Mti Wireless Regulatory News (MWE)

20 February 2015

MTI WIRELESS EDGE LTD

FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014

MTI Wireless Edge Ltd., (ticker: MWE) ("MTI" or the "Company"), a market leader in the manufacture of flat panel antennas for broadband wireless access, today announces its audited full year results for the year ended 31 December 2014.

2014 Highlights

· Revenues increased by 7% to $14.3m (2013: $13.4m)

· Gross profit increased by 7% to $5.14m (2013: $4.8m)

· Profit from operations increased 79% to $340K (2013: $190K)

· Revenue in 80Ghz product line doubled to $1.9m (2013: $0.9m)

· $1m cash generated from operation (2013: $0.04m)

· Net cash, cash equivalents and marketable securities at the year-end of $6.6m, equivalent to 8.4 pence per share

· Net value of the Company's offices of $3.6m, equivalent to 4.6 pence per share

· Shareholder's equity remains solid at $17.6m (at 31 December 2013: $17.7m), equivalent to 22.5 pence per share

· Dividend of $0.68 cent per share declared to be paid on 2 April, 2015 to shareholders on the register at close of trading on 13 March 2015.

Zvi Borovitz, Non-Executive Chairman of MTI Wireless Edge, commented:

"I am pleased to report on our audited results for the financial year ended 31 December 2014 during which we continued to experience better profitability. In 2014 we continued the progress in our 60-80 GHz products range and achieved our goal of doubling the revenue from it. We also secured a number of new customers in this market sector, the benefit of which we expect to see in the future. We continue to believe that the market demand for our products, as part of the increasing demand for broadband, will strengthen in the coming years. We are happy with our progress in RFID, which now represents 11% of our business, and see great potential in this market. In 2014 we were able to penetrate numerous applications and projects and we believe that RFID and the 60-80 GHz markets are where our future growth lies."

Contacts

About MTI Wireless

MTI is a developer and manufacturer of sophisticated antennas and antenna systems, including antennas that are sold for use in Broadband Wireless Access compliant systems. In 2009 the Company successfully operated its new manufacturing facility in India which contributed approximately 30% to the Company's commercial production during the last two years. MTI is now based in Israel and has an operation in India, employing (as at 31 December 2014) a total of 73 employees.

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The Company produces antennas ranging in frequency from 2MHz to 90GHz, for both military and commercial applications, and has a broad customer base.

Chairman's Statement

Dear Shareholders,

I am pleased to report on our audited results for the financial year ended 31 December 2014 during which we continued to experience better profitability. In 2014 we continued the progress in our 60-80 GHz products range and achieved our goal of doubling the revenue from it. We also secured a number of new customers in this market sector, the benefit of which we expect to see in the future. We continue to believe that the market demand for our products, as part of the increasing demand for broadband, will strengthen in the coming years.

We are happy with our progress in RFID, which now represents 11% of our business, and see great potential in this market. In 2014 we were able to penetrate numerous applications and projects and we believe that RFID and the 60-80 GHz markets are where our future growth lies.

Our military segment remained strong in 2014 and, although we experienced dramatic revenue growth of 65% in 2013, this year ended with small 10% decline. Based on the current backlog in the military segment we believe that we will maintain a similar level of business in this segment.

Our overall ability to manage our costs, together with our revenue growth, helped us increase our operational profitability in 2014 and generate $1m in cash flow from operations. I would like to thank our management team for its continued work and dedication which has helped us increase the profitability and cash generation.

We enter 2015 with confidence in the growth prospects of our business and its ability to increase its profitability and cash. The underlying drivers of our business, such as continued growth in data usage and increasing subscriber numbers, are part of long term trends which we expect to continue for the foreseeable future. This, together with the current backlog of $6m, provides us with confidence in both the Company's short and long term growth prospects.

Following a review of the business, the Board decided to declare a final dividend of $0.68 cent per share. We strongly believe it is in the interest of shareholders to receive a yearly yield on their investment, while at the same time the Company manages its earnings and cash generation. This level of dividend represents a balance between the Company's current ongoing earnings and the stability which we like to show our shareholders. The dividend will be paid on 2 April, 2015 to shareholders on the register at close of trading on 13 March 2015.

I would like to compliment our employees on their contribution to the Company and thank each and every one for their dedication and creativity, which has enabled us to achieve our results. I would also like to acknowledge with thanks the employees' families for their continued support.

Zvi Borovitz

Non-Executive Chairman

Chief Executive's Review

I am happy to report that during 2014 we continued our positive momentum and were able to grow the business and increase our profitability and margins.

The increase in revenue, together with our hard work on controlling our costs, enabled us, once again, to improve our operational margin. We view the future with confidence as our revenues continue to increase. As stated in my report last year our position in the 60-80GHz (used for wide broadband data transmission and short range point to point backhaul market and becoming a major backhaul for wireless communication) led us to double our revenue from this segment and we were able to develop new customers and products for this line. This gives us confidence in the future growth of the Company.

In the military segment we continued to see good demand and were able to maintain the business level at $3m which we believe should continue in the near term as the current backlog and order pipe line in the military segment are strong.

The RFID market, currently in its initial stages, continued at the same level as last year and represented 11% of our business and we believe in this sector's potential. We strengthened our position with both existing and new customers in 2014 and seen some progress in trials. Our plan is to ensure that MTI remains well positioned in this market to maximize benefits as RFID technology continues its world-wide growth.

Our immediate focus is to win further major deals and maintain support of our existing customer base in all our business segments.

To achieve future growth, the Company aims to expand its leadership in the antenna markets for broadband wireless communication as well as its military capabilities and portfolio. We are continuing to develop our 60-80GHz range of antennas and customer base, to strengthen our positioning in the market including investment in new technologies and in 2014 we initiated registration of two new patents.

I am also very happy with our ability to translate the profitability into cash and create a $1m positive cash flow from operation and providing the ability to declare dividends without reducing our cash reserve on the balance sheet.

I would like to end my review by thanking our employees and their families for their hard work, dedication and support during the past year. It is their creativity, perfectionism and dedication that have led MTI to its position in the market and we see them as the key to our ongoing success.

Dov Feiner

Chief Executive Officer

M.T.I Wireless Edge Ltd.

Consolidated Statements of Comprehensive Income

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Changes in Equity

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Financial Position

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Financial Position (Cont.)

The financial statements on pages 4 to 42 were approved by the Board of Directors and authorised for issue on February 19, 2015, and were signed on its behalf by:

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Cash Flows

The accompanying notes form an integral part of these financial statements.

M.T.I Wireless Edge Ltd.

Consolidated Statements of Cash Flows (Cont.)

The accompanying notes form an integral part of these financial statements.

The directors of the Company are responsible for the financial information set out below.

1. Accounting policies

General

M.T.I Wireless Edge Ltd. (hereafter - the Company) is an Israeli corporation. It was incorporated under the Companies Act in Israel on December 30, 1998 as a wholly- owned subsidiary of M.T.I Computers and Software Services (1982) Ltd. (hereafter - the Parent Company) and commenced operations on July 1, 2000 and since March 2006, the Company's shares have been traded on the AIM Stock Exchange.

The formal address of the company is 11 Hamelacha Street, Afek industrial Park, Rosh-Ha'Ayin, Israel.

The Company is engaged in the development, design, manufacture and marketing of antennas and accessories.

Certain operational and administrative services are provided by the Parent Company.

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.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of Employee benefit assets and financial assets and financial liabilities at fair value through profit or loss.

The Company has elected to present the statement of comprehensive income using the function of expense method.

Details of the changes in foreign currency:

Henceforth are the details of the foreign currency of the main currency and the changes in the reporting period:

Estimates and assumptions

The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. These estimates and underlying assumptions are reviewed regularly. Changes in accounting estimates are reported in the period of the change in estimate.

The key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates used by the Group that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

1. Accounting policies (Cont.)

- Deferred tax assets: Deferred tax assets are recognized for unused carryforward tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the estimated timing and level of future taxable profits together with future tax planning strategies.

Revenue recognition

Revenues are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. In cases where the Company acts as an agent or as a broker without being exposed to the risks and rewards associated with the transaction, its revenues are presented on a net basis. Revenues are measured at the fair value of the consideration received or receivables less any trade discounts, volume rebates and returns.

Following are the specific revenue recognition criteria which must be met before revenue is recognized:

1. Revenues from services are recognized as follows:

In fixed fee contracts - according to IAS. 11 "Construction Contracts"pursuant to which revenues are reported by the "percentage of completion" method. The percentage of completion is determined by dividing actual completion costsincurred to date by the total completion costs anticipated.

When 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, as assessed by the Group's management.

2. Revenues from the sale of goods are recognized when all the significant risks and rewards of ownership of the goods have passed to the buyer and the seller no longer retains continuing managerial involvement. The delivery date is usually the date on which risks and rewards pass.

3. Finance income comprise interest income on amounts invested recognized in the income statement. Interest income is recognized as it accrues using the effective interest method.

Customer discounts:

Customer discounts given at year end in respect of which the customer is not obligated to comply with certain targets, are recognized in the financial statements as the sales entitling the customer to said discounts are made.

Customer discounts for which the customer is required to meet certain targets, such as a minimum amount of annual purchases (either quantitative or monetary), an increase in purchases compared to previous periods, etc. are recognized in the financial statements in proportion to the purchases made by the customer during the year that qualify for the target, provided that it is expected that the targets will be achieved and the amount of the discount can be reasonably estimated. 

1. Accounting policies (Cont.)

Basis of consolidation

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Specifically, the Group controls an investee if and only if the Group has:

- Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)

- Exposure, or rights, to variable returns from its involvement with the investee, and

- The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee, the rights arising from other contractual arrangements, The Group's voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it (i) derecognises the assets (including goodwill) and liabilities of the subsidiary, the carrying amount of any non-controlling interests and the cumulative translation differences recorded in equity. (ii) Recognises the fair value of the consideration received, recognises the fair value of any investment retained and recognises any surplus or deficit in profit or loss. (iii) reclassifies the parent's share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Company had directly disposed of the related assets or liabilities.

Consolidated financial statements

Where relevant, the accounting policy in the financial statements of the subsidiaries is changed to confirm with the policy applied in the financial statements of the Group.

1. Accounting policies (Cont.)

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. Any direct costs of acquisition are charged to profit or loss.

Goodwill is recognized as an intangible asset with any impairment in carrying value being charged to the income statement. The Goodwill is not systematically amortized and the company reviews goodwill for impairment once a year.

Impairment of non-financial assets

Impairment tests on goodwill are undertaken annually on December 31 or sooner when there are signs of impairment. 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 the non-financial asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to dispose), the asset is written down and impairment charge is recognized 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 smallest Group of assets to which the asset belongs that generates cash inflow that are largely independent of cash inflows from other assets). Goodwill is allocated at initial recognition to each of the Group's cash-generating units that are expected to benefit from the synergies of the business combination giving rise to the goodwill. An impairment loss is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is lower than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses allocated to goodwill cannot be reversed in subsequent periods.

An impairment loss allocated to asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, is limited to the lower of the carrying amount of the asset that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years and the assets recoverable amount. The reversal of impairment loss of an asset is recognized in profit or loss.

Impairment charges are included in general and administrative expenses line item in the statement of comprehensive income. During the years 2013 and 2014 no impairment charges of non-financial assets were recognized.

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 are incurred in U.S. dollars. Thus, the functional currency of the Company is the U.S. dollar

The reporting currency of the financial statements is the U.S. dollar.

1. Accounting policies (Cont.)

Foreign currency transactions

Transactions denominated in foreign currency (other than the functional currency) are recorded on initial recognition at the exchange rate as of the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate as of that date. Exchange differences, other than those capitalized to qualifying assets or recorded in equity in hedging transactions, are recognized in profit or loss. Non-monetary assets and liabilities measured at cost are translated at the exchange rate as of the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date in which the fair value was determined.

Exchange differences arising on the retranslation of monetary assets and liabilities are recognized immediately in profit or loss, except for foreign currency borrowings qualifying as a hedge instrument.

Financial assets

The Group classifies its financial assets into one of the following 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 marketable securities. These assets are carried at fair value with changes in fair value recognized in profit or loss.

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. These assets are carried at amortized cost less any provision for impairment.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

A. In the principal market for the asset or liability, or

B. In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

1. Accounting policies (Cont.)

Classification of financial instruments by fair value hierarchy:

The financial instruments presented in the statement of financial position at fair value are grouped into classes with similar characteristics using the following fair value hierarchy which is determined based on the source of input used in measuring fair value:

Financial Liabilities

The Group classifies its financial liabilities as follows:

Other financial liabilities: Other financial liabilities include the following items:

• Bank borrowings are initially recognized at fair value less 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 method, which ensures that any interest expense over the period is at a constant interest rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs, as well as any interest or coupon payable while the liability is outstanding.

• Trade payables and other short-term monetary liabilities, which are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.

De-recognition of financial instruments:

Financial assets:A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Group has transferred its contractual rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows in full without material delay to a third party and has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Financial liabilities: A financial liability is derecognized when it is extinguished, that is when the obligation is discharged or cancelled or expires. A financial liability is extinguished when the creditor

· discharges the liability by paying in cash, other financial assets, goods or services; or

· is legally released from the liability.

Where an existing financial liability is exchanged with another liability from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is accounted for as an extinguishment of the original liability and the recognition of a new liability. The difference between the carrying amounts of the existing liability and new liability is recognized in profit or loss. If the exchange or modification is not substantial, it is accounted for as a change in the terms of the original liability and no gain or loss is recognized on the exchange.

1. Accounting policies (Cont.)

Impairment of financial assets:

The Group assesses at the end of each reporting period whether there is any objective evidence of impairment of a financial asset or group of financial assets as follows.

Financial assets carried at amortized cost:

There is objective evidence of impairment of loans and receivables if one or more events have occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows. Evidence of impairment may include indications that the debtor is experiencing financial difficulties, including liquidity difficulty and default in interest or principal payments. The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate (the effective interest rate at initial recognition). If the financial asset has a variable interest rate, the discount rate is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. In a subsequent period, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, which is limited to the amount of any previous impairment, is recorded in profit or loss.

Government grants:

Grants received from the Israel-U.S. Bi-national Industrial Research and Development Foundation (henceforth "BIRD") as support for a research and development projects include an obligation to pay back royalties conditional on future sales arising from the project. Grants received from the BIRD on or after January 1, 2009, are accounted for as forgivable loans, in accordance with IAS 20 (Revised), pursuant to the provisions of IAS 39, "Financial Instruments: Recognition and Measurement". Accordingly, when the liability for the loan is first recognized, it is measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grants received and the fair value of the liability is accounted for upon recognition of the liability as a grant and recognized as a reduction of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest method. Changes in the projected cash flows are discounted using the original effective interest and recorded in profit or loss in accordance with the provisions of IAS 39.

At the end of each reporting period, the Group evaluates, based on its best estimate of future sales, whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid. If there is such reasonable assurance, the appropriate amount of the liability is derecognized and recorded in profit or loss as an adjustment of research and development expenses. If the estimate of future sales indicates that there is no such reasonable assurance, the appropriate amount of the liability that reflects expected future royalty payments is recognized with a corresponding adjustment to research and development expenses.

1. Accounting policies (Cont.)

Deferred tax

Deferred taxes are computed in respect of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the amounts attributed for tax purposes. Deferred taxes are recognized directly in other comprehensive income or in equity if the tax relates to those items.

Deferred taxes are measured at the tax rates that are expected to apply in the period when the taxes are reversed in profit or loss, other comprehensive income or equity, based on tax laws that have been enacted or substantively enacted at the end of the reporting period. Deferred taxes in profit or loss represent the changes in the carrying amount of deferred tax balances during the reporting period, excluding changes attributable to items recognized outside profit or loss.

Deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is not probable that they will be utilized. In addition, temporary differences (such as carryforward losses) for which deferred tax assets have not been recognized are reassessed and deferred tax assets are recognized to the extent that their recoverability is probable. Any resulting reduction or reversal is recognized on " income tax" within the statement of comprehensive income.

Taxes that would apply in the event of the disposal of investments in investees have not been taken into account, as long as the disposal of such investments is not expected in the foreseeable future and the group has control over such disposal. In addition, deferred taxes that would apply in the event of distribution of dividends have not been taken into account, since the distribution of dividends does not involve an additional tax liability, and if so, the Group's policy is not to initiate distribution of dividends that triggers an additional tax liability.

All deferred tax assets and liabilities are presented in the statement of financial position as non-current items, respectively. Deferred taxes are offset in the statement of financial position if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority.

Taxes on income

Tax-exempt income derived from "approved enterprises" will be subject to additional income tax in the event of distribution of dividends out of such income. Such additional income tax has not been provided for in the financial statements, since the current policy of the Group is not to distribute dividends incurring additional income tax.

Inventories

Inventories are initially recognized at cost, and subsequently at the lower of cost and net realizable value. Cost is calculated according to weighted average model.

1. Accounting policies (Cont.)

Property, plant and equipment

Items of property, plant and equipment are initially recognized at cost. Cost includes directly attributable costs and the estimated present value of any future costs of dismantling and removing items. Depreciation is computed by the straight line method, based on the estimated useful lives of the assets, as follows:

Leasehold improvements are depreciated over the term of the expected lease including optional extension, or the estimated useful lives of the improvements, whichever is shorter.

Investment property

An investment property is property (land or a building or both) held by the owner (lessor under an operating lease) or by the lessee under a finance lease to earn rentals or for capital appreciation or both rather than for use in the production or supply of goods or services, for administrative purposes or for sale in the ordinary course of business.

Investment property is measured initially at cost, including costs directly attributable to the acquisition. After initial recognition, investment property is measured at cost, accumulated depreciation and accumulated impairment losses and accounted for as property, plant and equipment measured at cost.

Investment property is depreciated on a straight-line basis at annual rates of 3.13%, over its useful life.

Investment property is derecognized on disposal or when the investment property ceases to be used and no future economic benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of the disposal.

Cash and cash equivalents

Cash equivalents are considered by the Group to be highly-liquid investments, including, inter alia, short-term deposits with banks, the maturity of which do not exceed three months at the time of deposit and which are not restricted.

Provision for warranty

The Group generally offers up to three years warranties on its products. Based on past experience, the Group does not record any provision for warranty of its products and services.

1. Accounting policies (Cont.)

Share-based payments

Where equity settled share options are awarded to employees, the fair value of the options at the grant date is charged to the statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised 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 charged is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period.

Employee benefits

The Group has several employee benefit plans:

1. Short-term employee benefits: Short-term employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

2. Post-employment benefits: The plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined benefit plans.

The Group has defined contribution plans pursuant to Section 14 to the Severance Pay Law since 2004 under which the Group pays fixed contributions and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense simultaneously with receiving the employee's services and no additional provision is required in the financial statements except for the unpaid contribution.

The Group also operates a defined benefit plan in respect of severance pay pursuant to the Severance Pay Law. According to the Law, employees are entitled to severance pay upon dismissal retirement and several other events prescribed by that Law. The liability for termination of employee-employer relationship is measured using the projected unit credit method.

The actuarial assumptions include rates of employee turnover and future salary increases based on the estimated timing of payment. The amounts are presented based on discounted expected future cash flows using a discount rate determined by reference to yields on corporate bonds with a term that matches the estimated term of the benefit obligation. In respect of its severance pay obligation to certain of its employees, the Company makes current deposits in pension funds and insurance companies ("plan assets"). Plan assets comprise assets held by a long-term employee benefit fund or qualifying insurance

1. Accounting policies (Cont.)

policies. Plan assets are not available to the Group's own creditors and cannot be returned directly to the Group. The liability for employee benefits presented in the statement of financial position presents the present value of the defined benefit obligation less the fair value of the plan assets.

Earnings per Share (EPS)

Earnings per share are calculated by dividing the net profit or loss attributable to equity holders of the Company by the weighted number of Ordinary shares outstanding during the period. Basic earnings per share only include shares that were actually outstanding during the period. Potential Ordinary shares (convertible securities such as employee options) are only included in the computation of diluted earnings per share when their conversion decreases earnings per share or increases loss per share from continuing operations. Further, potential Ordinary shares that are converted during the period are included in the diluted earnings per share only until the conversion date, and since that date they are included in the basic earnings per share. The Company's share of earnings of investees is included based on the earnings per share of the investees multiplied by the number of shares held by the Company.

Segment reporting

An operating segment is a component of the Group that meets the following three criteria:

1. Is engaged in business activities from which it may earn revenues and incur expenses;

2. Whose operating results are regularly reviewed by the Group's chief operating decision maker to make decisions about allocated resources to the segment and assess its performance; and

3. For which separate financial information is available.

Segment revenue and segment costs include items that are attributable to the relevant segments and items that can be distributed among segments. Non-distributed items include the Group's financial income and expenses and income tax.

New IFRSs in the period prior to their adoption

- IFRS 9 Financial Instruments:

In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, " Financial Instruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies to all assets in the scope of IAS 39.

According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments are measured at amortized cost only if both of the following conditions are met:

- the asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows.

- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

1. Accounting policies (Cont.)

- IFRS 9 Financial Instruments (Cont.):

Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction between debt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through other comprehensive income.

Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit or loss or in other comprehensive income (loss), in accordance with the election by the Company on an instrument-by-instrument basis. If equity instruments are held for trading, they should be measured at fair value through profit or loss.

According to IFRS 9, the provisions of IAS 39 will continue to apply to de-recognition and to financial liabilities for which the fair value option has not been elected.

According to IFRS 9, changes in fair value s of financial liabilities which are attributable to the change in credit risk should be presented in other comprehensive income. All other changes in fair value should be presented in profit or loss.

IFRS 9 also prescribes new hedge accounting requirements.

IFRS 9 is to be applied for annual periods beginning on January 1, 2018. Early adoption is permitted.

The Company is evaluating the possible impact of IFRS 9 but is presently unable to assess its effect, if any, on the financial statements.

- IFRS 15 - "Revenue from Contracts with Customers" (hereafter - IFRS 15)

Upon first time application, IFRS 15 shall replace other IFRS provisions relating to revenue recognition.

The core principle of IFRS 15 is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

IFRS 15 sets out a single revenue recognition model, according to which the entity shall recognize revenue in accordance with the said core principle by implementing a five-step model framework:

1) Identify the contract(s) with a customer

2) Identify the performance obligations in the contract

3) Determine the transaction price

4) Allocate the transaction price to the performance obligations in the contract

5) Recognize revenue when the entity satisfies a performance obligation.

IFRS 15 provides guidance about various issues related to the application of the said model, including: recognition of revenue from variable consideration set in the contract, adjustment of the price of transaction set in the contract in order to reflect the effect of the time value of money and costs to obtain or fulfil a contract.

IFRS 15 extends the disclosure requirements regarding revenue and requires, among other things, that entities disclose qualitative and quantitative information about significant judgments made by management in determining the amount and timing of the revenue.

1. Accounting policies (Cont.)

- IFRS 15 - "Revenue from Contracts with Customers" (hereafter - IFRS 15) (Cont.):

The standard shall be applied retrospectively for annual reporting periods starting on January 1, 2017 or thereafter, taking into account the reliefs specified in the transitional provisions of IFRS 15. Under these provisions, early adoption of the standard is allowed. The Group has not as yet examined the implication of implementation of the IFRS 15 on the financial statements.

2. Revenues

3. Profit from operations

4. Segments

1. Segment information

4. Segments (Cont.)

2. Entity wide disclosures External revenue by location of customers.

3. Additional information about revenues:

Revenues from major customers each of whom amount to 10% or more of total revenues reported in the financial statements: