Final Results

 

TIDMFTS 
 
RNS Number : 8948N 
F.T.S-Formula Telecom Solutions Ltd 
26 February 2009 
 
? 
 
 
F.T.S - FORMULA TELECOM SOLUTIONS LIMITED 
 
 
Annual report and financial statements for the year ended December 31, 2008 
 
 
 
 
Chairman's Statement 
I am pleased to report FTS' 2008 annual results for the twelve months to 31 
December 2008. 
 
 
FTS sells next generation business control and infrastructure software solutions 
for communications service providers. Our solutions enable providers to address 
the key issues of today's communication market: customer retention and revenue 
growth. By analyzing events from a business standpoint rather than just billing 
them, FTS allows providers to better understand their customer base and leverage 
business value from every event and interaction. FTS deploys its full range of 
solutions to customers worldwide and has implemented solutions in wireless, 
wire line, cable, content and broadband markets. The Company targets Tier-1 
operators in developed markets with its business control solutions, as well as 
operators in emerging markets. 
 
 
The telecoms market is evolving with the growth in both wire line and wireless 
broadband (WiMAX, LTE) IP-based communication and continuing consolidation in 
the market. In response to market changes, providers are restructuring their 
businesses and aligning vendors to their future needs. This is both a challenge 
and long-term opportunity for FTS. FTS predicted these transformations in the 
industry and has been working aggressively to adapt the Company to the new 
market environment, as well as developing new products and services that meet 
the customers' ever-changing requirements. 
 
 
In 2008 FTS announced the launch of Leap(TM) Billing & CRM - FTS' next 
generation converged, pre-integrated billing & CRM solution. The product suite 
has been designed to inherently unify billing and CRM information, providing a 
holistic view of all customer events and billing events and enabling in-depth 
service personalization. Based upon a process-driven design, the solution offers 
unparalleled flexibility, empowering service providers to quickly launch and 
easily manage multi-service offerings in-house in real time without vendor 
intervention. 
Leap Billing & CRM is an end-to-end converged solution based on telecom-specific 
business processes that reflect the industry's best practices. The solution 
allows new business practices to be instantly implemented and new services, 
bundles and promotions to be rolled out immediately, without involving costly 
billing and CRM integration projects. In this way, Leap Billing & CRM offers a 
long-term, viable solution to the ever-evolving needs of telecom providers. 
Initial market response is highly positive with strong feedback from industry 
analysts, industry press, potential partners and customers, stressing the real 
market need the Company is addressing and the superiority of the solutions it 
presents. FTS expects to continue its marketing efforts during 2009 to leverage 
this new momentum with a marketing and sales campaign to launch the new strategy 
and products. The Company anticipates this new positioning and the associated 
marketing campaign will result in market interest in its products and lead to 
new bid proposals. It is expected that some of these will materialize into 
contracts in 2009, although due to the global economic situation it might take 
longer than initially expected. 
 
 
 
 
Results 
In the twelve months to 31 December 2008 total revenue was $30.031m (2007: 
$32.105m), the decrease of 6% was mainly due to longer implementation processes 
than originally expected which diverted part of the revenue recognition from 
2008 to 2009. 
 
 
Gross profit for the twelve months was $15.426m (2007: $15.339m), gross margin 
was 51% compared to 48% in 2007. 
 
 
Research and development expenditure in the twelve months to 31 December 2008 
was $3.710m (2007: $4.557m), a decrease of 19%. This decrease was mainly due to 
diversion of R&D efforts towards delivery of projects. 
 
 
 
 
Sales and marketing costs in the twelve months to 31 December 2008 were $3.706m 
(2007: $4.413m), a decrease of 16% mainly due to fewer commissions paid to 
agents in light of the change in the mix of sales. 
 
 
General and administrative costs in the twelve months to 31 December 2008 were 
$4.662m (2007: $5.739m), a decrease of 19%. This decrease was mainly due to 
unique provision for doubtful debt in 2007. 
 
 
The Company's operating income in the twelve months to 31 December 2008 was 
$3.348m (2007: operating income of US$0.630m). 
 
 
The net financial expenses for the twelve months to 31 December 2008 were 
$1.496m (2007: financial income of $0.673m) which resulted from losses from 
securities and bonds in amount of approximately $0.7m, Exchange rate of 
approximately $0.6m and interest paid on bank loans. 
 
 
Net income for the twelve months to 31 December 2008 was $1.095m (2007: net 
income of $2.033m). 
 
 
Outlook 
The Telecom industry, as part of the global market, is experiencing a global 
turbulence which creates new challenges for BSS vendors. However, FTS is 
constantly adjusting its operations to the market conditions and manages to 
maintain profitability even in such challenging times. 
 
 
We believe that the FTS management's extensive, ongoing efforts will result in 
increased revenues and profitability in forthcoming years. 
 
 
The Company is involved in a number of bid proposals which are at various stages 
of the sales cycle. We expect some of these to crystallize into contracts in the 
near future although it is difficult to predict the exact timing. 
 
 
We also believe that our online charging and policy management solutions will 
enable us to penetrate Tier-1 service providers in developed markets. We expect 
to obtain growth in the future, based on our extensive pipeline and consolidated 
roadmap of products and solutions. 
 
 
 
 
Dan Goldstein 
Chairman 
 
 
 
 
Report of the independent auditors 
To the shareholders of F.T.S - Formula Telecom Solutions Limited 
 
 
Report on the consolidated financial statements 
 
 
We have audited the accompanying consolidated financial statements of F.T.S - 
Formula Telecom Solutions Limited and its subsidiaries (hereafter- "the Group"), 
which comprise the consolidated balance sheet as at 31 December 2008, and the 
 consolidated income statement, consolidated statement of changes in equity and 
consolidated cash flow statement for the year then ended, and a summary of 
significant accounting policies and other explanatory notes. 
 
 
Management's responsibility for the consolidated financial statements 
 
 
Management is responsible for the preparation and fair presentation of these 
consolidated financial statements in accordance with International Financial 
Reporting Standards. This responsibility includes: designing, implementing and 
maintaining internal control relevant to the preparation and fair presentation 
of consolidated financial statements that are free from material misstatement, 
whether due to fraud or error; selecting and applying appropriate accounting 
policies; and making accounting estimates that are reasonable in the 
circumstances. 
 
 
Auditor's responsibility 
 
 
Our responsibility is to express an opinion on these consolidated financial 
statements based on our audit. We conducted our audit in accordance with Israeli 
Standards of Auditing. Those standards require that we comply with ethical 
requirements and plan and perform the audit to obtain reasonable assurance 
whether the consolidated financial statements are free from material 
misstatement. 
 
 
An audit involves performing procedures to obtain audit evidence about the 
amounts and disclosures in the consolidated  financial statements. The 
procedures selected depend on the auditor's judgment, including the assessment 
of the risks of material misstatement of the consolidated financial statements, 
whether due to fraud or error. In making those risk assessments, the auditor 
considers internal control relevant to the entity's preparation and fair 
presentation of the consolidated financial statements in order to design audit 
procedures that are appropriate in the circumstances, but not for the purpose of 
expressing an opinion on the effectiveness of the entity's internal control. An 
audit also includes evaluating the appropriateness of accounting policies used 
and the reasonableness of accounting estimates made by management, as well as 
evaluating the overall presentation of the consolidated financial statements. 
 
 
We believe that the audit evidence we have obtained is sufficient and 
appropriate to provide a basis for our audit opinion. 
 
 
Opinion 
 
 
In our opinion, the consolidated financial statements give a true and fair view 
of the financial position of the Group as of December 31, 2008, and of its 
financial performance, its cash flows and its equity for the year then ended in 
accordance with International Financial Reporting Standards. 
 
 
 
 
Tel-Aviv, IsraelFebruary 24, 2009 
+--------------------------------------------------------------+----------------------------------------+ 
|                                                              | Ziv Haft                               | 
+--------------------------------------------------------------+----------------------------------------+ 
|                                                              | Certified Public Accountants (Isr.)    | 
+--------------------------------------------------------------+----------------------------------------+ 
|                                                              | BDO Member Firm                        | 
+--------------------------------------------------------------+----------------------------------------+ 
 
 
Consolidated income statement for the year ended December 31, 2008 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |   Year ended December | 
|                                              |        | | |                   31, | 
+----------------------------------------------+--------+-+-+-----------------------+ 
|                                              |        | | |     2008 | |     2007 | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |  Notes | | |    $'000 | |    $'000 | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Revenues                                     |  2, 6  | | |  30,031  | |  32,105  | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Cost of sales (*)                            |   3    | | | (14,605) | | (16,766) | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Gross profit                                 |        | | |  15,426  | |  15,339  | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Research and development expenses (*)        |   3    | | | (3,710)  | | (4,557)  | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Sales and marketing costs                    |        | | | (3,706)  | | (4,413)  | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| General and administrative expenses, net     |        | | | (4,662)  | | (5,739)  | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Profit from operations                       |   4    | | |  3,348   | |  630     | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Finance expense                              |   7    | | | (1,726)  | | (484)    | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Finance income                               |   7    | | |  230     | |  1,157   | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Profit before tax                            |        | | |  1,852   | |  1,303   | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Tax (expense)/ income                        |   8    | | | (757)    | |   730    | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Profit for the year                          |        | | |  1,095   | |  2,033   | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Earnings per share:                          |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Basic (dollars per share)                    |   9    | | | 0.0332   | | 0.0623   | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
| Diluted (dollars per share)                  |   9    | | | 0.0332   | | 0.0622   | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
|                                              |        | | |          | |          | 
+----------------------------------------------+--------+-+-+----------+-+----------+ 
 
 
 
 
*    See note 3. 
The amounts are stated in U.S. dollars ($). 
Consolidated statement of changes in equity for the year ended December 31, 2008 
 
 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |  Share   | |Additional  | | Retained  | | Treasury  | |  Total   | 
|                                   | capital  | |  paid in   | | earnings  | |  share    | |          | 
|                                   |          | |  capital   | |           | | reserves  | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |  $'000   | |   $'000    | |  $'000    | |  $'000    | |  $'000   | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
| Balance at January 1, 2007        | 1        | |  9,943     | |  9,063    | | (463)     | |  18,544  | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
| Changes in equity for 2007:       |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
| Profit for the year               | -        | | -          | |  2,033    | | -         | |  2,033   | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
| Total recognized income and       | -        | | -          | |  2,033    | | -         | |  2,033   | 
| Expenses for the year             |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
| Issuance of employees' stock      | -        | |  82        | | -         | | -         | |  82      | 
| options                           |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
| Balance at December 31, 2007      | 1        | |  10,025    | |  11,096   | | (463)     | |  20,659  | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|            Changes in equity      |          | |            | |           | |           | |          | 
|            for 2008:              |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|            Profit for the         | -        | | -          | |  1,095    | | -         | |  1,095   | 
|            year                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                        Total      | -        | | -          | |  1,095    | | -         | |  1,095   | 
|                        recognized |          | |            | |           | |           | |          | 
|                        income and |          | |            | |           | |           | |          | 
|                        Expenses   |          | |            | |           | |           | |          | 
|                        for the    |          | |            | |           | |           | |          | 
|                        year       |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
| Issuance of employees' stock      | -        | |  57        | | -         | | -         | |  57      | 
| options                           |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
| Balance at December 31, 2008      | 1        | |  10,082    | |  12,191   | | (463)     | |  21,811  | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
|                                   |          | |            | |           | |           | |          | 
+-----------------------------------+----------+-+------------+-+-----------+-+-----------+-+----------+ 
 
 
Consolidated balance sheet as of December 31, 2008 
 
 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |  As at December 31,   | |  As at December 31,   | 
+----------------------------------+-------+-+-----------------------+-+-----------------------+ 
|                                  |       | |  2008    | |  2008    | |  2007    | |  2007    | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |Notes  | |  $'000   | |  $'000   | |  $'000   | |  $'000   | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| ASSETS                           |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Non-current assets:              |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Property, plant    |  10   | |     602  | |          | |      914 | |          | 
|               and equipment      |       | |          | |          | |          | |          | 
|               (PPE)              |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Intangible assets  |  11   | |   7,602  | |          | |    7,657 | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Rental deposits    |       | |      45  | |          | |       62 | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Deferred tax       |  20   | |   2,763  | |          | |    3,258 | |          | 
|               assets             |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|            Total non-current     |       | |          | |  11,012  | |          | |   11,891 | 
|            assets                |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Current assets:                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Other receivables and prepaid    |  13   | |     998  | |          | |    1,161 | |          | 
| expenses                         |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Current tax assets |       | |   1,911  | |          | |    1,786 | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Trade receivables  |  14   | |   5,618  | |          | |    9,629 | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Financial assets through profit  |  15   | |   4,249  | |          | |    5,165 | |          | 
| and loss                         |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Cash and cash      |  16   | |  14,506  | |          | |    9,707 | |          | 
|               equivalents        |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|            Total current assets  |       | |          | |  27,282  | |          | |   27,448 | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                  TOTAL ASSETS    |       | |          | |  38,294  | |          | |   39,339 | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| LIABILITIES                      |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Non-current liabilities:         |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Employee benefits, |  19   | |     503  | |          | |      448 | |          | 
|               net                |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Total Non-current liabilities    |       | |          | |     503  | |          | |      448 | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Current Liabilities:             |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Other payables     |  17   | |   2,816  | |          | |    3,760 | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Trade payables     |  21   | |   4,411  | |          | |    4,040 | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Customer advances and deferred   |  18   | |   3,393  | |          | |    4,525 | |          | 
| revenue                          |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Loans and          |  22   | |   5,360  | |          | |    5,907 | |          | 
|               borrowings         |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|            Total current         |       | |          | |  15,980  | |          | |   18,232 | 
|            liabilities           |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|            Total liabilities     |       | |          | |  16,483  | |          | |   18,680 | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                  TOTAL NET       |       | |          | |  21,811  | |          | |   20,659 | 
|                  ASSETS          |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                                  |       | |          | |          | |          | |          | 
+----------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
 
 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                               |       | |  As at December 31,   | |  As at December 31,   | 
+-------------------------------+-------+-+-----------------------+-+-----------------------+ 
|                               |       | |  2008    | |  2008    | |  2007    | |  2007    | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                               |Notes  | |  $'000   | |  $'000   | |  $'000   | |  $'000   | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                  Capital and  |       | |          | |          | |          | |          | 
|                  reserves     |       | |          | |          | |          | |          | 
|                  attributable |       | |          | |          | |          | |          | 
|                  to           |       | |          | |          | |          | |          | 
|                  equity       |       | |          | |          | |          | |          | 
|                  holders of   |       | |          | |          | |          | |          | 
|                  the company  |       | |          | |          | |          | |          | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Share capital   |  23   | |       1  | |          | |       1  | |          | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
| Additional paid-in capital    |       | |  10,082  | |          | |  10,025  | |          | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Treasury share  |       | |    (463) | |          | |    (463) | |          | 
|               reserve         |       | |          | |          | |          | |          | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|               Retained        |       | |  12,191  | |          | |  11,096  | |          | 
|               earnings        |       | |          | |          | |          | |          | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                               |       | |          | |          | |          | |          | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                  TOTAL EQUITY |       | |          | |  21,811  | |          | |   20,659 | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
|                               |       | |          | |          | |          | |          | 
+-------------------------------+-------+-+----------+-+----------+-+----------+-+----------+ 
 
 
The financial statements were approved by the Board of Directors on February 24, 
2009, and were signed on it's behalf by: 
+-----------------------+--+------------------+--------------------+---------------------+ 
|  February 24, 2009    |  |                  |                    |                     | 
+-----------------------+--+------------------+--------------------+---------------------+ 
|   Date of approval    |  |  Dan Goldstein   |      Alon Raz      |     Amos Sivan      | 
+-----------------------+--+------------------+--------------------+---------------------+ 
|     of financial      |  |    Chairman      |  Chief Financial   |    Active Vice      | 
|      statements       |  |  of the Board    |      Officer       |      Chairman       | 
+-----------------------+--+------------------+--------------------+---------------------+ 
 
 
The accompanying notes form an integral part of the financial statements. 
 
 
Consolidated cash flow statement for the year ended December 31, 2008 
 
 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                                               | |    For the year    | |    For the year    | | 
|                                               | |  ended December    | |  ended December    | | 
|                                               | |        31,         | |        31,         | | 
+-----------------------------------------------+-+--------------------+-+--------------------+-+ 
|                                               | |  2008   | |  2008  | |  2007   | |  2007  | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                                               | |  $'000  | | $'000  | |  $'000  | | $'000  | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
| Cash flows from operating activities:         | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Profit for the year                | |  1,095  | |        | |  2,033  | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                                               | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Adjustments for:                   | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                        Depreciation and       | |  1,989  | |        | |  2,716  | |        | | 
|                        amortization           | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                        Decrease (increase) in | |    495  | |        | |   (725) | |        | | 
|                        deferred tax assets    | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                        Employees' stock       | |     57  | |        | |     82  | |        | | 
|                        options                | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                                               | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
| Cash flows from activities before changes     | |         | |        | |         | |        | | 
|   in working capital and provisions:          | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Decrease in financial assets       | |    668  | |        | |    271  | |        | | 
|            through profit and loss            | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Decrease in trade receivables      | |  4,011  | |        | |    704  | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Decrease in other receivables,     | |    180  | |        | |    135  | |        | | 
|            prepaid expenses and rental        | |         | |        | |         | |        | | 
|            deposits                           | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Increase in current tax assets     | |   (125) | |        | |   (467) | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Increase in trade payables         | |    406  | |        | |    754  | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Decrease in other payables         | |   (944) | |        | |   (558) | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Increase in employee benefits      | |     55  | |        | |     95  | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|            Decrease in customer advances and  | | (1,132) | |        | | (2,225) | |        | | 
|            deferred revenues                  | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                                               | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
| Cash generated from operations                | |         | |  6,755 | |         | |  2,815 | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
|                                               | |         | |        | |         | |        | | 
+-----------------------------------------------+-+---------+-+--------+-+---------+-+--------+-+ 
 
 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|                                               | |    For the year      | |    For the year      | | 
|                                               | |    ended December    | |    ended December    | | 
|                                               | |         31,          | |         31,          | | 
+-----------------------------------------------+-+----------------------+-+----------------------+-+ 
|                                               | |  2008   | |  2008    | |  2007   | |  2007    | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|                                               | |  $'000  | |  $'000   | |  $'000  | |  $'000   | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
| Cash flows from operating activities brought  | |         | |   6,755  | |         | |   2,815  | | 
| forward                                       | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
| Investing Activities:                         | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|            Acquisition of business enterprise | | -       | |          | |    (52) | |          | | 
|            (Annex A)                          | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|            Capitalization of software         | | (1,401) | |          | | (2,203) | |          | | 
|            development costs                  | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|               Sale of financial assets        | | 248     | |          | | -       | |          | | 
|               through profit and loss         | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|            Purchase of PPE                    | | (256)   | |          | | (217)   | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|                                               | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|                                               | |         | |  (1,409) | |         | |  (2,472) | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
| Financing Activities:                         | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|            Dividend distribution              | |         | |          | | -       | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|            Company's purchase of Company      | |         | |          | | -       | |          | | 
|            shares                             | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|            Short-term bank borrowing, net     | |   (717) | |          | | (1,497) | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|            Other short-term credit            | |    170  | |          | |    170  | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|                                               | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|                                               | |         | |    (547) | |         | |  (1,327) | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
| Increase (decrease) in cash and cash          | |         | |   4,799  | |         | |    (984) | | 
| equivalents                                   | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
| Cash and cash equivalents at beginning of     | |         | |   9,707  | |         | |  10,691  | | 
| year                                          | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
| Cash and cash equivalents at end of year      | |         | |  14,506  | |         | |   9,707  | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
|                                               | |         | |          | |         | |          | | 
+-----------------------------------------------+-+---------+-+----------+-+---------+-+----------+-+ 
 
 
Supplement disclosure on cash flow information 
 
 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
|                                                   |     | |     As at      | |     As at      | 
|                                                   |     | |    December    | |    December    | 
|                                                   |     | |    31, 2008    | |    31, 2007    | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
|                                                   |     | |         $'000  | |         $'000  | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
| Cash paid during the year for:                    |     | |                | |                | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
|            Income tax                             |     | |            475 | |            661 | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
|            Interest                               |     | |  321           | |  518           | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
|                                                   |     | |                | |                | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
|                                                   |     | |   796          | |          1,179 | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
| Non-cash activities:                              |     | |                | |                | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
|            Purchase of property and equipment     |     | |             15 | |             50 | 
|            against trade payables                 |     | |                | |                | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
|                                                   |     | |                | |                | 
+---------------------------------------------------+-----+-+----------------+-+----------------+ 
 
 
 
 
Annex 'A' - Acquisition of business enterprise: 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
|                                             |          | |     As at      | |     As at      | 
|                                             |          | |    December    | |    December    | 
|                                             |          | |    31, 2008    | |    31, 2007    | 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
|                                             |          | |         $'000  | |         $'000  | 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
| Customer contracts and related customer     |          | |       -        | |           143  | 
| relationships                               |          | |                | |                | 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
| Property and equipment                      |          | |       -        | |            17  | 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
| Working Capital                             |          | |       -        | |          (108) | 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
|                                             |          | |                | |                | 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
|                                             |          | |       -        | |            52  | 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
|                                             |          | |                | |                | 
+---------------------------------------------+----------+-+----------------+-+----------------+ 
 
 
Notes forming part of the financial statements for the year ended December 31, 
2008 
 
 
The directors of the Company are responsible for the financial information set 
out below. 
 
 
NOTE 1 - ACCOUNTING POLICIES: 
General: 
F.T.S. - Formula Telecom Solutions Ltd (the "Company") was founded in January 
1997 under the law of the state of Israel. 
 
 
The Company is a global provider of convergent telecom management solutions for 
mobile, fixed-line and advanced services operators. The Company provides a range 
of versatile solutions to the market, which include convergent real-time prepaid 
and postpaid billing and Customer Relationship Management ("CRM") order 
management, infrastructure management, Electronic Bill Presentation software, as 
well as call center implementations. 
 
 
The Company operates in one operating segment. 
Definitions: 
In this financial information: 
The Company - F.T.S - Formula Telecom Solutions Limited. 
The Group - The Company and its subsidiaries. 
Subsidiaries - Companies that are controlled by the Company (as defined in IAS 
27) and whose accounts are consolidated with those of the Company. 
The parent company - Formula Vision Technologies (F.V.T.) Limited. 
Related parties - As defined in IAS 24. 
Basis of preparation: 
The principal accounting policies adopted in the preparation of the financial 
statements are set out below. The policies have been consistently applied to all 
the years presented, unless otherwise stated. 
 
 
The financial statements have been prepared in accordance with International 
Financial Reporting Standards (IFRSs and IFRIC interpretations) issued by the 
International Accounting Standards Board (IASB) and with those parts of the 
Companies Law 1999 in Israel applicable to companies preparing their accounts 
under IFRS. The financial statements have been prepared under the historical 
cost convention, as modified by the revaluation of financial assets and 
financial liabilities at fair value through profit or loss. 
 
 
Changes in accounting policies: 
New standards, amendments to published standards and interpretations to existing 
standards effective in 2008 adopted by the group. 
 
 
Disclosure of new IFRS in the period prior to their adoption: 
-IFRS 8 - Operating Segments: 
IFRS 8 ("the Standard") discusses operating segments and replaces IAS 14. The 
Standard applies to companies whose securities are traded or are in the process 
of filing with any securities stock exchange. The Standard is effective for 
annual financial statements for periods beginning after January 1, 2009. Earlier 
application is permitted. The provisions of the Standard will be applied 
retrospectively, by restatement, unless the necessary information is not 
available or impractical to obtain. 
 
 
The Standard determines that an entity will adopt a management approach in 
reporting on the financial performance of the operating segments. The segment 
information would be the information that is internally used by management in 
order to asses its performance and allocate resources to the operating segments. 
 
 
Furthermore, information is required to be disclosed about the products or 
services (or group of products and similar services) from which the entity 
derives its revenues, the countries in which these revenues or assets are 
derived and major customers, irrespective of whether management uses this 
information for making operating decisions. 
 
 
The Company believes that the effect of the new Standard on the current 
presentation of segments is not expected to be material. 
 
-IAS 23 (Revised) - Borrowing Costs: 
 In accordance with the revised IAS 23, borrowing costs that are directly 
attributable to the acquisition, construction or production of a qualifying 
asset must be capitalized. A qualifying asset is an asset that necessarily takes 
a substantial period of time to get ready for its intended use or sale and 
includes fixed assets, investment property and inventories that take a 
substantial period of time to get ready for sale. The possibility of immediately 
carrying these costs as an expense has been removed. 
 
 
The revised Standard is effective for the financial statements for the year 
beginning January 1, 2009. Earlier application is permitted. 
 
 
The Company believes that the effect of the revised Standard on its financial 
condition, results of operations and cash flows is not expected to be material. 
 
 
-IAS 1 (Revised) - Presentation of Financial Statements: 
IAS 1 (Revised) requires entities to present a second statement, a separate 
"statement of comprehensive income" displaying , other than the net income taken 
from the statement of income, all the items carried in the reported period 
directly to equity that do not result from transactions with the shareholders in 
their capacity as shareholders (other comprehensive income) such as adjustments 
arising from translating the financial statements of foreign operations, fair 
value adjustments of available-for-sale financial assets, changes in revaluation 
surplus of fixed assets and such and the tax effect of these items carried 
directly to equity, while properly allocated between the Company and the 
minority interests. Alternatively, the items of other comprehensive income may 
be displayed along with the items of the statement of income in a single 
statement entitled "statement of comprehensive income" which replaces the 
statement of income, while properly allocated between the Company and the 
minority interests. 
 
 
Items carried to equity resulting from transactions with the shareholders in 
their capacity as shareholders (such as capital issues, dividend distribution 
etc.) will be disclosed in the statement of changes in equity as will the 
summary line carried forward from the statement of comprehensive income, while 
properly allocated between the Company and the minority interests. 
 
 
IAS 1 (Revised) also prescribes that in cases of restatement of comparative 
figures as a result of the retroactive adoption of a change in accounting 
policy, the entity must include an opening balance sheet disclosing the restated 
comparative figures. 
 
 
IAS 1 (Revised) is effective for annual financial statements for periods 
beginning after January 1, 2009. Earlier application is permitted. 
 
 
The effect of the adoption of IAS 1 (Revised) will require the Company to 
disclose the above items in the financial statements 
 
-IFRS 3 (Revised) - Business Combinations and IAS 27 (Revised) - Consolidated 
and Separate Financial Statements: 
IFRS 3 (Revised) and IAS 27 (Revised) ("the Standards") will be effective for 
annual financial statements for periods beginning on January 1, 2010. The 
combined early adoption of the two Standards is permitted from the financial 
statements for periods beginning on January 1, 2008. 
 
-IFRS 3 (Revised) - Business Combinations and IAS 27 (Revised) - Consolidated 
and Separate Financial Statements (cont.): 
The principal changes expected to take place following the adoption of the 
Standards are: 
 
 
(a)IFRS 3 currently prescribes that goodwill, as opposed to the acquirer's other 
identifiable assets and liabilities, will be measured as the excess of the cost 
of the acquisition over the acquirer's share in the fair value of the 
identifiable assets, net on the acquisition date. According to the Standards, 
goodwill can be measured at its full fair value and not only based on the 
acquired part, this in respect of each business combination transaction measured 
separately.. 
 
 
(b) A contingent consideration in a business combination will be measured at 
fair value and changes in the fair value of the contingent consideration, which 
do not represent adjustments to the acquisition cost in the measurement period, 
will not be simultaneously recognized as goodwill adjustment. Normally, the 
contingent consideration will be considered a financial derivative within the 
scope of IAS 39 and will be presented at fair value through profit or loss. 
 
 
(c) Direct acquisition costs attributed to a business combination transaction 
will be recognized in the statement of income as incurred as opposed to the 
previous requirement of carrying them as part of the consideration of the cost 
of the business combination, which has been removed. 
 
 
(d) A minority transaction, whether a sale or an acquisition, will be accounted 
for as an equity transaction and will therefore not be recognized in the 
statement of income or have any effect on the amount of goodwill, respectively. 
 
 
(e) A subsidiary's losses, although resulting in the subsidiary's deficiency, 
will be allocated between the parent company and minority interests, even if the 
minority has not guaranteed or has no contractual obligation of sustaining the 
subsidiary or carrying out another investment. 
 
 
(f) On the loss of control of a subsidiary, the remaining investment in the 
subsidiary, if any, will be revalued to fair value against gain and loss from 
the sale and this fair value will represent the cost basis for the purpose of 
subsequent treatment. 
 
 
The Company believes that the effect of the Standards on its financial 
condition, results of operations and cash flows is not expected to be material. 
 
 
-IFRS 2 (Revised) - Share-based Payment: 
Pursuant to the IFRS 2 (Revised) ("the revised Standard"), the definition of 
vesting terms will only include service conditions and performance conditions 
and the settlement of a grant that includes non-vesting conditions by the 
Company or the counterparty, will be accounted for by way of vesting 
acceleration and not by forfeiture. The Standard will be applied retrospectively 
for financial statements for periods beginning on January 1, 2009. Earlier 
application is permitted. 
 
 
Vesting conditions include service conditions which require the counterparty to 
complete a specified period of service and performance conditions which require 
specified performance targets to be met. Conditions that are other than service 
and performance conditions will be viewed as non-vesting conditions and must 
therefore be taken into account when estimating the fair value of the instrument 
granted. 
The Company believes that the revised Standard will have no effect on its 
financial position, results of operations and cash flows. 
The Project for the improvement of the International Financial Reporting 
Standards 2008: 
In May 2008, the IASB published 35 amendments for its International Financial 
Reporting Standards. The amendments were performed for the Project for the 
improvement of the International Financial Reporting Standards 2008. Some of the 
amendments refer only to definitions and editing and some refer to recognition, 
measurement, disclosure and presentation and could effect current accounting 
policy. Most of the amendments are on annual reports for periods beginning on 1 
January, 2009 or after. The amendments can be adopted early, subject to certain 
conditions. The Company is checking the effect of these amendments on its 
financial reports. 
 
Basis of consolidation: 
Where the Company has the power, either directly or indirectly, to govern the 
financial and operating policies of another entity or business so as to obtain 
benefits from its activities, it is classified as a subsidiary. The consolidated 
financial statements present the results of the Company and its subsidiaries 
("the group") as if they formed a single entity. Intercompany transactions and 
balances between group companies are therefore eliminated in full. 
Business combination: 
The consolidated financial statements incorporate the results of business 
combinations using the purchase method. In the consolidated balance sheet, the 
acquirer's identifiable assets, liabilities and contingent liabilities are 
initially recognized at their fair value at the acquisition date. The results of 
acquired operations are included in the consolidated income statement from the 
date on which control is obtained. This policy was not applied in the 
acquisition of FTS INC according to IFRS 3 due to application of IFRS 1- 
'First-time Adoption of International Financial Reporting Standards' on 
transition date at 1 January 2006: 
The carrying amount of capitalized goodwill under IFRS on 31 December 2005 is 
the same as it was under US GAAP. This amount was frozen and tested for 
impairment under IFRS at 1 January 2006. The carrying amount was adjusted for 
intangible assets that would have been required to be recognized in the 
acquirer's separate financial statements in accordance with IAS 38 'Intangible 
Assets', such as development costs. 
Goodwill: 
Goodwill represents the excess of the cost of a business combination over the 
interest in the fair value of identifiable assets, liabilities and contingent 
liabilities acquired. Cost comprises the fair values of assets given, 
liabilities assumed and equity instruments issued, plus any direct costs of 
acquisition. 
Goodwill is capitalized as an intangible asset with any impairment in carrying 
value being charged to the income statement. Where the fair value of 
identifiable assets, liabilities and contingent liabilities exceed the fair 
value of consideration paid, the excess is credited in full to the consolidated 
income statement on the acquisition date. 
 
 
Revenue recognition: 
1.    Revenues from services are recognized as follows: 
In fixed fee contracts - according to International Accounting Standard No. 11 
"Construction Contracts" pursuant to which revenues and costs are reported by 
the "percentage of completion" method. 
 
 
The percentage of completion is determined by dividing actual completion costs 
by the anticipated completion costs. 
 
 
Amounts billed in advance of services being performed are recorded as deferred 
revenue. Unbilled receivables represent revenue earned but not yet billable 
under the term of the fixed price contracts and all such amounts are expected to 
be billed and collected during the succeeding 12 months. 
 
In cases where a loss from a project is anticipated, a provision is made in the 
period in which it first becomes evident, for the entire loss anticipated until 
completion, as assessed by the Company's management. 
 
 
Estimated gross profit or loss from long-term contracts may change due to 
changes in estimates resulting from differences between actual performance and 
original forecasts. Such changes in estimated gross profit are recorded in 
results of operations when they are reasonably determinable by management, on a 
cumulative catch-up basis. 
2.    Revenues from sales of products are recognized upon delivery, provided no 
significant vendor obligations remain. 
3.    Revenues from maintenance services are recognized based on the 
proportionate share of the maintenance services under the contract to be 
provided in each year of account. 
4.    Revenues from professional services are recognized based on actual time 
incurred. 
 
Impairment of non-financial assets: 
Impairment tests on goodwill and other intangible assets with indefinite useful 
economic lives are undertaken annually on December 31. Other non-financial 
assets are subject to impairment tests whenever events or changes in 
circumstances indicate that their carrying amount may not be recoverable. Where 
the carrying value of an asset exceeds its recoverable amount (i.e. the higher 
of value in use and fair value less costs to sell), the asset is written down 
accordingly. 
 
 
Where it is not possible to estimate the recoverable amount of an individual 
asset, the impairment test is carried out on the asset's cash-generating unit 
(i.e. the lowest group of assets in which the asset belongs for which there are 
separately identifiable cash flows). Goodwill is allocated on initial 
recognition to each of The Company's cash-generating units that are expected to 
benefit from the synergies of the combination giving rise to the goodwill. 
 
 
Impairment charges are included in the administrative expenses line item in the 
income statement, except to the extent they reverse gains previously recognized 
in the statement of recognized income and expense. During the years 2008 and 
2007 no impairment charges of non-financial assets were required. 
 
 
 
 
Functional and reporting currency: 
The majority of the revenues of the Company are generated in U.S. dollars. In 
addition, a substantial portion of the Company's costs is incurred in U.S. 
dollars. The Company's management believes that the U.S. dollar is the primary 
currency of the economic environment in which the Company and its subsidiaries 
operate. Thus, the functional and reporting currency of the Company is the U.S. 
dollar. 
 
 
Foreign currency: 
Transactions entered into by group entities in a currency other than the 
currency of the primary economic environment in which they operate (the 
"functional currency") are recorded at the rates ruling when the transactions 
occur. Foreign currency monetary assets and liabilities are translated at the 
rates ruling at the balance sheet date. The majority of revenue and expenses are 
translated at historical rate and the rest are translated at average rates of 
exchange prevailing during the quarters. Exchange differences arising on the 
retranslation of unsettled monetary assets and liabilities are recognized 
immediately in the consolidated income statement. 
 
 
Financial assets: 
The group classifies its financial assets into one of the following categories, 
depending on the purpose for which the asset was acquired. 
 
 
Company's accounting policy for each category is as follows: 
 
 
Fair value through profit or loss: This category comprises only in-the-money 
derivatives. They are carried in the balance sheet at fair value with changes in 
fair value recognized in the consolidated income statement, in finance income or 
expense line. 
 
 
Loans and receivables: These assets are non-derivative financial assets with 
fixed or determinable payments that are not quoted in an active market. They 
arise principally through the provision of goods and trade receivables, but also 
incorporate other types of contractual monetary asset. They are carried at 
amortized cost less any allowance for impairment. 
 
 
Financial liabilities: 
The group classifies its financial liabilities into one of two categories, 
depending on the purpose for which the asset was acquired. 
 
 
The group's accounting policy for each category is as follows: 
 
 
Fair value through profit or loss: This category comprises only out-of-the-money 
derivatives) (see Financial assets for in the money derivatives). They are 
carried in the balance sheet at fair value with changes in fair value recognized 
in the consolidated income statement. 
 
 
As of December 31, 2008 no such liabilities are held by the Company. 
 
 
Other financial liabilities: Other financial liabilities include the following 
items: 
 
· Bank borrowings are initially recognized at fair value net of any transaction 
costs directly attributable to the issue of the instrument. Such interest 
bearing liabilities are subsequently measured at amortized cost using the 
effective interest rate method, which ensures that any interest expense over the 
period to repayment is at a constant rate on the balance of the liability 
carried in the balance sheet. Interest expense in this context includes initial 
transaction costs payable on redemption, as well as any interest or coupon 
payable while the liability is outstanding. 
. 
· Chief Scientist Grants: Chief Scientist grants are recognized as a liability 
according to IAS 37 up to the amount which is expected to be returned to the 
Chief scientist. The variance between the amount received from the scientist and 
the liability which was recognized in the balance sheet at the time the grant 
was received is recognized as a refund of research expenses or as a decrease in 
development costs which were capitalized, depending on which is relevant. The 
provision for liability for the chief scientist is checked every reporting 
period. The changes in the provision are recognized in the income statement or 
against a research and development asset, depending on which is relevant. 
 
 
Impairment of Financial Assets and Cancellation: 
The Company checks every balance date if there is an objective reason for the 
impairment of a financial asset or a group of financial assets. 
 
 
Fair Value of Financial Instruments: 
  1.  The fair value is the amount for which an asset can be traded or a liability can 
  be removed, between a willing buyer and a willing seller, who act logically, in 
  a transaction which is not effected by special relations between the sides. 
  2.  The best evidence for fair value is quotable active market values. 
 
 
 
Internally generated intangible assets (research and development costs): 
  *   Trade payables and other short-term monetary liabilities, which are initially recognized at fair value and subsequently carried at amortized cost using the effective interest method.
 
Expenditure on internally developed products is capitalized if it can be 
demonstrated that: 
  *  
  *  
  *  
  *  
  *  
  *  it is technically feasible to develop the product for it to be sold;adequate resources are available to complete the development;there is an intention to complete and sell the product;The Company is able to sell the product;sale of the product will generate future economic benefits; andexpenditure on the project can be measured reliably.
 
 
 
 
 
Capitalized development costs are amortized over the periods The Company expects 
to benefit from selling the products developed. The amortization expense is 
included within the cost of sales line in the income statement. 
Development expenditure not satisfying the above criteria and expenditure on the 
research phase of internal projects are recognized in the income statement as 
incurred. 
 
 
Development costs are recognized in the consolidated statement of income seeing 
as the Company does not meet the abovementioned conditions. 
 
Rights in software: 
The annual amortization of rights in software is based on the straight-line 
method over the remaining estimated economic life of the product including the 
period being reported on. Amortization starts when the product is available for 
general release to customers. 
 
 
The Company is using the straight-line method over the useful life, which is 
three years. 
The Company periodically evaluates the recoverability of rights in software and 
take into account events or circumstances that warrant revised estimates of 
useful lives or that indicate that impairment exists. 
Patents and trademarks: 
The Company is using the straight-line method over the useful life, which is 18 
years. 
Customer lists: 
The Company is using the straight-line method over the useful life, which is 4 
years. 
 
 
Deferred taxation: 
Deferred tax assets and liabilities are recognized where the carrying amount of 
an asset or liability in the balance 
 - sheet differs to its tax base, except 
for differences arising on: 
the initial recognition of goodwill; 
- goodwill for which amortization is not tax deductible; 
- the initial recognition of an asset or liability in a transaction which is not 
a business combination and at the time of the transaction affects neither 
accounting or taxable profit; and investments in subsidiaries and jointly 
controlled entities where. The Company is able to control the timing of the 
reversal of the difference and it is probable that the difference will not 
reverse in the foreseeable future. 
 
 
Recognition of deferred tax assets is restricted to those instances where it is 
probable that taxable profit will be available against which the difference can 
be utilized. 
 
 
The amount of the asset or liability is determined using tax rates that have 
been enacted or substantially enacted by the balance sheet date and are expected 
to apply when the deferred tax liabilities/(assets) are settled/(recovered). 
Deferred tax balances are not discounted. 
 
 
Property, plant and equipment: 
Items of property, plant and equipment are initially recognized at cost. As well 
as the purchase price, cost includes directly attributable costs and the 
estimated present value of any future costs of dismantling and removing items. 
The corresponding liability is recognized within provisions. Depreciation is 
computed by the straight line method, based on the estimated useful lives of the 
assets, as follows: 
 
 
+------------------------------------------+----------+-------------------+ 
|                                          |          |      Rate of      | 
|                                          |          |   depreciation    | 
+------------------------------------------+----------+-------------------+ 
| Motor vehicles                           |          |        15%        | 
+------------------------------------------+----------+-------------------+ 
| Leasehold improvements                   |          |        10%        | 
+------------------------------------------+----------+-------------------+ 
| Computers and equipment                  |          |        33%        | 
+------------------------------------------+----------+-------------------+ 
| Office furniture and equipment           |          |      15%-16%      | 
+------------------------------------------+----------+-------------------+ 
 
 
Leasehold improvements are depreciated over the expected term of the lease 
including optional extension, or over the estimated useful lives of the 
improvements, whichever is shorter. 
 
 
 
 
Cash and cash equivalents: 
Cash equivalents are considered by the Company to be highly-liquid investments, 
including, inter alia, short-term deposits with banks the maturity of which did 
not exceed three months at the time of deposit and which are not restricted. 
 
 
Company shares held by the Company: 
Shares of the Company that are held by the Company are presented as a reduction 
of shareholders' equity, at their cost to the Company. Gains and losses upon the 
sale of these shares, net of related income taxes, are carried to additional 
paid-in capital. 
 
 
Share-based payments: 
Where equity settled share options are awarded to employees, the fair value of 
the options at the date of grant is charged to the consolidated income statement 
over the vesting period. Non-market vesting conditions are taken into account by 
adjusting the number of equity instruments expected to vest at each balance 
sheet date so that, ultimately, the cumulative amount recognized over the 
vesting period is based on the number of options that eventually vest. Market 
vesting conditions are factored into the fair value of the options granted. As 
long as all other vesting conditions are satisfied, a charge is made 
irrespective of whether the market vesting conditions are satisfied. The 
cumulative expense is not adjusted for failure to achieve a market vesting 
condition. 
 
 
Provision for warranty: 
Based on past experience, the Company does not record any provision for warranty 
of its products and services. 
 
 
Employee benefits: 
According to Israeli work laws, employment agreements in Israel and the 
Company's practice, the Company is obligated to pay severance payments to its 
employees upon dismissal and in some circumstances, even if the employee has 
resigned or retired. The company's obligation for severance pay is dealt as a 
"defined benefit plan". 
 
 
The severance pay's provision, as shown in the balance sheet, represents the 
present value of the defined benefit plan as of the balance sheet's date. The 
provision is calculated by independent actuaries based on the "Projected Unit 
Credit" method. The provision's present value is determined by the 
capitalization of future expected cash flows (after taking in consideration 
future wages growth's rate) on the basis of government bonds' interest rates 
stated in the same currency as the benefits' payments. 
 
 
The Company implements the Corridor method. There are no actuary gains or 
losses, except for surplus in the corridor method. Therefore, with their 
occurrence, the Company does not credit the actuary gains or losses that have 
derived as a result of actuary assumptions and as a result of changes between 
previous assumptions and the actual results, to the income statement. 
 
 
The company acquires insurance polices and deposits in severances funds 
according to its obligation. 
 
 
The privilege to severance pay by the insurance policies is considered a return 
of expenses, whereas it is certain that the insurance company will, fully or 
partially, return the expenses needed to cover the severance pay obligation. 
 
 
Transactions with controlling parties: 
Transactions with controlling shareholders are disclosed in conformity with the 
provisions of the International Accounting Standard 24 (related party 
disclosures and transactions). 
 
 
Earnings per Share (EPS): 
Earnings per Share is determined and presented in accordance with IAS 33. 
Basic net earnings per share are computed based on the weighted average number 
of common shares outstanding during each year. Diluted earnings per share is 
computed based on the weighted average number of common shares outstanding 
during each year, plus dilutive potential common shares considered outstanding 
during the year. 
 
 
Critical accounting estimates and judgments: 
The Group makes certain estimates and assumptions regarding the future. 
Estimates and judgments are continually evaluated based on historical experience 
and other factors, including expectations of future events that are believed to 
be reasonable under the circumstances. In the future, actual experience may 
differ from these estimates and assumptions. The estimates and assumptions that 
have a significant risk of causing a material adjustment to the carrying amounts 
of assets and liabilities within the next financial year are discussed below. 
 
 
(a) Revenue recognition: 
The group has recognized part of its revenue according to IAS 11 "construction 
contracts." The revenue recognition depends on the percentage of completion 
method which is determined on estimates of anticipated completion costs. A 
change in these estimates may affect the revenue recognized in the income 
statement. 
 
 
(b) Employee Benefits: 
The costs, assets and liabilities of the defined benefit schemes operating by 
the group are determined using methods relying on actuarial estimates and 
assumptions. Details of the key assumptions are set out in note 19. The group 
takes advice from independent actuaries relating to the appropriateness of 
the assumptions. Changes in the assumptions used may have a significant effect 
on the consolidated income statement and the balance sheet. 
 
 
 
 
NOTE 2 - REVENUES: 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|                                      |  As at   | |    %     | |  As at    | |    %     | 
|                                      |December  | |          | | December  | |          | 
|                                      |31, 2008  | |          | | 31, 2007  | |          | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|                                      |  $'000   | |          | |  $'000    | |          | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
| Revenues                             |          | |          | |           | |          | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Customer A                |    5,726 | |       19 | |     9,971 | |       31 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Customer B                |    3,763 | |       13 | |     1,045 | |        3 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Customer C                |    3,091 | |       10 | |     1,918 | |        6 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Customer D                |    2,724 | |        9 | |     1,392 | |        4 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Customer E                |    1,376 | |        5 | |       478 | |        1 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Customer F                |    1,215 | |        4 | |       241 | |        1 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Customer G                |    1,146 | |        4 | |     1,764 | |        5 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Others                    |   10,990 | |       36 | |    15,296 | |       49 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|                                      |          | |          | |           | |          | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|                                      |   30,031 | |      100 | |    32,105 | |      100 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|                                      |          | |          | |           | |          | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
| Sources of revenues                  |          | |          | |           | |          | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Fixed fee contracts       |   13,885 | |       46 | |     9,690 | |       30 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Maintenance contracts     |   11,131 | |       37 | |    12,053 | |       38 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|            Professional services     |    5,015 | |       17 | |    10,362 | |       32 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|                                      |          | |          | |           | |          | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|                                      |   30,031 | |      100 | |    32,105 | |      100 | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
|                                      |          | |          | |           | |          | 
+--------------------------------------+----------+-+----------+-+-----------+-+----------+ 
 
 
 
 
NOTE 3 - RECLASSIFICATION 
In 2007, the Company classified the depreciation of research and development 
assets, which were capitalized, in the research and development expenses section 
instead of the cost of sales. This has been amended. A total of 299 thousand 
dollars was reclassified from research and development expenses to the cost of 
sales. 
 
NOTE 4 - PROFIT FROM OPERATIONS: 
This has been arrived at after charging: 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |  For the year ended    | 
|                                               |          | |      December 31,      | 
+-----------------------------------------------+----------+-+------------------------+ 
|                                               |          | |   2008    | |  2007    | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |  $'000    | |  $'000   | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Staff costs (see note 5)                      |          | |    13,372 | |   14,439 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Material and subcontractors                   |          | |     5,179 | |    5,922 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Deprecation of property, plant and equipment  |          | |     1,970 | |    2,706 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Travels                                       |          | |     1,633 | |    2,516 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Operating lease expense                       |          | |     1,584 | |    2,043 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Impairment of receivables                     |          | |     (331) | |    1,925 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Commissions                                   |          | |     1,432 | |      737 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Consultants                                   |          | |       665 | |      601 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Advertising                                   |          | |       211 | |      325 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Others                                        |          | |       968 | |      261 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |    26,683 | |   31,475 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
 
 
NOTE 5 - STAFF COSTS: 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |  For the year ended    | 
|                                               |          | |      December 31,      | 
+-----------------------------------------------+----------+-+------------------------+ 
|                                               |          | |   2008    | |  2007    | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |  $'000    | |  $'000   | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| Staff costs (including directors) comprise:   |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Wages and salary                   |          | |    11,041 | |   12,195 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Allocation costs for social        |          | |     1,466 | |    1,352 | 
|            expenses                           |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Employees' national insurance and  |          | |       665 | |      660 | 
|            similar taxes                      |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Bonuses                            |          | |       200 | |      232 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |    13,372 | |   14,439 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Directors and key management       |          | |           | |          | 
|            personal remuneration:             |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Wages and salary                   |          | |     1,410 | |    1,413 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Allocation costs for social        |          | |       210 | |      181 | 
|            expenses                           |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Employees' national insurance and  |          | |        58 | |       63 | 
|            similar taxes                      |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|            Bonuses                            |          | |       124 | |      110 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |     1,802 | |    1,767 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |           | |          | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
 
 
NOTE 6 - SEGMENTS: 
Segment information: 
The Company operates in four principal geographic segments: Europe, Asia, Africa 
and United States. Revenue and cost of sale are attributed to geographic region 
based on the location of the customers. 
 
 
It is impossible to reliably allocate assets, liabilities, depreciations and 
non-cash expenses to each segment because the Company develops and gives 
services to customers on a world wide basis. 
 
 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |  Europe  | |  Asia    | |  Africa  | |  United  | |  Total   | 
|                            |          | |          | |          | |  States  | |          | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |  2008    | |  2008    | |  2008    | |  2008    | |  2008    | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |  $'000   | |  $'000   | |  $'000   | |  $'000   | |  $'000   | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |          | |          | |          | |          | |          | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
| Revenue                    |   10,161 | |    4,237 | |    8,427 | |    7,206 | |   30,031 | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |          | |          | |          | |          | |          | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
| Gross Profit               |    4,730 | |    1,973 | |    3,923 | |    4,800 | |   15,426 | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
 
 
 
 
 
 
 
 
 
 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |  Europe  | |  Asia    | |  Africa  | |  United  | |  Total   | 
|                            |          | |          | |          | |  States  | |          | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |  2007    | |  2007    | |  2007    | |  2007    | |  2007    | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |  $'000   | |  $'000   | |  $'000   | |  $'000   | |  $'000   | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |          | |          | |          | |          | |          | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
| Revenue                    |   16,077 | |    2,171 | |    6,181 | |    7,676 | |   32,105 | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
|                            |          | |          | |          | |          | |          | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
| Gross Profit               |    6,446 | |       59 | |    3,456 | |    5,378 | |   15,339 | 
+----------------------------+----------+-+----------+-+----------+-+----------+-+----------+ 
 
 
 
 
 
 
 
 
NOTE 7 - Finance income and expense: 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |  2008    | |   2008    | |  2007    | |  2007    | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |  $'000   | |  $'000    | |  $'000   | |  $'000   | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
| Finance expense                         | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
| Interest expense on financial           | | (355)    | |           | | (373)    | |          | 
| liabilities                             | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|            Net losses on financial      | |   (669)  | |           | |     -    | |          | 
|            instruments classified as    | |          | |           | |          | |          | 
|            held                         | |          | |           | |          | |          | 
|            for trading                  | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|            Foreign currency             | | (595)    | |           | |    -     | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|            Bank fees                    | | (107)    | |           | | (111)    | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | | (1,726)   | |          | |    (484) | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
| Finance income                          | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|            Bank interest received       | | 230      | |           | |  151     | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|            Foreign currency             | | -        | |           | |  464     | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|            Gains from marketable        | | -        | |           | |  542     | |          | 
|            securities                   | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | |   230     | |          | |    1,157 | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | | (1,496)   | |          | |      673 | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
|                                         | |          | |           | |          | |          | 
+-----------------------------------------+-+----------+-+-----------+-+----------+-+----------+ 
 
 
 
 
NOTE 8 - TAXES ON INCOME: 
A.Tax Laws in Israel: 
1. Law for the Encouragement of Capital Investments, 1959: 
Pursuant to the provisions of the said law, the Company is eligible for tax 
benefits resulting from implementation of programs for investment in assets, in 
accordance with the letters of approval the Company received ("approved 
enterprises"), which grant the Company the rights to exemption from tax for a 
period of two years and subsequent to that period - to tax at a reduced rate of 
25% of five years on income derived from the approved enterprise, subject to 
fulfillment of the conditions stipulated in the letter of approval. Moreover, 
the Company was approved an additional exemption and received a beneficiary 
plant ("the expansion") for the part of revenues exceeding the Company's 2003 
revenues. 
 
 
The period in which the company will enjoy the tax exemption or reduced tax rate 
is limited in the letter of approval to seven years from the first year in which 
taxable income is earned. If the percentage of the company's share capital held 
by foreign shareholders exceeds 25%, then it will be entitled to reduced tax 
rates for a further three years, under certain conditions. 
 
 
If the Company distributes dividends out of the exempt income of the first two 
years of approved enterprise, it will be subject to tax at the rate of 25% on 
the distributed income. If the Company distributes dividends from the income of 
approved enterprise, the receivable will be subject to tax at the rate of 
maximum 15% on the distributed income. 
 
 
The Company intends to permanently reinvest the amounts of tax-exempt income and 
it does not intend to cause distribution of such dividends. Therefore, no 
deferred income taxes have been provided in respect of such tax-exempt income. 
 
 
The periods of benefits relating to the Company's Approved Enterprise were 
started on 2002 and expired in 2008 and, with respect to the expansion will 
expire, in 2010. 
The Company received a second expansion. This is applied on increases in revenue 
only. The Company is a technological company. Subject to fulfillment of the 
conditions stipulated in the letter of approval, the company can decrease the 
revenue base by 10% every year. The benefits of the second expansion will begin 
on the first year that the Company will report taxable income. 
2.Recent Israeli Tax Reform Legislation: 
In July 2002, the Israeli parliament approved a law enacting extensive changes 
to Israel's tax law generally effective January 1, 2003 (the "Tax Reform 
Legislation"). An Israeli company that is subject to Israeli taxes on the income 
of its non-Israeli subsidiaries will receive a credit for income taxes paid by 
the subsidiary in its country of residence. 
3.    Tax rates: 
The tax rate used for computing the provision for current taxes is 27%, with the 
exception of approved enterprises - see 1. above. 
 
 
On July 25, 2005, the corporate tax rate was reduced to 35% for the 2004 tax 
year, 34% for the 2005 tax year, 31% for the 2006 tax year, 29% for the 2007, 
27% for the 2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax 
year and thereafter. 
 
 
B.Subsidiaries outside Israel: 
Subsidiaries that are not Israeli resident are taxed in the countries where they 
are resident, according to the tax laws in the respective countries. 
C.    Income tax assessments: 
The Company has final tax assessments until 2006, including 2006. 
D.Income Tax (Inflationary Adjustments) Law, 1985: 
According to the law, until 2007, the results for tax purposes were measured 
based on the changes in the Israeli CPI. 
In February 2008, the "Knesset" (Israeli parliament) passed an amendment to the 
Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the 
law starting 2008 and thereafter. Starting 2008, the results for tax purposes 
are measured in nominal values, excluding certain adjustments for changes in the 
Israeli CPI carried out in the period up to December 31, 2007. The amendment to 
the law includes, inter alia, the elimination of the inflationary additions and 
deductions and the additional deduction for depreciation starting 2008. 
 
 
E.    Composition: 
 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |  2008    | |  2008    | |  2007    | |  2007    | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |  $'000   | |  $'000   | |  $'000   | |  $'000   | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
| Current tax expense:                | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|            Income tax on profits    | |     (18) | |          | |     (57) | |          | 
|            for the year             | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|            Taxes from previous      | |    (244) | |          | |       62 | |          | 
|            years                    | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |    (262) | |          | |        5 | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
| Deferred tax expense:               | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|            Origination and reversal | |    (495) | |          | |      725 | |          | 
|            of temporary differences | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |    (495) | |          | |      725 | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
| Total tax income (expense)          | |          | |    (757) | |          | |      730 | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
|                                     | |          | |          | |          | |          | 
+-------------------------------------+-+----------+-+----------+-+----------+-+----------+ 
 
 
 
 
F.The reasons for the difference between the actual tax charge for the year and 
the standard rate of corporation tax in Israel applied to profits for the year 
are as follows: 
+----------------------------------------------------+-+-----------+-+----------+ 
|                                                    | |   2008    | |  2007    | 
+----------------------------------------------------+-+-----------+-+----------+ 
|                                                    | |  $'000    | |  $'000   | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Profit (loss) before tax                           | |     1,852 | |    1,303 | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Expected tax charge based on the standard rate     | |     (500) | |    (378) | 
|   of corporation tax in Israel of 27% (2007 - 29%) | |           | |          | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Tax-exempt income (expenses not deductible for tax | |       206 | |      914 | 
| purposes), net                                     | |           | |          | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Tax benefit for an approved enterprise             | |       102 | |      473 | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Losses and temporary differences for which         | |       111 | |    (382) | 
| deferred taxes                                     | |           | |          | 
| Were not recorded                                  | |           | |          | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Taxes in respect of previous years                 | |     (543) | |      360 | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Different tax rates for subsidiaries               | |      (69) | |    (257) | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Other                                              | |      (64) | |    -     | 
+----------------------------------------------------+-+-----------+-+----------+ 
|                                                    | |           | |          | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Total tax income (expense)                         | |     (757) | |      730 | 
+----------------------------------------------------+-+-----------+-+----------+ 
|                                                    | |           | |          | 
+----------------------------------------------------+-+-----------+-+----------+ 
 
 
NOTE 9 - EARNINGS PER SHARE: 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|                                              |           | |    2008    | |    2007    | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|                                              |           | |     $      | |     $      | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
| Earnings used in basic EPS                   |           | |  1,095,000 | |      2,033 | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
| Earnings used in diluted EPS                 |           | |  1,095,000 | |      2,033 | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
| Weighted average number of shares used in    |           | | 32,956,012 | | 32,660,900 | 
| basic EPS                                    |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
| Effects of:                                  |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|            Diluted securities                |           | |     -      | |     35,112 | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|                                              |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
| Weighted average number of shares used in    |           | | 32,956,012 | | 32,696,012 | 
| diluted EPS                                  |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|                                              |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|                                              |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
| Basic net EPS                                |           | |     0.0332 | |     0.0623 | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|                                              |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|                                              |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
| Diluted net EPS                              |           | |     0.0332 | |     0.0622 | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
|                                              |           | |            | |            | 
+----------------------------------------------+-----------+-+------------+-+------------+ 
 
 
 
 
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT: 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |  Motor   | |  Office   | |  Leasehold   | | Computer  | |  Total   | 
|                         |vehicles  | |furniture  | |Improvements  | |    &      | |          | 
|                         |          | |    &      | |              | | software  | |          | 
|                         |          | |equipment  | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |  $'000   | |  $'000    | |    $'000     | |  $'000    | |  $'000   | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| At 31 December 2007:    |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Cost                    |  72      | |  1,350    | |  1,279       | |  7,240    | |  9,941   | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Accumulated             | (39)     | | (1,197)   | | (1,097)      | | (6,694)   | | (9,027)  | 
| depreciation            |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|            Net book     |  33      | |  153      | |  182         | |  546      | |  914     | 
|            value        |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| At 31 December 2008:    |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Cost                    |  72      | |  1,350    | |  1,279       | |  7,455    | |  10,156  | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Accumulated             | (50)     | | (1,210)   | | (1,197)      | | (7,097)   | | (9,554)  | 
| depreciation            |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|            Net book     |  22      | |  140      | |  82          | |  358      | |  602     | 
|            value        |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Year ended 31 December  |          | |           | |              | |           | |          | 
| 2007:                   |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Opening net book value  |  45      | |  196      | |  221         | |  855      | |  1,317   | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Additions               | -        | |  16       | |  1           | |  247      | |  264     | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Depreciation            | (12)     | | (59)      | | (40)         | | (556)     | | (667)    | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|            Closing net  |  33      | |  153      | |  182         | |  546      | |  914     | 
|            book value   |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Year ended 31 December  |          | |           | |              | |           | |          | 
| 2008:                   |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Opening net book value  |  33      | |  153      | |  182         | |  546      | |  914     | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Additions               | -        | | -         | | -            | |  221      | |  221     | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
| Depreciation            | (11)     | | (13)      | | (100)        | | (409)     | | (533)    | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|            Closing net  |  22      | |  140      | |  82          | |  358      | |  602     | 
|            book value   |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
|                         |          | |           | |              | |           | |          | 
+-------------------------+----------+-+-----------+-+--------------+-+-----------+-+----------+ 
 
 
 
NOTE 11 - Intangible assets: 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |  Rights  | |Development  | |  Patents   | |Customer  | |Goodwill  | |  Total   | 
|                                   |    in    | |    Cost     | |    and     | |  list    | |          | |          | 
|                                   |Software  | |             | |Trademarks  | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |  $'000   | |    $'000    | |   $'000    | |  $'000   | |  $'000   | |  $'000   | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| At 31 December 2007:              |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Cost                              |  650     | |  5,780      | |  142       | |  915     | |  3,535   | |  11,022  | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Accumulated                       | (322)    | | (2,405)     | | (45)       | | (593)    | | -        | | (3,365)  | 
| Amortization                      |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                             Net   |  328     | |  3,375      | |  97        | |  322     | |  3,535   | |  7,657   | 
|                             book  |          | |             | |            | |          | |          | |          | 
|                             value |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| At 31 December 2008:              |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Cost                              |  827     | |  7,004      | |  142       | |  915     | |  3,535   | |  12,423  | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Accumulated                       | (508)    | | (3,504)     | | (53)       | | (756)    | | -        | | (4,821)  | 
| Amortization                      |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                             Net   |  319     | |  3,500      | |  89        | |  159     | |  3,535   | |  7,602   | 
|                             book  |          | |             | |            | |          | |          | |          | 
|                             value |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Year ended 31                     |          | |             | |            | |          | |          | |          | 
| December 2007:                    |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Opening net book                  |  487     | |  2,723      | |  104       | |  522     | |  3,535   | |  7,371   | 
| value                             |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Additions                         | -        | |  2,203      | | -          | |  143     | |    -     | |  2,346   | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Amortization                      | (159)    | | (1,551)     | | (7)        | | (343)    | |    -     | | (2,060)  | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Closing net book                  |  328     | |  3,375      | |  97        | |  322     | |  3,535   | |  7,657   | 
| value                             |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Year ended 31                     |          | |             | |            | |          | |          | |          | 
| December 2008:                    |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Opening net book                  |  328     | |  3,375      | |  97        | |  322     | |  3,535   | |  7,657   | 
| value                             |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Additions                         |  177     | |  1,224      | |     -      | |    -     | |    -     | |  1,401   | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Amortization                      | (186)    | | (1,099)     | | (8)        | | (163)    | |    -     | | (1,456)  | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
| Closing net book                  |  319     | |  3,500      | |  89        | |  159     | |  3,535   | |  7,602   | 
| value                             |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
|                                   |          | |             | |            | |          | |          | |          | 
+-----------------------------------+----------+-+-------------+-+------------+-+----------+-+----------+-+----------+ 
 
 
 
 
 
NOTE 12 - SUBSIDIARIES: 
The principal subsidiaries of F.T.S - Formula Telecom Solutions Limited, all of 
which have been included in these consolidated financial statements, are as 
follows: 
 
 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
|                                                           | |    Percentage of ownership    | 
|                                                           | |          and control          | 
+-----------------------------------------------------------+-+-------------------------------+ 
|                                                           | |    As at     | |    As at     | 
|                                                           | |  December    | |  December    | 
|                                                           | |  31, 2008    | |   31,  2007  | 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
|                                                           | |      %       | |           %  | 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
| F.T.S- Formula Telecom Solutions Inc.                     | |              | |              | 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
| (Formerly known as Viziqor Solutions Inc.)*               | |         100  | |         100  | 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
| F.T.S- Formula Telecom Solutions Bulgaria                 | |         100  | |         100  | 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
| F.T.S. Global Limited                                     | |         100  | |         100  | 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
| Formula Telecom Limited (Russia)                          | |         100  | |         100  | 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
| Formula Telecom Solutions (China) Co., Ltd**              | |           -  | |          80  | 
+-----------------------------------------------------------+-+--------------+-+--------------+ 
 
 
 
 
*     On December 2005, the company has completed the acquisition of U.S. based 
Formula Telecom Solutions Inc. ("F.T.S Inc", a privately-held, leading provider 
of billing and business support systems (BSS), for a total of 2 million dollars. 
The acquisition positions the company as a leading provider of billing and BSS 
solutions in the North American market. The products of F.T.S Inc., some of 
which are specifically intended for the US market, will complement the company 
industry leading portfolio of solutions. 
 
 
As of December 31, 2005 F.T.S Inc. consolidated balance sheet is consolidate in 
the company balance sheet, starting January 1,2006 the results of operations of 
F.T.S Inc. are consolidated in the company consolidate income statement. 
 
 
**    Formula Telecom Solutions (China) Co. Ltd was legally held by the Company, 
but had no financial ctivity. It is no longer 
 

       legally head by the 
Company. 
 
 
 
 
NOTE 13 - OTHER RECEIVABLES AND PREPAID EXPENSES: 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |  As at    | |  As at   | 
|                                                  |          | | December  | |December  | 
|                                                  |          | |31,  2008  | |31, 2008  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |  $'000    | |  $'000   | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Prepaid expenses                                 |          | |      792  | |     852  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Government authorities                           |          | |      170  | |     264  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Short term leasing deposits                      |          | | 29        | |   40     | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Employees                                        |          | |        7  | |       5  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|            Total                                 |          | |      998  | |   1,161  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
 
 
 
 
 
NOTE 14 - TRADE RECEIVABLES: 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |  As at    | |  As at   | 
|                                                  |          | | December  | |December  | 
|                                                  |          | |31,  2008  | |31, 2007  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |  $'000    | |  $'000   | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Trade receivables                                |          | |    3,790  | |   6,903  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Unbilled receivables                             |          | |    4,393  | |   5,778  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Less provision for impairment of receivables     |          | |   (2,565) | |  (3,052) | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |    5,618  | |   9,629  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Balance of                                       |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|            Customer A                            |          | |      831  | |     830  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|            Customer B                            |          | |      610  | |      50  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|            Customer C                            |          | |      345  | |   1,691  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|            Customer D                            |          | |      284  | |   1,130  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|            Customer E                            |          | |      281  | |      50  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|            Customer F                            |          | |      224  | |     404  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|            Others                                |          | |    3,043  | |   5,474  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |    5,618  | |   9,629  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
 
 
As at 31 December 2008 trade receivables of $250 thousand (2007 - $250 thousand) 
were past due but not impaired. 
They relate to the customers with no default history. The ageing analysis of 
these receivables is as follows: 
 
 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |   2008    | |  2007    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  $'000    | |  $'000   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                             Up to 3 months                | | -         | |       26 | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                             3 to 6 months                 | | -         | | -        | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                             6 to 12 months                | | 250       | |      224 | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | | 250       | |      250 | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
 
 
NOTE 14 - TRADE RECEIVABLES (cont.): 
Unbilled receivables: 
 
 
 
 
The balance of Unbilled receivables represents undue amounts at balance sheet 
date (no past due amounts). 
 
 
Movement in impairment of receivables: 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |  As at    | |  As at   | 
|                                                  |          | | December  | |December  | 
|                                                  |          | |31,  2008  | |31, 2007  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |  $'000    | |  $'000   | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Balance at beginning of the year                 |          | |     3,052 | |   1,516  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Provided during the year                         |          | |     (487) | |   1,536  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |     2,565 | |   3,052  | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
| Receivable written off during the year as        |          | | -         | | -        | 
| uncollectable                                    |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                        Balance at end of the     |          | |     2,565 | |   3,052  | 
|                        year                      |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
|                                                  |          | |           | |          | 
+--------------------------------------------------+----------+-+-----------+-+----------+ 
 
 
 
 
The company believes that there is no need for further impairment of receivables 
according to past experience with its customers. 
 
NOTE 15 - FINANCIAL ASSETS THROUGH PROFIT AND LOSS 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  As at    | |  As at   | 
|                                                           | | December  | |December  | 
|                                                           | | 31, 2008  | |31, 2007  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  $'000    | |  $'000   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
| Fair value through profit and loss                        | |  4,249    | |  5,165   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
 
 
NOTE 16 - CASH AND CASH EQUIVALENTS: 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  As at    | |  As at   | 
|                                                           | | December  | |December  | 
|                                                           | | 31, 2008  | |31, 2007  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  $'000    | |  $'000   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
| In NIS *                                                  | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|            Cash on hand and in banks                      | |      484  | |     348  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|            Deposits (a)                                   | |        4  | |       3  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |      488  | |     351  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
| In other currency                                         | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|            Cash on hand and in banks in USD               | |     8,453 | |   9,267  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|            Deposits in Euro (a)                           | |     2,427 | |      88  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|            Deposits in US dollars (a)                     | |     3,138 | |       1  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |    14,018 | |   9,356  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |   14,506  | |   9,707  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
 
 
(a)    Most of the deposits are not linked and bear interest of 1% - 2% as of 
December 31, 2008. 
*    New Israeli Shekel. 
 
 
 
 
NOTE 17 - OTHER PAYABLES: 
+--------------------------------------------------+----------+-+------------+-+----------+ 
|                                                  |          | |   As at    | |  As at   | 
|                                                  |          | |  December  | |December  | 
|                                                  |          | | 31,  2008  | |31, 2007  | 
+--------------------------------------------------+----------+-+------------+-+----------+ 
|                                                  |          | |   $'000    | |  $'000   | 
+--------------------------------------------------+----------+-+------------+-+----------+ 
| Accrued expense                                  |          | |     1,043  | |   1,965  | 
+--------------------------------------------------+----------+-+------------+-+----------+ 
| Employees and other wage and salary related      |          | |     1,130  | |   1,692  | 
| liabilities                                      |          | |            | |          | 
+--------------------------------------------------+----------+-+------------+-+----------+ 
| Government Authorities                           |          | |        33  | |      28  | 
+--------------------------------------------------+----------+-+------------+-+----------+ 
| Other                                            |          | |       610  | |      75  | 
+--------------------------------------------------+----------+-+------------+-+----------+ 
|                                                  |          | |            | |          | 
+--------------------------------------------------+----------+-+------------+-+----------+ 
|                                                  |          | |     2,816  | |   3,760  | 
+--------------------------------------------------+----------+-+------------+-+----------+ 
 
 
 
 
 
 
 
 
 
 
 
NOTE 18 - CUSTOMER ADVANCES AND DEFERRED REVENUE: 
+--------------------------------------------------+----------+-+------------+-+-----------+ 
|                                                  |          | |   As at    | |  As at    | 
|                                                  |          | |  December  | | December  | 
|                                                  |          | | 31,  2008  | |31,  2007  | 
+--------------------------------------------------+----------+-+------------+-+-----------+ 
|                                                  |          | |   $'000    | |  $'000    | 
+--------------------------------------------------+----------+-+------------+-+-----------+ 
| Amount received                                  |          | | 7,575      | |  4,937    | 
+--------------------------------------------------+----------+-+------------+-+-----------+ 
| Less - revenue recognized to date                |          | | (4,182)    | | (412)     | 
+--------------------------------------------------+----------+-+------------+-+-----------+ 
|                                                  |          | |            | |           | 
+--------------------------------------------------+----------+-+------------+-+-----------+ 
|                                                  |          | | 3,393      | |  4,525    | 
+--------------------------------------------------+----------+-+------------+-+-----------+ 
|                                                  |          | |            | |           | 
+--------------------------------------------------+----------+-+------------+-+-----------+ 
 
 
 
 
NOTE 19 - EMPLOYEE BENEFITS: 
 
A.    Expenses recognized in the statement of income: 
 
 
+----------------------------------------------------+-+-----------+-+----------+ 
|                                                    | |   2008    | |  2007    | 
+----------------------------------------------------+-+-----------+-+----------+ 
|                                                    | |  $'000    | |  $'000   | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Current service cost                               | |      432  | |     438  | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Interest cost on benefit obligation                | |      106  | |      88  | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Expected return on plan assets                     | |      (68) | |     (78) | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Net actuarial loss (gain) recognized in the year   | |    -      | |     101  | 
+----------------------------------------------------+-+-----------+-+----------+ 
| Past service cost                                  | |    -      | |    -     | 
+----------------------------------------------------+-+-----------+-+----------+ 
|                                                    | |           | |          | 
+----------------------------------------------------+-+-----------+-+----------+ 
|            Total employee benefit expenses         | |      470  | |     549  | 
+----------------------------------------------------+-+-----------+-+----------+ 
|            Actual return on plan assets            | |      470  | |     549  | 
+----------------------------------------------------+-+-----------+-+----------+ 
 
 
 
 
B.    The plan assets (liabilities), net: 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |   2008    | |  2007    | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |  $'000    | |  $'000   | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|       Liabilities for employee benefits      |          | |    2,039  | |   1,749  | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
| Fair value of plan assets                    |          | |   (1,364) | |  (1,301) | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |           | |          | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |      675  | |     448  | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |           | |          | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|       Net unrecognized actuarial losses *)   |          | |     (172) | |    -     | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|       Unrecognized past service cost         |          | |    -      | |    -     | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |           | |          | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|            Total liabilities, net            |          | |      503  | |     448  | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
 
 
*) Cumulative amounts for the value of the obligation and the value of the 
rights in the plan assets. 
 
 
 
 
C.The movement in the fair value of the plan assets: 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |   2008    | |  2007    | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |  $'000    | |  $'000   | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Balance at January 1,                       |          | |    1,301  | |   1,255  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Exchange differences                        |          | |       15  | |     125  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Expected return                             |          | |       68  | |      79  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Contributions by employer                   |          | |      420  | |     518  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Benefits paid                               |          | |     (258) | |    (738) | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Net actuarial gain (loss)                   |          | |    (182)  | |      62  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |           | |          | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |    1,364  | |   1,301  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |           | |          | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
 
 
D.Changes in the present value of defined benefit obligation: 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |   2008    | |  2007    | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |  $'000    | |  $'000   | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Balance at January 1,                       |          | |    1,749  | |   1,608  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Exchange differences                        |          | |       21  | |     158  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Interest cost                               |          | |      106  | |      88  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Current service cost                        |          | |      432  | |     438  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Benefits paid                               |          | |     (259) | |    (706) | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
| Net actuarial (gain)/ loss                  |          | |      (10) | |     163  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |           | |          | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |    2,039  | |   1,749  | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
|                                             |          | |           | |          | 
+---------------------------------------------+----------+-+-----------+-+----------+ 
 
E.The expenses and income in the income statement from employee benefits are 
included as salary and wage expenses in the relevant clauses. 
 
F.Supplementary information: 
1.    The Company's liabilities for severance pay retirement and pension 
pursuant to Israeli law are fully covered - in part by managers' insurance 
policies, for which the Company makes monthly payments and accrued amounts in 
severance pay funds and the rest by the liabilities which are included in the 
financial statements. 
 
 
2.    The amounts accrued in managers' insurance funds are registered under the 
name of the employees, and therefore such amounts are not stated in the 
financial information as liability for termination of employee-employer 
relationships or amounts funded. 
3.    The amounts funded displayed above include amounts deposited in severance 
pay funds with the addition of accrued income. According to the Severance Pay 
Law, the aforementioned amounts may not be withdrawn or mortgaged as long as the 
employer's obligations have not been fulfilled in compliance with Israeli law. 
 
 
G.The principal assumptions used in determining the obligation for the defined 
benefit plan: 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |   2008    | |  2007    | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |    %      | |    %     | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|                                              |          | |           | |          | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|     Discount rate                            |          | |   5.03    | |  6.44    | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
|     Expected rate of return on plan assets   |          | |   6.44    | |  6.17    | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
| Future salary increases                      |          | |   4.96    | |  5.83    | 
+----------------------------------------------+----------+-+-----------+-+----------+ 
 
 
 
NOTE 20 - DEFERRED TAX ASSETS: 
Deferred tax is calculated on temporary differences under the liability method 
using the tax rate of 15%-27% (2006 - 15%-29%) at the year the deferred tax 
assets are recovered. 
The movement on the deferred tax account is as shown below: 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |   2008    | |  2007    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  $'000    | |  $'000   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
| At 1 January                                              | |  3,258    | | 2,533    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
| Exchange difference                                       | | (495)     | | 725      | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|             At 31 December                                | |  2,763    | | 3,258    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
 
 
Deferred tax assets have been recognized in respect of all differences giving 
rise to deferred tax assets because it is probable that these assets will be 
recovered. 
Deferred tax assets and liabilities are only offset where there is a legally 
enforceable right of offset and there is an intention to settle the balances 
net. 
 
 
Details of the deferred tax amounts charged to reserves are as follows: 
Composition: 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
|                                                 |          | |  As at    | |  As at    | 
|                                                 |          | | December  | | December  | 
|                                                 |          | |31,  2008  | |31,  2007  | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
|                                                 |          | |  $'000    | |  $'000    | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Allowances and reserves                         |          | |       622 | |       916 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Research and development                        |          | |         8 | |       217 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Vacation accrual                                |          | |       132 | |       138 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Employee severance liabilities                  |          | |       126 | |       112 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Net operating losses carried forward            |          | |     1,875 | |     1,875 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
|                                                 |          | |           | |           | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Total                                           |          | |     2,763 | |     3,258 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Unrecognized deferred tax assets:               |          | |           | |           | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Loses carried forward                           |          | |       880 | |       816 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Others                                          |          | |       375 | |       178 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
|                                                 |          | |           | |           | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
| Total                                           |          | |     1,255 | |       994 | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
|                                                 |          | |           | |           | 
+-------------------------------------------------+----------+-+-----------+-+-----------+ 
 
 
 
 
NOTE 21 - TRADE AND OTHER PAYABLES- CURRENT: 
 
 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |   2008    | |  2007    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  $'000    | |  $'000   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|        Trade payables                                     | | 2,175     | | 1,325    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|        Accrued Expenses                                   | | 1,441     | | 2,352    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|        Checks to the payment                              | | 697       | | 127      | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|        Related parties                                    | | 98        | | 236      | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | | 4,411     | | 4,040    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
 
 
 
 
 
 
 
 
 
 
Mature analysis of the financial liabilities, excluding loans and borrowings, 
classified as financial liabilities measure at amortised cost, is as follows: 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |   2008    | |  2007    | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  $'000    | |  $'000   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|       Up to 3 months                                      | |     1,152 | |      645 | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|       3 to 6 months                                       | |    -      | |    -     | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|       6 to 12 months                                      | |    -      | |    -     | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |    1,152  | |      645 | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
 
 
NOTE 22 - LOANS AND BORROWINGS: 
 
 
 
 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  As at    | |  As at   | 
|                                                           | | December  | |December  | 
|                                                           | | 31, 2008  | |31, 2007  | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |  $'000    | |  $'000   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
| Fair value through profit or loss- held for trading       | |  5,360    | |  5,907   | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
|                                                           | |           | |          | 
+-----------------------------------------------------------+-+-----------+-+----------+ 
 
 
This amount consists of: 
  1.  A grant from the department of the chief scientist in the amount of 338 thousand 
  dollars. 
  2.  A loan from Bank Poalim in Israel in the amount of 5,022 thousand dollars. The 
  terms of this loan are London Interbank Offered Rate + 2%. 
 
 
 
 
 
 
 
NOTE 23 - SHARE CAPITAL: 
+-----------------------------------------------------------+-------------+-+-------------+ 
|                                                           |         Authorized          | 
+-----------------------------------------------------------+-----------------------------+ 
|                                                           |    2008     | |    2007     | 
+-----------------------------------------------------------+-------------+-+-------------+ 
|                                                           |   Number    | |   Number    | 
+-----------------------------------------------------------+-------------+-+-------------+ 
| Ordinary shares of no par value                           | 261,504,012 | | 261,504,012 | 
+-----------------------------------------------------------+-------------+-+-------------+ 
|                                                           |             | |             | 
+-----------------------------------------------------------+-------------+-+-------------+ 
 
 
+-----------------------------------------------------------+--------------+-+------------+ 
|                                                           |    Issued and fully paid    | 
+-----------------------------------------------------------+-----------------------------+ 
|                                                           |    2008      | |    2007    | 
+-----------------------------------------------------------+--------------+-+------------+ 
|                                                           |    Number    | |  Number    | 
+-----------------------------------------------------------+--------------+-+------------+ 
| Ordinary shares of no par value each at beginning of the  |  32,956,012  | | 32,812,012 | 
| year                                                      |              | |            | 
+-----------------------------------------------------------+--------------+-+------------+ 
| Employee share options exercised                          |   -          | | 144,000    | 
+-----------------------------------------------------------+--------------+-+------------+ 
|                                                           |              | |            | 
+-----------------------------------------------------------+--------------+-+------------+ 
|            At end of the year                             |  32,956,012  | | 32,956,012 | 
+-----------------------------------------------------------+--------------+-+------------+ 
|                                                           |              | |            | 
+-----------------------------------------------------------+--------------+-+------------+ 
 
 
 
 
Prior to the IPO in the Aim, the Company decided of conversion of each ordinary 
share of 1 NIS     each into one ordinary share with no par value. 
 
 
 
 
NOTE 24 - EMPLOYEE STOCK OPTION PLAN: 
In August 1999, the Company adopted an option plan ("1999 Options"). The 1999 
Options are fully vested and exercisable for a period of 24 months as of the 
date of the initial public offering of the Company ("Exercise Period").  1999 
Options that are not exercised within the Exercise Period will expire. 
 
 
In May 2003, the Company adopted another share option plan ("2003 Option"). The 
2003 Options shall be fully vested and exercisable in accordance with this plan 
upon the initial public offering of the Company. The 2003 Options that are not 
exercised by July 1, 2011 will expire. 
 
 
In accordance with section 102 of the Israeli Tax Ordinance and in order to 
benefit from this provision, the 1999 Options and 2003 Options were deposited 
with a trustee approved by the Israeli tax authority for a period of 2 years and 
for a period of 2 years from the end of the tax year in which the option were 
granted, respectively. 
 
 
On March 6, July 21 and August 10, 2005, the Company granted 36, 72 and 9 
options respectively to purchase 288,000,576,000 and 72,000 [see note 12] 
ordinary shares of the Company. 
 
 
The Company has elected to accelerate the vesting period of all its employee 
share options. As of December 31, 2005 all of the Company's options were fully 
vested. 
 
 
On February 15, 2007, the board of directors approved a maximum pool of up to 
975,000 shares reserved for issuance upon exercise of options that may be 
granted pursuant to the 2005 share option plan.  In July 2007, the Company's 
Board of Directors adopted an option plan pursuant to which the Company will 
grant options to employees of the Company to purchase up to an aggregate of 
855,000 Ordinary Shares. In accordance with this plan, employees of FTS and its 
subsidiaries were granted on August 19th, 2007, for no consideration, 741,700 
options, each of which may be exercised for one Ordinary Share of the Company at 
an exercise price of GBP 0.6-0.97 per share. Any option not exercised within 10 
years will expire. 50% of the options were exercisable from January 1st, 2008 
and 50% were exercisable from January 1, 2009. 
 
 
Most of the options were granted as part of a plan that was adopted in 
accordance with the provision of section 102 of the Israeli Income Tax 
Ordinance. 
 
 
A summary of the status of the Company stock option plan as of December 31, 
2008 and 2007 is as follows: 
 
 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
|                                      |           Year ended             | |            Year ended             | 
|                                      |        December 31, 2008         | |        December 31, 2007          | 
+--------------------------------------+----------------------------------+-+-----------------------------------+ 
|                                      |   Number    | |Weighted average  | |   Number    | |Weighted average   | 
|                                      |     of      | |  exercise price  | |     of      | |  exercise price   | 
|                                      |  options    | |                  | |  options    | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
|                                      |             | |        $         | |             | |        $          | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
|                                      |             | |                  | |             | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
| Options outstanding at beginning of  | 1,292,300   | |      1.471       | |  928,000    | |      1.288        | 
| year                                 |             | |                  | |             | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
|                                      |             | |                  | |             | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
| Changes during the year:             |             | |                  | |             | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
| Granted                              | 86,100      | |      1.211       | |  741,700    | |      1.553        | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
| Exercised                            |      -      | |        -         | | (144,000)   | |        -          | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
| Expired                              | (119,300)   | |      1.215       | | (233,400)   | |      1.910        | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
| Options outstanding at end of year   |  1,259,100  | |      1.220       | |  1,292,300  | |      1.471        | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
|                                      |             | |                  | |             | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
|                                      |             | |                  | |             | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
|                                      |             | |                  | |             | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
| Options exercisable at year-end      |  576,000    | |      1.375       | |  576,000    | |      1.375        | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
|                                      |             | |                  | |             | |                   | 
+--------------------------------------+-------------+-+------------------+-+-------------+-+-------------------+ 
 
 
 
 
NOTE 25 - FINANCIAL INSTRUMENTS - RISK MANAGEMENT: 
The Company is exposed through its operations to one or more of the following 
financial risks: 
  *  Liquidity risk. 
  *  Foreign currency risk. 
  *  Credit risk. 
  *  Other risks. 
 
 
 
Liquidity risk: 
Liquidity risk arises from the group's management of working capital and the 
finance charges and principal repayments on its debt instruments. It is the risk 
that the group will encounter difficulty in meeting its financial obligations as 
they fall due. 
 
 
The group's policy is to ensure that it will always have sufficient cash to 
allow it to meet its liabilities when they become due. To achieve this aim, it 
seeks to maintain cash balances and other credit facilities to meet expected 
requirements for a period of at least 90 days. The group also seeks to reduce 
liquidity risk by fixing interest rates (and hence cash flows) on a portion of 
its long-term borrowings, this is further discussed in the 'interest rate risk' 
section above. 
 
 
The Board receives rolling 12-month cash flow projections on a quarterly basis 
as well as information regarding cash balances and (as noted above) the value of 
the group's investments in corporate bonds. 
 
 
The liquidity risk of each group entity is managed centrally by the group 
treasury function. Each operation has a facility with group treasury, the amount 
of the facility being based on budgets. The budgets are set locally and agreed 
by the board in advance, enabling the group's cash requirements to 
be anticipated. Where facilities of group entities need to be increased, 
approval must be sought from the group finance director. Where the amount of the 
facility is above a certain level agreement of the board is needed 
 
 
Foreign currency risk: 
Foreign exchange risk arises when company operations enter into transactions 
denominated in a currency other than their functional currency. Management does 
not mitigate that risk. 
 
 
Credit risks: 
Financial instruments which have the potential to expose the Company to credit 
risks are mainly cash and cash equivalents, bank deposit accounts, trade 
receivables, other receivables and long term debts. 
Most of the Company's cash and cash equivalents and short-term investment as of 
December 31, 2008, and 2007 were deposited in Israeli and European banks. The 
Company is of the opinion that the credit risk in respect of these balances is 
minimal. 
 
 
Trade receivables are customer obligations due under normal trade terms. The 
Company performs continuing credit evaluations of its customers' financial 
condition and although the Company generally does not require collateral, 
letters of credit may be required from our customers in certain circumstances. 
 
 
Senior management reviews trade receivables on a monthly basis to determine if 
any receivable will potentially be unrecoverable. The Company includes any trade 
receivable balances that are determined to be unrecoverable in the company's 
allowance for doubtful accounts. After all attempts to collect a receivable have 
failed, the receivable is written off against the allowance. 
In general, the exposure to the concentration of credit risks relating to trade 
receivables is limited, due to the strength of the Company's customers. The 
Company performs ongoing credit evaluations of its customers for the purpose of 
determining the appropriate allowance for doubtful receivables. An appropriate 
allowance for doubtful receivables is included in the accounts. 
Other risks: 
The price risk consists mainly of the fluctuation in value of trade receivables 
due to changes in exchange rates. 
 
NOTE 26 - COMMITMENTS AND CONTINGENCIES: 
Lawsuits: 
1.     On December 5, 2001, a class action complaint was filed in the United 
States District Court for the Southern District of New York against Formula 
TelecomSolutions Inc. (Formerly known as Viziqor Solutions Inc.). On April 22, 
2002 an amended complaint was filed by two plaintiffs purportedly on behalf of 
persons purchasing Daleen Technologies, Inc.'s common stock between September 
20, 1999 and December 6, 2000. 
 
The individual defendants, Messrs. Corey, Schell and Daleen, have entered into 
tolling agreements with the plaintiffs resulting in their dismissal from the 
case without prejudice. The remaining defendants include Daleen Technologies, 
Inc. (now known as Formula Telecom Solutions, Inc.) (the "Company") and certain 
of the underwriters from the Company's initial public offering ("IPO"). More 
than 300 similar class action lawsuits filed in the Southern District of New 
York against numerous companies and their underwriters have been consolidated 
for pretrial purposes before one judge under the caption "In re Initial Public 
Offering Securities Litigation." The complaint includes allegations of 
violations of (i) Section 11 of the Securities Act of 1933 by all named 
defendants, (ii) Section 15 of the Securities Act of 1933 by the individual 
defendants and (iii) Section 10(b) of the Securities Exchange Act of 1934 and 
Rule 10b-5 promulgated there under by the underwriter defendants. Specifically, 
the plaintiffs allege in the complaint that, in connection with the IPO, the 
defendants failed to disclose "excessive commissions" purportedly solicited by 
and paid to the underwriter defendants in exchange for allocating shares of the 
Company's common stock in the IPO to the underwriter defendants' preferred 
customers Plaintiffs furtherallege that the underwriter defendants had 
agreements with preferred customers tying the allocation of shares sold in the 
IPO to the preferred customers' agreements to make additional aftermarket 
purchases at pre-determined prices. Plaintiffs further allege that the 
underwriters used their analysts to issue favourable reports about the Company 
to further inflate the Company's share price following the IPO. Plaintiffs claim 
that the defendants knew or should have known of the underwriters' actions and 
that the failure to disclose these alleged arrangements rendered the prospectus 
included in the Company's registration statement on Form S-1 filed with the SEC 
in September 1999 materially false and misleading. Plaintiffs seek unspecified 
damages and other relief. In June 2003, the Company approved the terms of a 
proposed settlement involving the plaintiffs, the insurance companies and 
numerous issuers, including the Company and the individual defendants, that 
includes a waiver by the insurance companies of any retention amounts under the 
policies. Court approval of the settlement is required and has been in process 
for some time. The insurance company has taken responsibility for payment of all 
attorney fees since June of 2003. In accordance with the terms of the Stock 
Purchase Agreement, Woodmont Holdings, Inc. (formerly known as Viziqor Holdings, 
Inc.) is obligated to indemnify the Company for all costs associated with this 
matter. In October 2004, the district court granted the plaintiffs' motion for 
class certification in six "focus" cases out of the more than 300 consolidated 
class actions. 
 
In February 2005, the district court also preliminarily approved the terms of a 
proposed settlement involving the plaintiff classes, the insurance companies and 
the issuers, including the Company and the individual defendants, that included 
a waiver by the insurance companies of any retention amounts under the policies. 
In December 2006, however, the United States Court of Appeals for the Second 
Circuit ruled on the underwriter defendants' appeal from the district court's 
October 2004 order and reversed, concluding that none of the six "focus" cases 
could be certified as a class action. As a result of the Second Circuit's order 
denying class certification, the plaintiff classes, the insurance companies and 
the issuers were forced to terminate the proposed settlement in June 2007. 
Subsequently, the company renewed the terms of an agreement among the issuer 
defendants and their insurance companies under which the insurance companies 
have agreed to pay the issuers' defence costs on a pooling basis. In September 
2007, the plaintiffs filed another motion for class certification in the six 
"focus" cases but withdrew this motion in October 2008 without prejudice to 
re-file. To the extent the parties are unable to reach a settlement, the Company 
intends to defend vigorously against the plaintiffs' claims. The Company does 
not for-see any expenses regarding this case. 
 
2.     On March 2006, Mr. Gordon Quick ("Plaintiff") filed a claim against 
several defendants including Formula telecom solutions Inc. ("Company") pursuant 
to which the plaintiff asserted a breach of agreement by the Company relating to 
an employment agreements and bonus retention agreement executed solely between 
the Plaintiff and a former related company of the Company known as Woodmont 
Holdings Inc. The Plaintiff seeks to impose liability against the Company for 
the breach of contract by Woodmont. The plaintiff has withdrawn his claim, but 
the Company received legal council that has advised them that when the IPO case 
is settled (see 1 above), the plaintiff will renew his claim and therefore a 
provision has been classified for this potential claim. 
3.     Due to a dispute revealed between the Company and its customer in 
connection with a toll road project performed by the Company for the customer 
("Customer" and "Project" respectively), the Company has been notified by the 
Customer of the termination of the Project. Currently, both parties have raised 
certain claims and demands one against the other, mainly with respect to the 
scope of the Project, payments due to the Company, damages incurred by each 
party in connection with the Project and the fulfilment (or non fulfilment) of 
the parties' obligations relating to the Project. The Company rejects the 
Customer's claims. The Parties have notified each other of their intention to 
refer the dispute to an arbitrator according to the Agreement. At this stage, 
the effect of the Project's termination and related dispute on the Company's 
financials, if any, is undetermined. In addition, Customer has demanded the 
forfeiting of a certain bank guarantees (performance bonds) provided by the 
Company as part of its contractual obligations in a total sum of approximately 
0.5 million US$ "Bonds"). 
 
The Company has submitted to the district court in Jerusalem with a motion to 
prevent the forfeiting of the Bonds and its motion was granted until such time 
where an arbitrator shall be appointed by the parties and shall provide its 
ruling in this matter. Customer has submitted an appeal to the decision granted 
by the district court but no decision was made by the supreme court in this 
matter to the date hereof. The company classified a provision for the toll road 
project. 
 
4. On 25.3.2008 the Company received a lawsuit by a former employee in the 
amount of 175,066 NIS, approximately 46,000 USD for severance pay and other 
expenses due to him allegedly due to his time at the Company. The company 
rejects these claims and alleges that there is no legal or factual basis for 
these claims and that this former employee actually owes the Company 11,306 NIS 
(approximately 3,000 USD) and has filed a claim for this money along with it's 
defence claim. There has not been a legal hearing of this case yet. 
 
5. The Company has a legal dispute with Malam-Tim Inc. ("Tim") since October 
2007 regarding equipment and services which were purchased by the Company from 
Tim and were supposed to be installed at a customer of the Company. The Company 
have damage claims towards Tim and among other claim that Tim has violated its 
commitments towards the company- a fundamental violation. 
 
On 22 May, 2008, Tim filed a lawsuit against the Company in the amount of 
440,307 NIS (as of 29.4.2008) (approximately 115,810 USD) for money owed to them 
for the work done by them and equipment they provided. On 14.8.2008 the Company 
filed a defence claim which rejects Tim's claims and a lawsuit which sues Tim 
for the reason mentioned above for the amount of 740,437.5 NIS (approximately 
194,750 USD). 
A settlement between the two sides was signed in which the company will pay Tim. 
The company classified a provision for the amount settled (around 50,000$). 
6.     An adversary proceeding has been brought by William Kaye, trustee on 
behalf of the Ligitiation Trust in the Movie Gallery bankruptcy case against the 
Company. The adversary proceeding alleges that the Company received preferential 
payments in the amount of 110,250 USD. The adversary proceeding requests 
disallowance of any claims by the Company in the Movie Gallery bankruptcy case, 
recovery of the 110,250 USD preference payment and pre-judgment interest from 
September 11, 2008. The Company rejects the claims, but has classified a 
provision for half the amount. 
 
 
Guarantees: 
The Company obtained performance guarantees in the amount of $816 thousand in 
order to secure its contractual commitments. 
 
 
 
 
 
 
Lease commitments: 
Future minimum lease commitments under non-cancellable operating leases as at 
December 31, 2008 are as follows: 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |           | |  As at   | 
|                                               |          | |           | |December  | 
|                                               |          | |           | |31, 2008  | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
|                                               |          | |           | |  $'000   | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| 2009                                          |          | |           | |      785 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| 2010                                          |          | |           | |      562 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| 2011                                          |          | |           | |      562 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
| 2012                                          |          | |           | |      562 | 
+-----------------------------------------------+----------+-+-----------+-+----------+ 
Rent expenses for the years ended December 31, 2008, and 2007 were approximately 
$1,143 thousand 
 and $1,245 thousand, respectively. 
 
 
 
 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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