employment
agreement between the Company and Mr. Yosef Atia, the controlling shareholder
and CEO of Emvelco Corporation. The agreement goes into effect on the date that
the aforementioned allotments are consummated and stipulates that Mr. Yosef Atia
will serve as the CEO of the Company in return for a salary that costs the
Company an amount of US$ 10 thousand a month. Mr. Atia is also entitled to
reimbursement of expenses in connection with the affairs of the Company, in
accordance with Company policy, as set from time to time. In addition, Mr.
Yosef Atia is entitled to an annual bonus of 2.5% of the net, pre-tax income of
the Company in excess of NIS 8 million.
NOTE 1 - GENERAL (cont.)
D. Agreements for the purchase of companies in Croatia and the U.S. against
an allotment of shares (cont.)
In addition, the board of directors of the Company approved an
employment agreement between the Company and Mr. Shalom Atia, the controlling
shareholder and CEO of AP Holdings Ltd. The agreement goes into effect on the
date that the aforementioned allotments are consummated and stipulates that Mr.
Shalom Atia will serve as the VP - European Operations of the Company in return
for a salary that costs the Company an amount of US$ 10 thousand a month. Mr.
Atia is also entitled to reimbursement of expenses in connection with the
affairs of the Company, in accordance with Company policy, as set from time to
time. In addition, Mr. Shalom Atia is entitled to an annual bonus of 2.5% of
the net, pre-tax income of the Company in excess of NIS 8 million.
The aforementioned agreements were ratified by the general
shareholders meeting of the Company on 30 October 2007.
On 2 November 2007, the shares were allotted to the investors.
E. Non-compliance with the preservation rules of the Tel Aviv Stock
Exchange (TASE)
On 17th January 2005, the Company was given notice by the Tel Aviv
Stock Exchange as to its lack of compliance with the preservation rules set down
in the Stock Exchange's Regulations and in the guidelines enacted thereunder
(hereinafter - the "Notice"), since the Company's shareholders' equity in the
last four financial statements that preceded the notice was below NIS 2 million.
The Company was granted an extension of 6 months, until 30 September 2005, to
comply with the aforementioned preservation rules. The board of directors of
the Tel Aviv Stock Exchange, at its September 2005 meeting, decided to transfer
the Company's shares to the "Preservation List".
On 17th August 2006, the Company petitioned the Tel Aviv Stock
Exchange to postpone the meeting of the board of directors of the TASE on the
matter of the delisting the Company's shares, until the first meeting to be held
after 24 months have passed after the shares of the Company ceased being traded
on the TASE's regular list. In its letter to the TASE, the Company noted that
it has been taking steps in the past year and will continue to take further
steps in its efforts to be in compliance with the terms stipulated in the
regulations of the TASE for the relisting of the Company's shares on the regular
list and the transfer of the shares of the Company from the preservation list to
the regular list.
The TASE notified the Company that it decided to postpone the
deliberations on the delisting of the shares of the Company to the first meeting
of the board of directors of the TASE to be held after 5 September 2007.
F. Suspension of trading of the Company's shares on the Tel-Aviv Stock
Exchange
On 14 February 2007, trading of the shares of the Company on the Tel Aviv Stock
Exchange was suspended, as a result of the appointment of a receiver for a
former subsidiary of the Company (see section B(3) above).
On 12 August 2007, the Company petitioned the Stock Exchange and the Israel
Securities Authority to restart the trading of the shares of the Company as part
of the preservation list, in view of the going into effect of the creditors
arrangement.
In addition, the Company requested that, in the event that the allotment of
shares to Appswing Ltd. (as detailed in Note 1C above) is consummated by 3
September 2007, and the requirements in respect of the minimum shareholders'
equity of the Company and the percentage of the holdings of the public in the
shares of the Company are met, the Company's shares will be relisted for trading
on the regular list.
On 15 August 2007, trading of the shares of the Company on the preservation list
was renewed, as a result of the going into effect of the creditors arrangement.
On 6 September 2007, trading of the shares of the Company was renewed on the
regular list as a result of the allotment of the shares of the Company to
Appswing Ltd. and as a result of the fact that the minimum capital requirement
and the requirement for the minimum percentage of holdings of the public were
met.
On 14 January 2008, the Company received notice from the Tel Aviv Stock Exchange
as to its non-compliance with the preservation rules - on the basis of data from
31 December 2007 - as a result of the fact that the percentage held by the
public as at 31 December 2007 was 9.5%, lower than the required 15%.
The Company was served notice as to its non-compliance with the preservation
rules, as above, and it was granted an extension of 6 months, until 30 June
2008, to be in compliance with the rules.
NOTE 1 - GENERAL (cont.)
G. Definitions
The Company - Atia Group Ltd.
Subsidiaries - Companies over which the Company exerts direct or indirect control and, accordingly,
the financial statements of which are consolidated with the Company's financial
statements.
Affiliated company - A company in which the Company exerts "material influence" pursuant to Opinion No.
68 of the Institute of Certified Public Accountants in Israel (hereinafter - the
"Institute"), other than subsidiaries, where the Company's investment therein is
included in the financial statements on the equity basis.
Investee company - A subsidiary or affiliated company.
Group - Atia Group Ltd. (formerly Kidron Industrial Holdings Ltd.) and its investee
companies.
Interested parties - As defined in the Securities Regulations (Presentation of Annual Financial
Statements), 1993.
Related parties - As defined in Opinion No. 29 of the Institute.
Controlling parties - As defined by the Securities Regulations (Financial Statements Presentation of
Transactions between an Entity and its Controlling shareholder), 1996.
Index, ICPI - The Israeli Consumer Price Index as publicized by the Israeli Central Bureau of
Statistics.
Euro - The currency of the European union.
Dollar - The U.S. dollar.
Kuna - The Croatian currency.
Pound Sterling - The currency of the U.K.
Adjusted amount - A nominal historical amount adjusted to the Index of December 2003, in accordance
with the provisions of Opinions 23, and 36.
Reported amount - An adjusted amount as of December 31, 2003, plus amounts in nominal values added
subsequent to December 31, 2003, less amounts deducted subsequent to December 31,
2003.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements were prepared in accordance with accounting principles
generally accepted in Israel and with the Securities Regulations (Presentation
of Annual Financial Statements) - 1993.
The following accounting principles were applied in the presentation of the
financial statements:
A. The measurement basis for the financial statements
1. General
As mentioned in Note 1A(3), during the first quarter of 2007,
the Company ceased it business operations. As a result, the Company changed its
accounting policies and reported in accordance with accounting principles
applicable to businesses in liquidation, for the financial statements as at 31
December 2006 until the financial statements as at 30 June 2007 and for the
three and six month periods then ended.
As more extensively detailed in Note 1 above, on 10 June
2007, the creditors arrangement was approved by the Nazareth District Court and
the creditors arrangement went into effect in July 2007. During September 2007,
the liabilities of the Company toward Appswing were converted in capital and
shares were allotted to Appswing in return for a cash amount of NIS 8 million.
Therefore, the Company once again started reporting as a "going concern",
commencing with the financial statements as at 30 September 2007 and for the
three and years ended 30 September 2007.
2. Measurement basis of the financial statements in respect of periods in
which the Company reports as a going concern.
a. In 2001, the Israel Accounting Standards Board issued Accounting
Standard No. 12 - "Discontinuance of Financial Statement Adjustment". In
December 2002, Accounting Standard No. 17 - "Postponement of the Discontinuance
of Financial Statement Adjustment" was approved. According to these standards,
adjustment of financial statements for the effects of inflation was discontinued
as of January 1, 2004. The adjusted amounts in the financial statements as at
31 December 2003 served as the point of departure for nominal financial
reporting commencing on 1 January 2004, until the date on which the Company
commenced reporting in the format of a business in liquidation.
As expanded upon in Note 1 above, the Company was in the midst of a
creditors arrangement which when completed, left the balance sheet with cash and
other monetary balances against share capital. Therefore, all of the components
of financial reporting as at 31 December 2007 are nominal (in these financial
statements, "reported amounts" refer to nominal amounts).
b. In the financial statements, the term "cost" refers to cost in reported
amounts.
c. Condensed data in nominal historical values for tax purposes, which
served as the basis of the aforementioned financial statements in reported
amounts, is presented in Note 23 below.
3. Principles of adjustment to realizable value in respect of the periods
in which the Company reported pursuant to accounting principles pertaining to a
business in liquidation:
Statement of net assets in liquidation as at 31 December 2006
The statement is presented on the basis of realizable values, in
accordance with the following principles:
1. Assets
1.1 Cash and cash equivalents
On the basis of the realizable balances as of the date of the
statement.
1.2 Trade accounts receivable
Based on the balance that Management believes to be collectible.
1.3 Accounts receivable and debit balances
Based on the balance actually utilized.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. The measurement basis for the financial statements (cont.)
3. Principles of adjustment to realizable value in respect of the periods
in which the Company reported pursuant to accounting principles pertaining to a
business in liquidation (cont.):
Statement of net assets in liquidation (cont.)
1.4 Investment in investee companies
Investments in investee companies are presented on the basis of their
expected realizable value under the arrangement.
1.5 Fixed assets
Fixed assets are presented on the basis of expected realizable value,
as known on the balance sheet date.
2. Liabilities
2.1 Credit from banking institutions and other credit providers
Based on the outstanding balance as of the balance sheet date. The
balance includes interest accrued but not yet paid, in accordance with the terms
of the loans.
2.2 Suppliers and service providers
Based on the balance as of the balance sheet date.
2.3 Accounts payable and credit balances
a. Employees and payroll-related liabilities
Based on the balance owed as of the balance sheet date.
b. Institutions, accrued expenses and others
Based on the balance owed as of the balance sheet date.
4. The measurement basis for the financial statements as at 31 December
2006
1. General
a. On January 1, 2004, Accounting Standard No. 12, "Discontinuance of
Financial Statement Adjustment" went into effect. In accordance with the
Standard, financial statements are no longer adjusted for inflation as from that
date.
b. Until December 31, 2003 (the transition date), the Company presented
its financial statements on the basis of historical cost, adjusted for changes
in the Israeli Consumer Price Index ("ICPI"). The adjusted amounts included in
the financial statements as of the transition date served as the point of
departure for financial reporting commencing on January 1, 2004. Accordingly,
amounts relating to non-monetary assets (including the depreciation and
amortization in respect thereof), deriving from the period prior to the
transition date, were based on inflation-adjusted amounts (on the basis of the
ICPI of December 2003) as reported in the past.
c. The amounts of non-monetary assets do not necessarily reflect the
economic or realizable value of such assets. Rather, they reflect the reported
value of the assets.
d. The term "cost" as used in the financial statements refers to cost in
reported amounts.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. The measurement basis for the financial statements (cont.)
4. The measurement basis for the financial statements as at 31 December
2006 (cont.)
2. Financial statements in reported amounts
Statement of profit and loss accounts
1. Revenues and expenses deriving from non-monetary items included in the
balance sheet are derived from the difference between the reported amount at the
beginning of the period and the reported amount at the end of the period.
2. The remainder of the income statement items, except for the share of the
Company in the results of investee companies, are presented in nominal amounts.
3. The share of the Company in the results of operations of investee
companies is based on the financial statements of such companies in reported
amounts.
5. Translation of the financial statements of foreign operations
As of January 1, 2004, the Company has been implementing Israeli
Accounting Standard No. 13, "The Effects of Changes in Foreign Currency Exchange
Rates". The Standard deals with the translation of transactions denominated in
foreign currency and with the translation of the financial statements of foreign
operations and the consolidation thereof with the financial statements of the
reporting entity. The Standard also sets out rules for the classification of
foreign operations as a "long-arm" or as a foreign autonomous unit.
When translating the financial statements of a subsidiary which
operates abroad as a foreign autonomous unit, the Company implemented the
following procedures:
a. Assets and liabilities, both monetary and non-monetary, of the
autonomous unit were translated using the closing rate.
b. Goodwill and the related original differences are treated as assets and
liabilities of the autonomous unit.
c. Income and expense items of the autonomous unit abroad were translated
on the basis of average exchange rates for the period.
d. All exchange rate differences generated as a result of the translation
of the aforementioned autonomous unit, including in respect of monetary items
comprising part of the investment, were classified as a separate item in
shareholders' equity, entitled "Adjustments deriving from the translation of the
financial statements of investee companies operating in foreign currency", until
the sale of the net investment.
B. Assets and liabilities linked to the Index or in foreign currency
1. Transactions denominated in foreign currency are recorded upon initial
recognition at the representative rate of exchange on the date of the
transaction. Exchange rate differences deriving from the settlement of monetary
items, at exchange rates that are different than those used in the initial
recording during the period, or than those reported in previous financial
statements, are carried to the profit and loss accounts.
2. Assets and liabilities denominated in or linked to foreign currency are
presented on the basis of the representative rate of exchange as of the balance
sheet date.
3. Assets and liabilities linked to the Israeli Consumer Price Index are
presented on the basis of the linkage terms of each balance. Balances linked by
agreement to the "known index" were presented on the basis of the "known index"
as of the balance sheet date (the Index for November).
4. Linkage and exchange rate differentials are recorded when incurred.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. Assets and liabilities linked to the Index or in foreign currency
(cont.)
5. Data pertaining to the ICPI and to the foreign currency exchange rates
are presented below:
31 December 13 February
2007 2006 2005 2006(*)
% % % %
Israeli Consumer Price Index (based on 1993) 191.15 184.87 185.05 184.51
Exchange rate of 1 U.S. dollar/NIS 3.846 4.225 4.603 4.704
Exchange rate of 1 Euro/NIS 5.6592 5.5643 5.4465 5.5928
Exchange rate of 1 Kuna/NIS 0.7744 0.7587 0.7400 0.7657
(*) The date of incorporation of the U.S. subsidiary.
6. Data pertaining to the change in the ICPI and foreign currency exchange
rate:
Years ended 31 December Period from
13 February 2006
until
31 December
2007 2006 2005 2006
% % % %
Israeli Consumer Price Index 3.40 (0.10) 2.38 0.20
Exchange rate of 1 U.S. dollar (8.97) (8.21) 6.85 (10.18)
Exchange rate of 1 Euro 1.71 2.16 (7.32) (0.51)
Exchange rate of 1 Kuna 2.07 2.53 (8.03) (0.91)
C. Consolidation of financial statements and implementation of reverse
acquisition accounting
The consolidated financial statements include the financial statements
of the Company and its subsidiaries.
Material intercompany balances and transactions between the companies
consolidated were cancelled in the consolidated financial statements. In
addition, income on sales between companies, which has not yet been realized
outside of the Group, was also cancelled.
The purchase cost of a subsidiary is measured at fair value of the
assets given, financial instruments issued and liabilities generated, plus the
direct purchase costs. The excess of the purchase cost over the share of the
Company in the fair value of the identifiable assets, less the fair value of the
identifiable liabilities constitutes goodwill and is presented in the
consolidated financial statements as part of "Other assets"). The differences
between the share of the Company in the fair value of the identifiable assets
and liabilities, as at the purchase date, and the share of the Company in their
book value were included in the appropriate items in the balance sheet.
For purposes of the consolidation, the amounts included in the
financial statements of consolidated companies were taken into account after the
necessary adjustments required as a result of implementation of uniform
accounting policies applied by the Group.
As part of the merger of the Company with Verge and Sitnica, the
controlling shareholders in Verge and Sitnica obtained control of the merged
entity. Since the largest of the companies involved in the transaction is
Verge, it was determined that from the accounting standpoint, Verge is the
accounting purchaser of the other companies, and therefore, the transaction was
treated under the reverse acquisition method.
Accordingly, the assets and liabilities of Verge, the accounting
purchaser, were recorded in the pro forma consolidated financial statements on
the basis of their book values in the accounting records of Verge immediately
prior to the reverse acquisition. In addition, in view of the fact that the
Company, which was the acquired company in the reverse acquisition transaction,
constituted a stock exchange shell at the date of purchase, no original
differences or goodwill were generated in respect of the purchase.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. Consolidation of financial statements and implementation of reverse
acquisition accounting (cont.)
In addition, the investment of the Company in Sitnica was handled
pursuant to the principles of decision 2-10 of the Israel Securities Authority,
"The Handling of Transactions Involving Combinations of Businesses Under Mutual
Control". Accordingly, the investment in Sitnica was treated as a pooling of
interests, as follows:
- The assets and liabilities of Sitnica were included at their book value
proximate to the date of the business combination transaction. The share
capital and premium recorded as a result of the above were identical in amount.
- The consolidated financial statements of the Company and Sitnica reflect
the financial position and results of operations of the Company and Sitnica, as
if the transaction had been carried out on the date the companies came under
common control, i.e. on the date Sitnica was founded (23 May 2007).
D. Use of estimates in preparation of the financial statements
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities presented in the
financial statements, the disclosure of contingent assets and liabilities at the
date of the financial statements and the amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
E. Cash and cash equivalents
Cash and cash equivalents include highly liquid investments, which
include short-term bank deposits (with original maturity dates of up to three
months from date of deposit) that are not restricted as to withdrawal or use,
with original terms to maturity of not more than three months.
F. Allowance for doubtful debt
The allowance for doubtful debts is computed specifically for debts,
the collection of which is deemed by management to be doubtful.
G. Restricted cash
The balance of restricted cash includes amounts deposited by the Group
to secure its liabilities toward apartment purchasers. See Note 4 below.
H. Investments in investee companies
The investments in investee companies in the Company balance sheet are
presented on the equity basis, which is determined on the basis of the financial
statements of those companies.
I. Fixed assets
1. Fixed assets are presented on the basis at cost, net of accumulated
depreciation, but not exceeding recoverable value (see "J" below), and where
necessary, net of impairment losses. In addition to the purchase price, cost
includes all of the costs that can be directly attributed to bringing the item
to the location and condition that enable it to operate in the manner intended
by Management.
2. Depreciation is calculated on the straight-line method, on the basis of
the estimated useful lives of the assets.
3. Annual depreciation rates are as follows:
%
Computers 20 - 33
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
J. Impairment of non-monetary assets
At every balance sheet date, the Company evaluates the recoverable value of its
assets, if events occurred or if indications exist that there was a possible
decline in asset value.
When the value of an asset in the consolidated balance sheet exceeds its
recoverable value, the Company recognizes a loss on decline in value in an
amount equal to the difference between the book value of the asset and its
recoverable value. A loss in respect of a decline in value that was recognized
in the past is cancelable, except if it relates to goodwill, only if changes
occurred in the estimates used to determine the recoverable value of the asset,
subsequent to the date on which the last loss on decline in value was
recognized.
K. Other assets
Software costs are presented at cost and are amortized on the straight line
method over a three year period commencing on the date of utilization. The
expense is recorded as part of general and administrative expenses.
L. Deferred taxes
1. Deferred taxes are computed in respect of temporary differences between
the amounts presented in the financial statements and the amounts taken into
consideration for income tax purposes. Deferred tax assets are recognized only
up to the amount expected to be utilized in the future. For information on the
composition of deferred taxes and on the major items for which deferred taxes
were calculated, see Note 14F.
Deferred taxes were computed using the tax rates expected to be
applicable when the deferred tax balances are carried to the profit and loss
accounts, based on the tax laws in effect at the balance sheet date. The amount
of the deferred taxes included in the profit and loss accounts derives from
changes occurring in the balances during the current year.
2. In calculating deferred taxes, taxes which may apply in the event of a
sale of an investment in investee companies were not taken into account, since
management intends on holding on to such investments and not realizing them in
the foreseeable future.
3. The Company may bear an additional tax liability in the event of a
distribution of a dividend from certain investee companies; this additional tax
was not included in the accounts in view of the policy of the Company not to
initiate the distribution of a dividend that would generate an additional tax
liability in the foreseeable future.
4. Due to the uncertainty in connection with the utilization of the losses
of the U.S. subsidiary, no deferred tax assets were included in the financial
statements.
M. Capitalization of credit costs and other direct costs
Credit costs directly attributable to the purchase or construction of qualifying
assets are carried to the cost of such assets over the construction period (the
period in which actions are taken to prepare the asset for its designated
purpose), in accordance with Accounting Standard No. 3, Capitalization of Credit
Costs. A qualifying asset is an asset under construction or preparation, the
preparation of which for intended us requires a significant period of time
(mainly the buildings under construction).
Selling and marketing expenses and general and administrative expenses which can
be attributed directly to specific construction projects constitute direct costs
of the project and are, therefore, capitalized to the cost of the project.
N. Buildings under construction
The buildings under construction are presented at the lower of cost or the
estimated net usage value. Cost includes direct identifiable costs (see M
above), subcontractors costs, joint indirect costs, and capitalized credit
costs.
In cases in which a loss is expected on buildings under construction, a
provision for the full expected loss is recorded on the date the loss was
anticipated, based on the best estimate of Management regarding the expected
loss. The amount of the decline in value or a cancellation of a decline in
value is reported in the profit and loss accounts as part of cost of sales.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
O. Investment real estate
Investment real estate is defined as real estate (land or buildings - or part of
a building - or both) held (by the owners or by a lesse under a financing lease)
for purposes of generating rental income or for increase in value or both, and
not for purposes of manufacturing or the provision of goods or services or for
administrative purposes, or for sale in the ordinary course of business.
Investment real estate assets are initially measured at cost, including direct
purchase costs. Subsequent to initial recognition, they are measured at fair
value which reflects market conditions at each balance sheet date. Changes in
fair value are recognized in the profit and loss accounts. Such real estate is
not depreciated.
For purposes of determining fair value of investment property assets, the
Company based itself on an appraisal carried out by external independent
appraisers who are experts in valuating real estate and who possess the
necessary know-how and experience.
P. Fair value of financial instruments
The fair value of financial instruments traded on active markets is based on
quotes from those markets as at the relevant balance sheet date. The fair value
of financial assets not traded on active markets is based on the market value of
similar financial instruments or on other valuation methods. The valuation used
by the Company included the capitalization of cash flows, economic models for
valuation of the value of options and other accepted valuation methods.
Q. Presentation of a transaction between an entity and its controlling
shareholder
Until December 31, 2006, transactions between the Company and its controlling
shareholders are treated in accordance with the Securities Regulations
(Financial Statement Presentation of Transactions between a Company and its
Controlling Shareholder) - 1996. Since on January 1, 2007, the Company has been
implementing Accounting Standard No. 23, Accounting Treatment of Transactions
between an Entity and its Controlling Shareholder, see Note 2W(5) below.
R. Revenue recognition
Revenues are recognized in the financial statements if the amount of the revenue
can be measured reliably and as long as the revenue is expected to be
collectible, in accordance with the following principles:
1. Sale of apartments
Revenues from sales of apartments are recognized in accordance with the
percentage of completion method pursuant to Accounting Standard No. 2 of the
Israel Accounting Standards Board. According to this method, revenues are
recognized as the product of the proceeds of the sale and the rate of completion
of the project, but not until the proceeds of the sales in the project
constitute at least 50% of the total expected revenues and the rate of
completion of the project is at least 25%. In view of the fact that the
construction of the project by the subsidiary in Las Vegas has not yet begun, no
revenues on the sale of apartments were recognized in the profit and loss
accounts for all of the reported periods.
2. Rental income
Revenues from rents are carried to the profit and loss accounts using the
straight-line method over the rental period.
S. Operating cycle
The normal operating cycle of the Group in the field of apartment construction
contracting (construction contractor) usually exceeds one year and is 3 years.
Taking this into consideration, the current assets and current liabilities
include items which the Group expects to realize within its normal operating
cycle.
T. Geographic operating segments
Identification of the geographic segments is carried out in accordance with the
principles of Accounting Standard No. 11, Segmental Reporting. See Note 19
below.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
U. Earnings per share
Earnings (loss) per share data are computed in accordance with the provisions of
Accounting Standard No. 21 of the Israel Accounting Standards Board. According
to Standard No. 21, the base earnings per share are based on the income that is
distributable to the ordinary shareholders, divided by the weighted average
number of ordinary shares in circulation during the period. For purposes of
computing diluted earnings per share, the income or loss attributable to the
ordinary shareholders and the weighted average number of ordinary shares in
circulation have to be adjusted for the possible effects of potential ordinary
shares which may derive from the exercise of convertible financial instruments,
which have a dilutive effect.
V. Discontinued operations
Discontinued operations are presented in accordance with the guidelines of
Accounting Standard No. 8 of the Israel Accounting Standards Board.
W. First time implementation of Accounting Standards
1. Accounting Standard No. 26 - Inventory
Since January 1, 2007, the Company has been implementing Accounting Standard No.
26 - "Inventory" (hereinafter: the "Standard"), issued in August 2006 by the
Israel Accounting Standards Board. The Standard prescribes the accounting
treatment for inventory.
The Standard stipulates, among other things, that inventory be
measured at the lower of cost and net realizable value. Net realizable value is
the estimated sales price during the normal course of business, less the
estimated costs of completion and the estimated costs required to conduct the
sale. The cost of the inventory includes purchase costs, production costs and
other costs incurred in bringing the inventory to its present location and
condition.
The Standard mandates specific identification of the cost of inventory
items that are irreplaceable and of merchandise or services that were generated
and separated for purposes of specific projects. The cost of other inventory
should be determined on the basis of the first-in-first out formula or on the
basis of the weighted average. A specific formula should be used for all
inventory having a similar nature or use for the entity, unless some other
costing formula is justified. Regarding allocation of inventory conversion
costs, the Standard stipulates that when in a specific period an entity does not
manufacture at its normal output capacity, it should not include in the cost of
inventory additional fixed overhead costs in excess of the costs usually
incurred in times of normal production. Such costs which were not allocated
should be expensed in the period in which they were incurred. In accordance
with the Standard, in cases in which the inventory was purchased on credit, and
the arrangement contains a financing component, the inventory should be
presented at the cash cost, and the financing component should be recognized as
interest expense over the duration of the financing period.
When inventory is sold, the book value of the sold inventory should be
recognized as an expense in the period in which the revenue from the sale was
recognized. The amount of any decline in value of the inventory to its net
realizable value and all losses in respect of inventory should be recognized in
the period in which they were incurred. The amount of the cancellation of a
decline in value deriving from an increase in the net realizable value should be
recognized as a reduction in the amount of the inventory that is recognized as
an expense in the period in which the cancellation occurred.
Initial implementation of the Standard did not have a material impact
on the results of operations, financial position, and cash flows of the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
W. First time implementation of Accounting Standards (cont.)
2. Accounting Standard No. 27 - Fixed assets
Since January 1, 2007 (the effective date), the Company has been
implementing Accounting Standard No. 27 - Fixed Assets (hereinafter - the
"Standard") issued in September 2006 by the Israel Accounting Standards Board.
The Standard prescribes the accounting treatment of fixed assets.
The Standard stipulates that a fixed asset item that qualifies for
recognition as an asset, be measured at its cost at the time of its initial
recognition. Cost includes the purchase price, all of the costs that can be
directly attributed to bringing the item to its present location and to the
condition required to enable the item to operate in the manner intended by
Company Management. Cost shall also include an initial estimate of the present
value of all of the costs required to dismantle and remove the asset and
rehabilitate the site upon which it was located, should the entity be committed
to do so.
The Standard permits an entity to elect a measurement model as
accounting policy once initial recognition has been achieved, either the cost
model or the revaluation model, which is based on the fair value of the fixed
asset item at the date of the revaluation, with the revaluation being carried to
a capital reserve. According to the cost model, a fixed asset item should be
presented at cost, net of accumulated depreciation, and net of accumulated
impairment losses. The Standard stipulates that the same measurement model must
be applied to an entire class of fixed assets. The Standard also stipulates
that each component of a fixed asset item having a cost that is material when
compared to the cost of the whole item should be depreciated separately over its
useful life. The depreciation method should reflect the pattern in which the
entity expects to derive economic benefits from the asset in the future. The
useful life of an asset is defined in terms of the forecasted benefit to be
derived by the entity from the asset. The useful life of an asset may be
shorter than its economic life.
The book value of a fixed asset item should be derecognized when the
item is disposed of, or when no future economic benefits are expected from use
or disposal of the asset. The gain or loss on the derecognition of the fixed
asset item should be carried to the profit and loss accounts when the item is
derecognized. Such gains should not be classified as revenue.
The provisions of Accounting Standard No. 27 require retrospective
implementation, except for a number of circumstances set out in Accounting
Standard No. 28,Revision of the Transition Provisions of Accounting Standards
No. 27, Fixed Assets.
At the effective date, the Company elected to continue using the cost
model and not to adopt any of the leniencies set out in IFRS 1which an entity is
permitted to adopt in accordance with the transition provisions of the Standard.
Accordingly, initial implementation of the provisions of the Standard did not
have a material impact in the results of operations, financial position or cash
flows of the Company.
3. Accounting Standard No. 16 - Investment Proerty
Since January 1, 2007, the Company has been implementing Accounting
Standard No. 16 - "Investment Property" (hereinafter - the "Standard"), issued
in February 2007 by the Israel Accounting Standards Board, which sets out the
accounting treatment for Investment Real Estate and the related disclosure
requirements.
Investment real estate is defined as real estate (land or buildings,
part of a building, or both) held (by the owners or by a financial lessee) for
the purpose of generating rental income, generating an increase in value, or
both, and not for use in the manufacture or supply of goods or services, or for
administrative purposes, or sale during the normal course of business.
The cost of investment real estate shall be recognized as an asset if,
and only if it is expected that the future economic benefits related to the
investment real estate will flow to the entity and that the cost can be measured
reliably. Investment real estate which qualifies for recognition as an asset
shall be measured at its cost upon initial recognition.
According to the Standard, a right to real estate, held by a lessee
under an operational lease may be classified as investment real estate. In such
a case, the lessee is required to apply the fair value model to this right (and,
therefore, it must apply the fair value model to all investment real estate).
The Standard permits the entity to elect to measure the investment real estate
under the cost model or the fair value model once initial recognition has been
achieved.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
W. First time implementation of Accounting Standards (cont.)
3. Accounting Standard No. 16 - Investment Property (cont.)
According to the fair value model, investment real estate is measured,
after initial recognition, at fair value, with changes in fair value carried to
the profit and loss accounts.
According to the cost model, investment real estate shall be presented
at cost, less accumulated depreciation and less accrued losses on decline in
value (in accordance with the provisions of Accounting Standard No. 27, Fixed
Assets). An entity that elects to use the cost model shall make disclosure of
the fair value of the investment real estate in the notes to the financial
statements.
An entity must use the same model for all of its investment real
estate. A change from one model to the other can be made only if the result of
the change is a fairer presentation. Investment real estate shall be presented
as a separate item and not as part of fixed assets.
Upon initial adoption of the Standard, the entity that elected the
fair value model should report the impact of the adoption of the Standard as of
the effective date as an adjustment to the opening balance of retained earnings
for the period in which the Standard was initially adopted.
The Standard encourages but does not require any entity that made
public disclosure of the fair value of its investment real estate in prior
periods, to adjust the opening balance of retained earnings of the earliest
presented period in which disclosure was made of fair value, and to restate
comparative amounts for those periods. If the entity did not make disclosure in
the past, the entity shall not restate comparative amounts and shall make
disclosure of this fact.
An entity that intends on adopting one or more of the leniencies set
out in IFRS No. 1 with regard to investment real estate, in the financial
statements of periods commencing on January 1, 2008, can adopt the same leniency
or leniencies in the financial statements of periods commencing on January 1,
2007. An entity that elects to adopt the leniency of fair value as deemed cost,
shall not restate comparative amounts relating to such investment real estate.
Such an entity should disclose this fact and the fair value as of January 1,
2007 of each asset treated in this manner.
Initial implementation of the provisions of the Standard did not have
a material impact on the results of the operations, financial position or cash
flows of the Company.
4. Accounting Standard No. 30 - "Intangible Assets"
Since January 1, 2007, the Company has been implementing Accounting
Standard No. 30 - "Intangible Assets" (hereinafter - the "Standard"), issued in
March 2007 by the Israel Accounting Standards Board, which prescribes the
accounting treatment of intangible assets which are not dealt with in other
standards.
The Standard defines the conditions and criteria for the recognition
of an intangible asset, including in respect of research and development costs,
how to measure the book value of such assets, and requires certain disclosures
in respect thereof. According to the Standard, an intangible asset is defined
as an identifiable, non-monetary asset without physical substance.
According to the Standard, an entity shall assess whether the useful
life of an intangible asset is defined or undefined. After initial recognition,
an intangible asset with a defined useful life shall be amortized over its
useful life, subject to assessments for impairment. Such an intangible asset
should be presented at cost, less accumulated amortization and less accumulated
impairment losses. An intangible asset with an undefined useful life shall not
be amortized. Instead, the entity should test for impairment of the asset at
least once a year, or more frequently if indications exist that there may have
been a decline in value of the asset.
The Standard shall be applied retrospectively, except for
circumstances which are irrelevant to the Company.
Initial implementation of the Standard did not have a material impact
on the results of operations, financial position and cash flows of the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
W. First time implementation of Accounting Standards (cont.)
5. Accounting Standard No. 23 - "Accounting treatment of transactions
between an entity and its controlling shareholder"
Since January 1, 2007, the Company has been implementing Accounting
Standard No. 23 - "Accounting treatment of transactions between an entity and
its controlling shareholder" (hereinafter - "Standard No. 23" or the "Standard")
issued in December 2006 by the Israel Accounting Standards Board.
Standard No. 23 does not apply to an entity that is not subject to the
Israeli Securities Law - 1968. The Standard applies to all transactions between
an entity and its controlling shareholder, except for a business combination
transaction involving entities under common control. The Standard sets out the
accounting treatment for common types of transactions. The provisions of
Standard No. 23 will apply to all transactions (with the necessary changes)
between an entity and its controlling shareholder, but, under certain
circumstances, it will also apply to transactions with shareholders who are not
controlling shareholders.
Assets and liabilities which were involved in a transaction between
the entity and its controlling shareholder shall be measured at fair value as of
the date of the transaction. The difference between the fair value of the asset
and its book value at the date of transfer shall be carried to the profit and
loss accounts as income or loss, and the difference between the fair value and
the consideration stipulated in the transaction shall be carried to
shareholders' equity. Any difference with a debit balance is in effect a
dividend which reduces retained earnings. Any difference with a credit balance
constitutes an investment by the owners and shall be presented separately as
part of shareholders' equity under the title "Capital Reserve deriving from a
transaction between the entity and its controlling shareholder".
An intangible asset having no active market, that was transferred to
an entity from its controlling shareholder shall be presented in the entity's
financial statements at the value in the financial statements of the controlling
shareholder as of the date of transfer. Any difference between the
consideration stipulated for such intangible asset and its value in the
financial statements of the controlling shareholder shall be carried to
shareholders' equity.
Upon initial recognition, a loan granted to or received from a
controlling shareholder shall be presented in the financial statements of the
entity as an asset or liability, as applicable, at fair value. The difference
between the amount of the loan granted or received and its fair value on the
date of initial recognition represents either an investment or a withdrawal of
the owners and shall be carried to shareholders' equity. During the reporting
periods following the initial recognition, the loan shall be presented in the
financial statements of the entity at its amortized value, after implementation
of the effective interest rate method, except for cases in which according to
generally accepted accounting principles it is presented at fair value.
Standard No. 23 also sets out rules pertaining to the possibility of early
repayment or a change in the terms of the loan.
Amounts debited to retained earnings or credited to a capital reserve
in the financial statements of the entity as a result of a transaction with a
controlling shareholder constitute, from the point of view of the controlling
shareholder, an investment or withdrawal of the owners and shall be reported in
the financial statements accordingly.
Standard No. 23 applies to transactions between an entity and its
controlling shareholder conducted subsequent to January 1, 2007. In respect of
a loan granted to or received from a controlling shareholder prior to the
effective date, the Standard shall apply to such loan as of the effective date.
See also section C above in connection with the treatment of
combinations of businesses under common control.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
X. Disclosure of the effects of new accounting standards in the period
prior to implementation
Accounting Standard No. 29 - "Adoption of International Financial
Reporting Standards (IFRS)"
In July 2006, the Israel Accounting Standards Board issued Accounting
Standard No. 29 - "Adoption of International Financial Reporting Standards
(IFRS)" (hereinafter - the "Standard"). The Standard prescribes that entities
that are subject to the Israeli Securities Law - 1968 and that are required to
file reports under the provisions of this law shall present their financial
statements in accordance with International Financial Reporting Standards
(hereinafter - "IFRS Standards"). This stipulation applies to periods
commencing on or after January 1, 2008 (i.e., the interim financial statements
for the first quarter of 2008), with the entity's first financial statements in
accordance with IFRS Standards being the annual financial statements of 2008.
See Note 22 below for explanations of the impact of IFRS on the
balance sheets of the Company as of January 1, 2007 and December 31, 2007 and on
the profit and loss accounts for the year ended December 31, 2007, and a
reconciliation between the values of balance sheet items as of those dates and
the values of the items in the profit and loss accounts for the year ended
December 31, 2007 as presented in accordance with the present accounting
principles and the values that would have been presented under IFRS.
Y. Convenience translation
The financial statements at 31 December 2007 (including the profit and loss
account and the balance sheet) have been translated into Sterling using the
representative exchange rate at that date (£ 1 = NIS 7.7105). The translation
has been made solely for the convenience of the reader. The amounts presented
in these financial statements should not be construed to represent amounts
receivable or payable in Sterling or convertible into Sterling, unless otherwise
indicated in these statements.
NOTE 3 - ACCOUNTS RECEIVABLE AND DEBIT BALANCES
Composition:
Convenience
Translation
Consolidated Company Consolidated
31 December 31 December
2007 2007 2007
NIS'000 NIS'000 £' 000
Government institutions 272 15 35
Prepaid expenses 570 138 74
______ ______ ______
842 153 109
______ ______ ______
______ ______ ______
NOTE 4 - INVESTMENT IN BUILDINGS UNDER CONSTRUCTION AND RESTRICTED CASH
A. The major asset of the U.S. subsidiary, Verge - as a single asset entity
- is the asset in Las Vegas, comprised of eleven adjacent lots, covering an
overall of 2.87 acres (13 thousand square meters). Part of the asset is empty
and undeveloped, while the other part contained a paved parking lot and a small
structure which was used in the past as a garage (which was rented out for a
short period during 2007 to a third party) and which is slated for demolition.
The subsidiary intends on constructing on the asset in Las Vegas a
project to contain apartments in a cooperative apartment building (condominiums
in the US), as well as commercial space, a sports centre, theatre, and a
playground for pets.
On 30 November 2005, approval was obtained from the Las Vegas
municipal council to use the asset for development and the construction of a
project containing 296 dwelling units in a cooperative apartment building and 3
thousand square meters of commercial space. The permit was granted for a
limited time, so that the Company had to commence construction within a two-year
period. The permit was extended until November 2008. In December 2007, the
subsidiary started preparatory work for the construction of the project which
included demolition and removal of the building that was on the lot designated
for the project and the moving of electric cables and pipes that cross the lot
of the project, so as to facilitate the construction work.
The asset is located north of the Central Business District, not far
from the Las Vegas strip. In close proximity to the project are hotels and
casinos, office buildings, courts and apartments housing a relatively low
economic population.
The project is slated to contain one six-story building with studio
apartments, two, three and four room apartments, and luxury loft apartments. In
addition to the dwelling units, the building is expected to contain commercial
space, a sports centre, theatre, and a playground for pets. The addresses of
the lots are as follows:
NV 89101 604 N Main Street, Las Vegas
NV 89101 634 N Main Street, Las Vegas
NV 89101 601 1st Street, Las Vegas
NV 89101 603 1st Street, Las Vegas
NV 89101 605 1st Street, Las Vegas
NV 89101 607 1st Street, Las Vegas
NV 89101 625 1st Street, Las Vegas
NV 89101 617 1st Street, Las Vegas
NV 89101 701 1st Street, Las Vegas
NV 89101 703 1st Street, Las Vegas
NV 89101 705 1st Street, Las Vegas
The following table summarizes the book value of the buildings under
construction:
Convenience
translation
Consolidated
31 December 31 December
2007 2007
NIS' 000 £' 000
Land purchased from a third party and subsequently transferred to the 10,769 1,397
subsidiary, mainly against debt
Other capitalized costs (mainly direct marketing costs) 33,050 4,287
_______ _______
Total buildings under construction 43,819 5,684
_______ _______
_______ _______
B. On 2 June 2007, the subsidiary started selling apartments in the
project. As at 31 December 2007, the subsidiary signed contracts for the sale
of 258 apartments amounting to about $96 million. Deposits amounting to about
$4.5 million (NIS 17,306 thousand) were placed in trust as at 31 December 2007.
The use of these deposits is restricted by law, and they will be transferred to
the subsidiary upon completion of the sale or after the apartment is registered
in the name of the buyer. Accordingly, these deposits are presented as
restricted cash and as a liability (deferred income) in the balance sheet.
C. See also Note 15C.
NOTE 5 - INVESTMENTS IN INVESTEE COMPANIES
Investment in subsidiaries:
Composition in the Company balance sheet:
31 December
2007
NIS' 000
Cost of shares (1) 38,910
Share of Company in income accumulated since purchase 13,312
Adjustments deriving from the translation of the financial statements of (1,165)
investee companies operating in foreign currency
_______
51,057
Loan to a subsidiary (2) 7,058
_______
58,115
_______
_______
(1) The cost of the investment in the shares of the subsidiaries, Verge and
Sitnica, is based on their value in the books of the controlling shareholder due
to the fact that Verge was determined to be the accounting acquiring company as
part of the merge of the Company with the subsidiaries and due to the fact that
the investment of the Company in Sitnica was treated using a method similar to
the pooling of interests method. See Note 2C above.
(2) Loan to the Verge subsidiary
In November 2007, the Company granted a loan to the Verge subsidiary in
an amount of $1.8 million for a period of one year. The loan is
dollar-denominated and bears interest at a rate of 12% per annum. An amount of
$1.5 million of the loan was used to repay the balance of a loan granted by the
controlling shareholder in Verge, Emvelco Corporation, and the share of which
was converted into the shares of Verge.
MORE TO FOLLOW
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IFMITMMBMBTP
1 Year Atia Grp Chart |
1 Month Atia Grp Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
