Ocean Harvest T Regulatory News (OHT)

3 Mar 2008 07:45

Orad Hi-Tec Systems03 March 2008 Orad Hi-Tec Systems Ltd ('Orad' or the 'Company') Record results for the fiscal year 2007 and the quarter ended December 31, 2007 Tel Aviv, March 3, 2008 - Orad Hi-Tec Systems Ltd (Frankfurt - Prime Standard;London - AIM. Symbol: OHT), a leading developer, marketer and distributor ofstate-of-the-art, 3D graphical solutions for the broadcasting, advertising andvisual simulation markets, announced today record results for the fiscal year2007 and the quarter ended December 31, 2007. Highlights: • Revenues for 2007 increased by 29% to US$22.9 millions compared to US$17.7 millions in 2006. • Revenues for Q4/07 increased by 49% to US$6.9 millions compared to US$4.6 million in Q4/06 and by 12% compared to Q3/07 • Gross margin for 2007 improved to 66% from 61% in 2006. • Net profit increased by 170% to US$1.7 million in 2007 compared to net profit of US$0.6 million in 2006 • Cash climbed to US$14 millions with positive cash flow of US$4 million in 2007 and positive cash flow of US$0.7 million in Q4/2007 • Orad strengthened its position in the On-Air Graphic systems market with significant deals in 2007 with Deutsch Welle ,CCTV, Shanghai TV, Tele Madrid, Polsat, PCCW, RTBF, Canal+ and others. • Orad continued to dominate the virtual studios market with a contract worth US$2.5 million with Canwest Global Communications. • A major share transaction between shareholders resulted in the sale of the ISMM shares under liquidations to the Edmond De Rothschild fund and other US based funds. • Orad strengthen its board of director with the appointment of Joel Warschawski, President of Edmond de Rothschild Private Equity management Limited Avi Sharir, Orad's President and Chief Executive Officer Commented "We arepleased with the results achieved for the year 2007. This is the thirdconsecutive year of significant improvements in sales, gross margin, net profitand cash flow. Orad's increased penetration of the On-Air graphic marketcontributed to the increase in sales and the increased gross margin." and added:"Orad offers today a one stop shop to prime broadcasters with a full suite ofgraphic systems, sports systems and virtual studios. This has resulted in morebroadcasters choosing Orad's graphic systems. In 2007 we successfully increasedour application offering. We deployed several integrated solutions to news-rooms as well as new applications in channel branding and sport solutions." He added: "We believe that Orad continues to dominate in the virtual studiosmarket. In this regard we believe that Orad's Proset solution represents thebest technology available and offers a comprehensive solution to large networkswishing to adopt a cost saving solution. During the year, Orad received itslargest ever Virtual Studio order from Canada's largest network Canwest Globalwith a contract for a centralised virtual studio that controls multiple remotestudios. Our strong order back log keeps us optimistic regarding the resultsfor 2008". Financial summery for the relevant periods: In thousand USD Q4/06 Q3/07 Q4/07 2007 2006Sales 4,607 6,128 6,875 22,940 17,719Gross Profit 2,916 3,918 4,353 15,094 10,818Gross Margin 63.29% 64% 63% 66% 61.05%R&D expenses 660 696 961 3,207 2,507S&M Expenses 1,840 2,327 2,195 8,474 6,631G&A expenses 362 498 663 2,207 1,506Net Profit / (loss) 185 621 706 1,775 636Cash Status 9,662 13,306 14,050 14,050 9,662 For further information:Orad (www.orad.tv) 972 976 768 62Ehud Ben-Yair, CFO ehudb@orad.tv Shore Capital (London)Graham Shore 44 20 7408 4090 Edicto Investor Relations 49 608494859-1Dr. Sonke Knop, Frankfurt Germany __________________________ ORAD HI-TEC SYSTEMS LTD. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 U.S. DOLLARS IN THOUSANDS INDEX Page Report of Independent Auditors 2 Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Changes in Shareholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 - 27 __________________________ REPORT OF INDEPENDENT AUDITORS To the Shareholders of ORAD HI-TEC SYSTEMS LTD. We have audited the accompanying consolidated balance sheets of Orad Hi-TecSystems Ltd. ("the Company") and its subsidiaries as of December 31, 2007 and2006 and the related consolidated statements of operations, changes inshareholders' equity and cash flows for each of the three years in the periodended December 31, 2007. These financial statements are the responsibility ofthe Company's management. Our responsibility is to express an opinion on thesefinancial statements based on our audits. We did not audit the financial statements of certain wholly-owned subsidiary,whose assets constitute 3% of the total consolidated assets as of December 31,2007 and 2006, respectively, and whose revenues constitute 4%, 2% and 3% oftotal consolidated revenues for the years ended December 31, 2007, 2006 and2005, respectively. Those statements were audited by other auditors whosereports have been furnished to us, and our opinion, insofar as it relates toamounts included for those companies, is based solely on the reports of theother auditors. We conducted our audits in accordance with auditing standards generally acceptedin the United States. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are freeof material misstatement. We were not engaged to perform an audit of theCompany's internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances but not forthe purpose of expressing an opinion on the effectiveness of the Company'sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits and the reports of the other auditors provide a reasonable basis for ouropinion. In our opinion, based on our audits and the reports of other auditors, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of the Company and itssubsidiaries as of December 31, 2006 and 2007, and the consolidated results oftheir operations and their cash flows for each of the three years in the periodended December 31, 2007, in conformity with U.S. generally accepted accountingprinciples. Tel-Aviv, Israel KOST FORER GABBAY & KASIERERMarch 2, 2008 A Member of Ernst & Young Global CONSOLIDATED BALANCE SHEETS U.S. dollars in thousands, except share and per share data December 31, 2007 2006ASSETSCURRENT ASSETS:Cash and cash equivalents $ $ 12,981 9,091Restricted cash 1,069 571Trade receivables (net of allowance for doubtful accounts of $ 117 and $ 66 at 1,869 2,422December 31, 2007 and 2006, respectively)Other accounts receivable and prepaid expenses 1,163 837Inventories 2,920 2,696Work in progress, net of advances from customers 78 520 Total current assets 20,080 16,137 SEVERANCE PAY FUND 1,343 1,017 PROPERTY AND EQUIPMENT, NET 1,753 1,530 Total assets $ $ 23,176 18,684LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:Trade payables $ $ 2,115 1,354Deferred revenues 2,280 1,841Other accounts payable and accrued expenses 5,718 4,767 Total current liabilities 10,113 7,962 ACCRUED SEVERANCE PAY 1,950 1,503 SHAREHOLDERS' EQUITY:Share capital:Ordinary shares of NIS 0.01 par value:Authorized - 27,000,000 shares as of December 31, 2006 and 2007;Issued and outstanding - 10,820,550 shares as of December 31, 2007 and 29 2810,800,621 shares as of December 31, 2006Additional paid-in capital 75,475 75,357Foreign currency translation adjustments (547) (547)Accumulated deficit (63,844) (65,619) Total shareholders' equity 11,113 9,219 Total liabilities and shareholders' equity $ $ 23,176 18,684 The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands, except share and per share data Year ended December 31, 2007 2006 2005Revenues: Sales $ 22,940 $ 17,719 $ 14,485Long-term development contracts - - 916 Total revenues 22,940 17,719 15,401 Cost of revenues: Cost of sales 7,846 6,901 6,646Cost of long-term development contracts - - 1,047 Total cost of revenues 7,846 6,901 7,693 Gross profit 15,094 10,818 7,708 Operating expenses: Research and development, net 3,207 2,507 2,451Sales and marketing 8,474 6,631 6,078General and administrative 2,207 1,506 1,754 Total operating expenses 13,888 10,644 10,283 Operating income (loss) 1,206 174 (2,575)Financial income (expenses), net 573 467 (316)Other expenses, net (4) (5) - Net income (loss) $ 1,775 $ 636 $ (2,891) Basic net earnings (loss) per share $ 0.16 $ 0.06 $ (0.27) Weighted average number of shares used in computing basic net 10,821 10,791 10,781earnings (loss) per share (in thousands) Diluted net earnings (loss) per share $ 0.16 $ 0.06 $ (0.27) Weighted average number of shares used in computing diluted net 10,934 10,823 10,781earnings (loss) per share (in thousands) The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY U.S. dollars in thousands, except share data Number of Share Additional Foreign Accumulated Total outstanding paid-in currency deficit Ordinary capital capital translation shares adjustments Balance as of January 1, 2005 10,750,726 $ 28 $ 75,241 $ (547) $ (63,364) $ 11,358 Comprehensive loss:Net loss - - - - (2,891) (2,891)Issuance of shares upon 11,250 *) - 9 - - 9exercise of employee shareoptions Issuance of earn-out shares 28,645 *) - 31 - - 31 Balance as of December 31,2005 10,790,621 28 75,281 (547) (66,255) 8,507 Comprehensive income:Net income - - - - 636 636Issuance of shares upon 10,000 *) - 9 - - 9exercise of employee shareoptionsShare-based compensation - - 67 - - 67 Balance as of December 31, 2006 10,800,621 28 75,357 (547) (65,619) 9,219 Comprehensive income:Net income - - - - 1,775 1,775Issuance of shares upon 19,929 1 22 - - 23exercise of employee shareoptions Share-based compensation - - 96 - - 96 Balance as of December 31, 2007 10,820,550 $ $ 75,475 $ (547) $ (63,844) $ 11,113 *) Represents an amount lower than $ 1. The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Year ended December 31, 2007 2006 2005Cash flows from operating activities:Net income (loss) $ 1,775 $ 636 $ (2,891) Adjustments to reconcile net income (loss) to net cash provided by (usedin) operating activities:Depreciation 545 569 623Share-based compensation 96 67 -Decrease in trade receivables, net and other accounts receivable and 227 1,214 591prepaid expensesDecrease (increase) in inventories (384) 29 591Decrease in work in progress, net of advances from customers 442 22 597Increase in trade payables, other accounts payable and accrued expenses 1,833 731 429and accrued severance pay, netIncrease in deferred revenues 439 640 460Other - 5 31 Net cash provided by operating activities 4,973 3,913 431 Cash flows from investing activities:Purchase of property and equipment (656) (146) (231)Proceeds from sale of property and equipment 48 48 127Decrease (increase) in restricted cash (498) (71) 250 Net cash provided by (used in) investing activities (1,106) (169) 146 Cash flows from financing activities:Issuance of shares upon exercise of employee share options 23 9 9 Net cash provided by financing activities 23 9 9 Increase in cash and cash equivalents 3,890 3,753 586Cash and cash equivalents at beginning of year 9,091 5,338 4,752 Cash and cash equivalents at end of year $ 12,981 $ 9,091 $ 5,338 The accompanying notes are an integral part of the consolidated financialstatements. NOTE 1:- GENERAL a. Orad Hi-Tec Systems Ltd. ("the Company") was incorporated in 1993. TheCompany and its subsidiaries provide innovative real-time video processingtechnologies for TV broadcasting, production studio and sports events. TheCompany also develops and markets high-end three dimensional graphical computerplatforms for the visual simulation and virtual reality markets. The Company operates through its wholly-owned subsidiaries in the United States,France, Poland, Germany, the Netherlands, the United Kingdom, Spain, Israel andHong-Kong. These subsidiaries are engaged in the development, selling andmarketing of the Company's products. The Company sells its products directly andthrough its subsidiaries and its distribution networks worldwide. b. The Company reclassified certain overhead expenses in the prior years'statements of operations. The following reclassifications, which conform to thecurrent years allocation of these overhead expenses had no effect on thereported operating loss, net loss, basic and diluted loss per share andshareholders equity. Year ended December 31, 2005 As Reclassification As currently reported previously reported Cost of revenues: Cost of sales 5,287 1,359 6,646Cost of long-term development contracts 1,047 - 1,047 Total cost of revenues 6,334 1,359 7,693 Gross profit 9,067 (1,359) 7,708 Operating expenses: Research and development, net 2,300 151 2,451Sales and marketing 6,813 (735) 6,078General and administrative 2,529 (775) 1,754 Total operating expenses 11,642 (1,359) 10,283 Operating loss 2,575 - 2,575 NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States ("U.S. GAAP")including relevant interpretations of the U.S. Securities and ExchangeCommission. a. Use of estimates: The preparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the amounts reported in the financial statements and accompanying notes.Actual results could differ from those estimates. b. Financial statements in U.S. dollars: A substantial portion of the revenues of the Company and its subsidiaries isgenerated in U.S. dollars ("dollar"). In addition, a substantial portion of theCompany's and its subsidiaries' costs is incurred in dollars. A substantialportion of the Company's funds is held in U.S. dollars. The Company's managementbelieves that the dollar is the currency of the primary economic environment inwhich the Company and its subsidiaries operate. Thus, the functional andreporting currency of the Company and its subsidiaries is the US dollar. Accordingly, monetary assets, and liabilities and transactions in currenciesother than the dollar are remeasured into U.S. dollars in accordance withStatement of Financial Accounting Standards No. 52, "Foreign CurrencyTranslation" ("SFAS No. 52"). All transactions gains and losses from theremeasurement are reflected in the consolidated statements of operations asfinancial income or expenses, as appropriate. c. Principles of consolidation: The consolidated financial statements include the accounts of the Company andits subsidiaries. Intercompany balances and transactions have been eliminatedupon consolidation. d. Cash equivalents: Cash equivalents are short-term highly liquid investments that are readilyconvertible to cash with original maturities of three months or less. e. Restricted cash: Restricted cash is primarily invested in highly liquid deposits, which are usedas a security for sales agreements and office lease agreements. f. Inventories: Inventories are stated at the lower of cost or market value. Inventorywrite-offs are provided to cover risks arising from slow-moving items,technological obsolescence and excess inventories. Cost is determined as follows: Raw materials, parts and supplies - by the moving average method. Products in process and finished products: Raw materials, parts and supplies - by the moving average method. Subcontracting costs - on the basis of actual costs. g. Property and equipment: Property and equipment are stated at cost, net of accumulated depreciation.Depreciation is calculated by the straight-line method over the estimated usefullives of the assets at the following annual rates: % Computers , software and peripheral equipment 20 - 33Office furniture and equipment 6 - 15Motor vehicles 15Leasehold improvements Over the shorter of the term of the lease or the life of the asset The Company leases under operating leases computers and peripheral equipment,mobile broadcasting and demonstrating units ("leased equipment") to itscustomers. Leased equipment is stated at cost, net of accumulated depreciation.Depreciation is calculated by the straight-line method over the estimated usefullives of the assets (three years). h. Impairment of long-lived assets: The Company's and its subsidiaries' long-lived assets are reviewed forimpairment in accordance with Statement of Financial Accounting Standards No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.144"), whenever events or changes in circumstances indicate that the carryingamount of an asset may not be recoverable. Recoverability of assets to be heldand used is measured by a comparison of the carrying amount of an asset to thefuture undiscounted cash flows expected to be generated by the assets. If suchassets are considered to be impaired, the impairment to be recognized ismeasured by the amount by which the carrying amount of the assets exceeds thefair value of the assets. As of December 31, 2007, no impairment losses havebeen identified. i. Revenue recognition: The Company and its subsidiaries generate revenues mainly from sales of systems,software licenses, development contracts and from operating leases of equipment. The Company and its subsidiaries implement Statement of Position No. 97-2,"Software Revenue Recognition" ("SOP No. 97-2"), as amended. Revenues fromsystems sales are recognized upon delivery of the system or upon installation atthe customer site, where applicable, provided that collection is probable, thesystem fee is fixed or determinable and persuasive evidence of an arrangementexists. In cases where a significant installation is required after the deliveryof the system, revenues from the system are deferred until the installationoccurs. Revenues in arrangements with multiple deliverables are recognized underthe "residual method" when Vendor specific Objective Evidence ("VSOE") of fairvalue exists for all undelivered elements, no VSOE exists for the deliveredelements, and all other revenue recognition criteria are satisfied. Revenuesfrom training and installation included in multiple element arrangements arerecognized at the time they are rendered. Revenues from development contracts are recognized based on SOP No. 81-1,"Accounting for Performance of Construction Type and Certain Production TypeContracts", using contract accounting on the completed-contract method or whenapplicable, as specific milestones are met. A provision for estimated losses onuncompleted contracts is recorded in the period in which such losses are firstidentified, in the amount of the estimated loss on the entire contract. Revenues from operating leases of equipment are recognized ratably over thelease period, in accordance with Statement of Financial Accounting Standards No.13, "Accounting for Leases" ("SFAS No. 13"). The Company and its subsidiaries generally do not grant a right of return totheir customers. Deferred revenue includes amounts received from customers but not recognized asrevenues. j. Warranty costs: The Company offers a one year warranty for all of its systems. Provision forwarranty costs is provided at the time revenues are recognized, for estimatedmaterial costs during the warranty period based on the Company's experience. k. Research and development costs: Research and development costs are charged to the statement of operations asincurred. l. Non-royalty-bearing grants: Non-royalty-bearing grants from the European Union for funding of approvedresearch and development projects are recognized at the time the Company isentitled to such grants, on the basis of the costs incurred. These grants arepresented as a reduction of research and development expenses. During the years2007, 2006, 2005, the Company received grants in the amount of $141, $ 163 and $141, respectively. m. Royalty-bearing grants: Royalty-bearing grants from the Government of Israel for funding of approvedresearch and development projects are recognized at the time the Company isentitled to such grants, on the basis of the costs incurred. These grants arepresented as a reduction of research and development expenses. During the years2007, 2006, 2005, no development grants were received. n. Income taxes: The Company and its subsidiaries account for income taxes in accordance withStatement of Financial Accounting Standards No. 109, "Accounting for IncomeTaxes" ("SFAS No. 109"). This Statement prescribes the use of the liabilitymethod whereby deferred tax assets and liabilities are determined based on thedifferences between financial reporting and tax bases of assets and liabilitiesand are measured using the enacted tax rates and laws that will be in effectwhen the differences are expected to reverse. The Company and its subsidiariesprovide a valuation allowance, if necessary, to reduce deferred tax assets totheir estimated realizable value. SFAS 109 On January 1, 2007, the Company adopted FASB Interpretation No. 48, "Accountingfor Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109"(FIN 48). FIN 48 contains a two-step approach to recognizing and measuringuncertain tax positions accounted for in accordance with SFAS No. 109. The firststep is to evaluate the tax position taken or expected to be taken in a taxreturn by determining if the weight of available evidence indicates that it ismore likely than not that, on an evaluation of the technical merits, the taxposition will be sustained on audit, including resolution of any related appealsor litigation processes. The second step is to measure the tax benefit as thelargest amount that is more than 50% likely to be realized upon ultimatesettlement. The Company has analyzed filing positions in all of the federal andstate jurisdictions where it is required to file income tax returns, as well asall open tax years in these jurisdictions. The audits of the tax years 2002 and2005 have been completed, but are still pending review by the Israeli taxauthorities. The Company believes that its income tax filing positions anddeductions will be sustained on audit and does not anticipate any adjustmentsthat will result in a material change to its financial position. Therefore, noreserves for uncertain income tax positions have been recorded pursuant to FIN48. In addition, the Company did not record a cumulative effect adjustmentrelated to the adoption of FIN 48. o. Concentrations of credit risks: Financial instruments that potentially subject the Company and its subsidiariesto concentrations of credit risk consist principally of cash and cashequivalents, restricted cash, work in progress, net of advances from customersand trade receivables. Cash and cash equivalents and restricted cash are mainly invested in U.S.dollars with major banks in Cayman and in Israel. Management believes that thefinancial institutions that hold the Company's investments are financially soundand, accordingly, minimal credit risk exists with respect to these investments. Work in progress, net of advances from customers is derived from long termdevelopment contracts. The Company performs ongoing credit evaluations of itscustomers. A provision for estimated losses on uncompleted contracts is recordedin the period in which such losses are first identified, in the amount of theestimated loss on the entire contract. Trade receivables are mainly derived from sales to customers located primarilyin Europe, Asia, North America and South America. The Company performs ongoingcredit evaluations of its customers. An allowance for doubtful accounts isdetermined with respect to those amounts that the Company and its subsidiarieshave determined to be doubtful of collection. As of December 31, 2007 and 2006, the Company and its subsidiaries have nosignificant off-balance-sheet concentration of credit risk such as forwardexchange contracts, option contracts or other foreign hedging arrangements. p. Severance pay: The Company's liability for severance pay for its Israeli employees iscalculated pursuant to the Israeli Severance Pay Law based on the most recentsalary of the employees multiplied by the number of years of employment, as ofthe balance sheet date. Employees are entitled to one month's salary for eachyear of employment or a portion thereof. The Company's liability for all of its employees is fully provided by monthlydeposits with insurance policies deposited funds and by an accrual. The deposited funds include profits accumulated up to the balance sheet date.The deposited funds may be withdrawn only upon the fulfillment of the obligationpursuant to Israeli Severance Pay Law or labor agreements. The value of thedeposited funds is based on the cash surrendered value of the insurancepolicies. Severance expenses for the years ended December 31, 2007 and 2006amounted to approximately $ 367 and $ 313, respectively. q. Net earnings (loss) per share: Basic net earnings (loss) per share are computed based on the weightedaverage number of Ordinary shares outstanding during each year. Diluted netearnings (loss) per share are computed based on the weighted average number ofOrdinary shares outstanding during each year, plus dilutive potential Ordinaryshares considered outstanding during the year, in accordance with Statement ofFinancial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). r. Fair value of financial instruments: The carrying amounts of cash and cash equivalents, restricted cash, tradereceivables, other accounts receivable and prepaid expenses, trade payables andother accounts payable and accrued expenses approximate their fair value due tothe short-term maturity of such instruments. s. Accounting for share-based compensation: On January 1, 2006, the Company adopted Statement of Financial AccountingStandards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)") whichrequires the measurement and recognition of compensation expense based onestimated fair values for all share-based payment awards made to employees anddirectors. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees" ("APB 25"), for periods beginning infiscal 2006. In March 2005, the Securities and Exchange Commission issued StaffAccounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company hasapplied the provisions of SAB 107 in its adoption of SFAS 123(R). SFAS 123(R) requires companies to estimate the fair value of equity-basedpayment awards on the date of grant using an option-pricing model. The value ofthe portion of the award that is ultimately expected to vest is recognized as anexpense over the requisite service periods in the Company's consolidated incomestatement. Prior to the adoption of SFAS 123(R), the Company accounted forequity-based awards to employees and directors using the intrinsic value methodin accordance with APB 25 as allowed under Statement of Financial AccountingStandards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company adopted SFAS 123(R) using the modified prospective transitionmethod, which requires the application of the accounting standard starting fromJanuary 1, 2006, the first day of the Company's fiscal year 2006. Under thattransition method, compensation cost recognized in the year ended December 31,2006, includes: (a) compensation cost for all share-based payments granted priorto, but not yet vested as of January 1, 2006, based on the grant date fair valueestimated in accordance with the original provisions of SFAS 123, and (b)compensation cost for all share-based payments granted subsequent to January 1,2006, based on the grant-date fair value estimated in accordance with theprovisions of SFAS 123(R). Results for prior periods have not been restated. The Company recognizes compensation expenses for the value of its awards, whichhave graded vesting, based on the straight line method over the requisiteservice period of each of the awards, net of estimated forfeitures. Estimatedforfeitures are based on actual historical pre-vesting forfeitures. As a result of adopting SFAS 123(R) on January 1, 2006, the Company's net incomefor the years ended December 31, 2007 and 2006 , is approximately $ 86 and $ 67,respectively, lower than if it had continued to account for stock-basedcompensation under APB 25. Basic and diluted net earnings per share for theyears ended December 31, 2006 and 2007, are $ 0.01 lower than if the Company hadcontinued to account for share-based compensation under APB 25. Prior to January 1, 2006, the Company applied the intrinsic value method ofaccounting for stock options as prescribed by APB 25, whereby compensationexpense is equal to the excess, if any, of the quoted market price of the stockover the exercise price at the grant date of the award. In 1996, the Company approved an employee share option plan, which was expandedin 2000 and 2002 ("the 1996 Share Option Plan"). Under the expanded plan,974,465 options to purchase Ordinary shares have been reserved for issuance.These options may be granted to directors, officers and employees of the Companyand its subsidiaries. Any options, which are canceled or forfeited before expiration, become availablefor future grants. During 2003, the Company approved a new share option plan ("the 2003 ShareOption Plan"). The Company's Board of Directors approved treating sharesallotment under the 1996 Share Option Plan as being reserved for allotment underthe 2003 Share Option Plan. Options granted in 2007 are vested as follows: 25% after the first year, 25%after the second year, 25% after the third year and 25% after the forth yearstarting from the date of grant. If not exercised, the options will expire onthe sixth anniversary of the date of the grant. Total number of options available for future grants as of December 31, 2007amounted to 16,125. The Company estimates the fair value of stock options granted using theBlack-Scholes-Merton option-pricing model. The option-pricing model requires anumber of assumptions, of which the most significant are expected stock pricevolatility and the expected option term. Expected volatility was calculatedbased upon actual historical stock price movements. The expected option term represents the period that the Company's stock optionsare expected to be outstanding and was determined based on the simplified methodpermitted by SAB 107 as the average of the vesting period and the contractualterm. The risk-free interest rate is based on the yield from U.S. Treasuryzero-coupon bonds with an equivalent term. The Company has historically not paiddividends and has no foreseeable plans to pay dividends. The fair value of the Company's stock options granted to employees and directorsfor the years ended December 31, 2007 and 2006 was estimated using the followingweighted average assumptions: Year ended December 31, 2007 2006Risk free interest 4.38% 4.89%Dividend yields 0% 0% 0%Volatility 75% 66%Expected term (in years) 4.24 4 4.25 During the years ended December 31, 2007 and 2006, the Company recognizedstock-based compensation expenses related to employee stock options in theamount of $ 86 and $ 67, respectively. A summary of the Company's options activity, and related information is asfollows: Number Weighted Weighted Aggregate intrinsic of options average average value exercise remaining (in contractual thousands) price term (in years)Outstanding at beginning of year 672,454 $6.18Granted 158,500 $2.86Exercised 19,930 $1.14Expired or forfeited 27,149 $5.44 Outstanding at end of year 783,875 $5.66 4.46 $1,297 Exercisable at end of year 425,792 $8.54 3.9 $686 Vested and expected to vest at end 783,875 $5.66 4.46 $1,297of year The weighted-average grant-date fair value of options granted during the yearsended December 31, 2007 and 2006 was $ 1.73 and $ 0.99, respectively. Theaggregate intrinsic value in the table above represents the total intrinsicvalue (the difference between the Company's closing stock price on the lasttrading day of the fourth quarter of fiscal 2006 and the exercise price,multiplied by the number of in-the-money options) that would have been receivedby the option holders had all option holders exercised their options on December 31, 2007. This amount changes based on the fair market value of the Company'sstock. Total intrinsic value of options exercised for the year ended December 31, 2007was approximately $ 68. As of December 31, 2007, there was approximately $ 417of total unrecognized compensation cost related to non-vested share-basedcompensation arrangements granted under the Company's stock option plans. Thatcost is expected to be recognized over a weighted-average period of 5.23 years.Total grant-date fair value of vested options vested for the year ended December31, 2007 was approximately $ 92. The following table summarizes information about options outstanding andexercisable as of December 31, 2007: Options Weighted Options Weighted outstanding average Weighted exercisable average exercise Range of as of remaining average as of price of exercise December 31, contractual exercise December 31, options price 2007 life (years) price 2007 exercisable $ 0.80 - 1.19 114,321 5.80 $ 1.00 101,821 $ 0.98$ 1.28 - 1.90 315,000 4.28 $ 1.78 127,917 $ 1.76$ 2.14 - 3.06 221,714 5.50 $ 2.69 68,214 $ 2.41$ 4.6 5,000 5.37 $ 4.60 - $ 4.60$ 9.08 - 11.71 25,122 1.31 $ 11.05 25,122 $ 11.05$ 20.71 49,218 1.92 $ 20.71 49,218 $ 20.71$ 33.18 - 34.95 53,500 2.13 $ 34.60 53,500 $ 34.60 783,875 4.46 $ 5.66 425,792 $ 8.54 All of the options granted to employees officers and directors in 2006 and 2007,have an exercise price equal to the fair market value of the share at date ofgrant. The pro-forma table below illustrates the effect on the net income (loss) andnet earnings (loss) per share for the year ended December 31, 2005, assumingthat the Company had applied the fair value recognition provision of SFAS 123 onits stock-based employee compensation: Year ended December 31, 2005 Net loss as reported $ (2,891)Add: share-based compensation expense included in reported net loss -Deduct: share-based compensation expense determined under fair value method (63) Pro forma net loss $ (2,954)Basic and diluted net loss per share as reported $ (0.27)Pro forma basic and diluted net loss per share $ (0.27) For the purposes of pro-forma disclosures, stock-based compensation is amortizedover the vesting period using the straight line method. t. Impact of recently issued accounting standards: SFAS 159- On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option forFinancial Assets and Financial Liabilities" (SFAS 159). Under this Standard, theCompany may elect to report financial instruments and certain other items atfair value on a contract-by-contract basis with changes in value reported inearnings. This election is irrevocable. SFAS 159 provides an opportunity tomitigate volatility in reported earnings that is caused by measuring hedgedassets and liabilities that were previously required to use a differentaccounting method than the related hedging contracts when the complex provisionsof SFAS 133 hedge accounting are not met. SFAS 159 is effective for years beginning after November 15, 2007. Earlyadoption within 120 days of the beginning of the Company's 2007 fiscal year ispermissible, provided the Company has not yet issued interim financialstatements for 2007 and has adopted SFAS 157. The Company is currentlyevaluating the impact of adopting SFAS 159 on its financial position, cashflows, and results of operations. SFAS 157 In September 2006, the FASB issued Statement of Financial Accounting StandardsNo. 157, "Fair Value Measurements" ("Statement No. 157") which defines fairvalue, establishes a framework for measuring fair value, and expands disclosuresabout fair value measurements. Statement No. 157 applies to other accountingpronouncements that require or permit fair value measurements and, accordingly,does not require any new fair value measurements. Statement No. 157 is effectivefor fiscal years beginning after November 15, 2007 for financial assets andliabilities, as well as for any other assets and liabilities that are carried atfair value on a recurring basis, and should be applied prospectively. Theadoption of the provisions of Statement No. 157 related to financial assets andliabilities and other assets and liabilities that are carried at fair value on arecurring basis is not anticipated to materially impact the company'sconsolidated financial position and results of operations. Subsequently, theFASB provided for a one-year deferral of the provisions of Statement No. 157 fornon-financial assets and liabilities that are recognized or disclosed at fairvalue in the consolidated financial statements on a non-recurring basis. Thecompany is currently evaluating the impact of adopting the provisions ofStatement No. 157 for non-financial assets and liabilities that are recognizedor disclosed on a non-recurring basis. SFAS 141(R) In December 2007, the FASB issued SFAS 141(R), Business Combinations. ThisStatement replaces SFAS 141, Business Combinations, and requires an acquirer torecognize the assets acquired, the liabilities assumed, including those arisingfrom contractual contingencies, any contingent consideration, and anynoncontrolling interest in the acquiree at the acquisition date, measured attheir fair values as of that date, with limited exceptions specified in thestatement. SFAS 141(R) also requires the acquirer in a business combinationachieved in stages (sometimes referred to as a step acquisition) to recognizethe identifiable assets and liabilities, as well as the noncontrolling interestin the acquiree, at the full amounts of their fair values (or other amountsdetermined in accordance with SFAS 141(R)). In addition, SFAS 141(R)'srequirement to measure the noncontrolling interest in the acquiree at fair valuewill result in recognizing the goodwill attributable to the noncontrollinginterest in addition to that attributable to the acquirer. SFAS 141(R) amendsSFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognizechanges in the amount of its deferred tax benefits that are recognizable becauseof a business combination either in income from continuing operations in theperiod of the combination or directly in contributed capital, depending on thecircumstances. It also amends SFAS 142, Goodwill and Other Intangible Assets,to, among other things, provide guidance on the impairment testing of acquiredresearch and development intangible assets and assets that the acquirer intendsnot to use. SFAS 141(R) applies prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. We are currently assessing thepotential impact that the adoption of SFAS 141(R) could have on our financialstatements. SFAS 160 In December 2007, the FASB issued SFAS 160, Noncontrolling Interests inConsolidated Financial Statements. SFAS 160 amends Accounting Research Bulletin51, Consolidated Financial Statements, to establish accounting and reportingstandards for the noncontrolling interest in a subsidiary and for thedeconsolidation of a subsidiary. It also clarifies that a noncontrollinginterest in a subsidiary is an ownership interest in the consolidated entitythat should be reported as equity in the consolidated financial statements. SFAS160 also changes the way the consolidated income statement is presented byrequiring consolidated net income to be reported at amounts that include theamounts attributable to both the parent and the noncontrolling interest. It alsorequires disclosure, on the face of the consolidated statement of income, of theamounts of consolidated net income attributable to the parent and to thenoncontrolling interest. SFAS 160 requires that a parent recognize a gain orloss in net income when a subsidiary is deconsolidated and requires expandeddisclosures in the consolidated financial statements that clearly identify anddistinguish between the interests of the parent owners and the interests of thenoncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods,and interim periods within those fiscal years, beginning on or after December15, 2008. We are currently assessing the potential impact that the adoption ofSFAS 141(R) could have on our financial statements. SAB 110 On December 21, 2007 the SEC staff issued Staff Accounting Bulletin No. 110 (SAB110), which, effective January 1, 2008, amends and replaces SAB 107, Share-BasedPayment. SAB 110 expresses the views of the SEC staff regarding the use of a "simplified" method in developing an estimate of expected term of "plain vanilla"share options in accordance with FASB Statement No. 123(R), Share-Based Payment. Under the "simplified" method, the expected term is calculated as the midpointbetween the vesting date and the end of the contractual term of the option. The use of the "simplified" method, which was first described in StaffAccounting Bulletin No. 107, was scheduled to expire on December 31, 2007. SAB110 extends the use of the "simplified" method for "plain vanilla" awards incertain situations. The SEC staff does not expect the "simplified" method to beused when sufficient information regarding exercise behavior, such as historicalexercise data or exercise information from external sources, becomes available. NOTE 3: - OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES December 31, 2007 2006Government authorities $ 583 $ 386Prepaid expenses 330 271Other 250 180 $ 1,163 $ 837 NOTE 4:- INVENTORIES December 31, 2007 2006 Raw materials $ 583 $ 697 Products in process and finished products 2,337 1,999 $ 2,920 $ 2,696 Inventory write-off provision expense recorded in 2007, 2006 and 2006 amountedto $ 440, $ 219 and $ 469, respectively. The write-offs are included in cost ofrevenues. NOTE 5:- WORK IN PROGRESS, NET OF ADVANCES FROM CUSTOMERS December 31, 2007 2006Work in progress $ 1,986 $ 1,977Advances from customers (1,308) (1,257)Provision for future estimated expenses (600) (200) $ 78 $ 520 NOTE 6:- PROPERTY AND EQUIPMENT December 31, 2007 2006Cost:Computers and peripheral equipment $ 8,201 $ 7,688Office furniture and equipment 362 358Motor vehicles 71 88Leasehold improvements 2,361 2,347 10,995 10,481Accumulated depreciation:Computers and peripheral equipment 7,301 7,232Office furniture and equipment 234 222Motor vehicles 63 58Leasehold improvements 1,643 1,439 9,241 8,951 Depreciated cost $ 1,754 $ 1,530 Depreciation expense amounted to $ 568, $ 569 and $ 623 for the years endedDecember 31, 2007, 2006 and 2005, respectively. NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES December 31, 2007 2006Employees and payroll accruals $ 1,185 $ 897Accrued expenses 3,991 3,378Government authorities 170 124Warranty provision 286 315 Other 86 53 $ 5,718 $ 4,767 NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES a. Royalty commitments: 1. Royalties to the Office of the Chief Scientist ("the OCS"): Under the Company's research and development agreements with the OCS andpursuant to applicable laws, the Company is required to pay royalties at therate of 3.5% of sales of products developed with funds provided by the OCS, upto an amount equal to 100% of the OCS research and development grants received,linked to the dollar. The Company is obligated to repay the Israeli Governmentfor the grants received only to the extent that there are sales of the fundedproducts. Royalty expenses amounted to $ 214, $ 276 and $ 217 for the years ended December 31, 2007, 2006 and 2005, respectively, relating to the accrual and repayment ofsuch grants. As of December 31, 2007, the Company had a contingent obligation to payroyalties in the amount of $ 2,084. 2. Royalty obligation to the Marketing Fund of the Government of Israel: The Israeli Government, through the Fund for the Encouragement of MarketingActivities, awarded the Company grants for participation in foreign marketingexpenses. The Company is committed to pay royalties at the rate of 4% of theincrease in foreign sales, up to an amount equal to 100% of the grant receivedplus interest. Royalties' expenses amounted to $ 149, $ 182 and $ 194 for the years endedDecember 31, 2007, 2006 and 2005, respectively, relating to the repayment ofsuch grants. As of December 31, 2007, the Company had no any contingent obligation to payroyalties, in excess of amounts accrued. b. Operating leases: The Company and its subsidiaries lease their facilities under various operatinglease agreements, which expire on various dates. Aggregate minimum rentalcommitments under non-cancelable leases as of December 31, 2007, are as follows: 2008 $ 5512009 4902010 4332011 and thereafter 616 $ 2,090 Total rental expense for the years ended December 31, 2007, 2006 and 2005,amounted to $ 556, $ 546 and $ 565, respectively. c. Liens: As of December 31, 2007, fixed pledges on cash deposits in the amount of $ 272were recorded to secure office lease agreements. The company has also securedcash deposits in the amount of $ 797 against bank guaranties to secure salesagreements. d. Litigation: As of the date of the financial reports, no Claims have been lodged against theCompany. NOTE 9:- SHAREHOLDERS' EQUITY The Company's shares are listed for trading on the Frankfurt Stock Exchange(Prime Standard) and on the Alternative Investment Market ("AIM") in the LondonStock Exchange, both under the symbol "OHT". a. Ordinary shares: Ordinary shares confer upon their holders voting rights, the right to receivecash dividends, and the right to a share in excess assets upon liquidation ofthe Company. b. Employee share option plan: See detailed information in Note 2s. c. Acquisition of Art Technologies GmbH ("Art"): According to the purchase agreement with Art, the issuance of 57,290 Ordinaryshares was conditional upon achieving certain revenue targets from the productdeveloped by Art ("contingent shares"). During 2002, upon achievement of certainof the revenue targets, 28,645 of the contingent shares with a fair value of $54 were issued. During 2003 and 2004, certain of the revenue targets were notachieved in the prescribed time frame and therefore, the remaining 28,645 shareswere not issued. However, the Company agreed to issue such shares during 2005,and accordingly, the remaining 28,645 shares with a fair value of $ 31 wereissued. d. Dividends: Dividends, if any, will be paid in New Israeli Shekels ("NIS"). Dividends paidto shareholders outside Israel may be converted to U.S. dollars on the basis ofthe exchange rate prevailing at the date of the conversion. The Company does notintend to pay cash dividends in the foreseeable future. NOTE 10:- INCOME TAXES a. Domestic - Israeli income taxes: 1. Measurement of taxable income under the Income Tax (InflationaryAdjustments) Law, 1985: Results for tax purposes are measured in terms of earnings in NIS after certainadjustments for increases in the Israeli Consumer Price Index ("CPI"). Asexplained in Note 2b, the financial statements are measured in U.S. dollars. Thedifference between the annual change in the Israeli CPI and in the NIS/dollarexchange rate causes a further difference between taxable income and the incomebefore taxes shown in the financial statements. In accordance with paragraph 9(f) of SFAS No. 109, the Company has not provided deferred income taxes on thedifference between the functional currency and the tax basis of assets andliabilities. 2. Tax rates: On July 25, 2005, the Knesset (Israeli Parliament) approved the Law for theAmendment of the Income Tax Ordinance (No. 147), 2005, which prescribes, amongothers, a gradual decrease in the corporate tax rate in Israel to the followingtax rates: in 2006 - 31%, in 2007 - 29%, in 2008 - 27%, in 2009 - 26% and in2010 and thereafter - 25%. The amendment is not expected to have a materialeffect on the Company's financial position and results of operations. 3. Tax benefits under the Law for the Encouragement of Capital Investments, 1959: The Company's production facilities in Israel have been granted an "ApprovedEnterprise" status under the above law. Four expansion programs of the Companyhave been granted the status of an "Approved Enterprise". According to theprovisions of such Israeli law, the Company has been granted an "AlternativeBenefit" status, under which the main benefits are tax exemption and a reducedtax rate. Consequently, the Company's income derived from the "ApprovedEnterprise" is tax exempt for a period of two years and for an additional periodof five to eight years is subject to a reduced tax rate of 10% - 25% (based onthe percentage of foreign ownership in each taxable year). The Company completed implementation of its first, second and third expansionprograms in 1996, 1999 and in 2000, respectively. The fourth program has not yetbeen completed. The period of tax benefits, detailed above, is subject to limits of the earlierof 12 years from the commencement of production, or 14 years from the approvaldate. The entitlement to the above benefits is conditional upon the fulfillment of theconditions stipulated by the above law, regulations published thereunder and theinstruments of approval for the specific investments in "Approved Enterprises".In the event of failure to comply with these conditions, the benefits may becanceled and the Company may be required to refund the amount of the benefits,in whole or in part, including interest. If the retained tax-exempt profits are distributed, they would be taxed at thecorporate tax rate applicable to such profits as if the Company had not electedthe alternative system of benefits, currently 20%-25% for an "ApprovedEnterprise". As of December 31, 2007, accumulated deficit included approximately$ 6,721 of tax exempt profits earned by the Company's "Approved Enterprises".The Company has decided not to distribute dividends out of such tax-exemptprofits. Accordingly, no deferred income taxes have been provided on incomeattributable to the Company's "Approved Enterprise". Income from sources other than the "Approved Enterprise" during the benefitperiod will be subject to the tax at the regular rate. b. Tax assessments: The Company has obtained final tax assessments from the Israeli Tax Authoritiesfor the tax years through 2002. c. Stamp duty: An amendment of the Stamp Duty on Documents Law, 1961, or the Stamp Duty Law,came into effect on June 1, 2003 determining, among other things, that the StampDuty on most agreements shall be paid by the parties that signed such agreement,jointly or severally, or by the party that undertook under such agreement to paythe Stamp Duty. The Stamp Duty Law determined that a document (or part thereof)that is signed in Israel or relates to an asset or obligation in Israel would besubject to a tax rate between 0.4% and 1% of the value of the subject matter ofsuch document. Under an order published in December 2005, the requirements to pay Stamp Dutywere cancelled with respect to documents signed on or after January 1, 2006. During 2006, based on the opinion of its legal counsel, the Company's managementdecided to reduce a previously recorded accrual by approximately $ 75 (reductionof general and administrative expenses). d. Net operating carry forward losses: The Company has accumulated losses for tax purposes as of December 31, 2007, inthe amount of approximately $ 16,147 which may be carried forward and offsetagainst taxable income in the future for an indefinite period. The carry forward losses of the Israeli subsidiary, amounting to approximately $800. Foreign: The carry forward losses of the French subsidiary, amounting to approximately $15,800, which may be carried forward and offset against taxable income in thefuture, for an indefinite period. The carry forward losses of the U.S. subsidiary, amounting to approximately $9,940 as of December 31, 2007, can be utilized mainly from 2017 to 2028.Utilization of U.S. net operating losses may be subject to the substantialannual limitation due to the "change in ownership" provisions of the InternalRevenue Code of 1986 and similar state provisions. The annual limitation mayresult in the expiration of net operating losses before utilization. The carry forward losses of the Dutch subsidiary, amounting to approximately $5,880 as of December 31, 2007, can be utilized indefinitely. The carry forward losses of the other subsidiaries amount to approximately $4,600 as of December 31, 2007. The majority of these carry forward losses can beutilized indefinitely. e. Deferred income taxes: Management currently believes that since the Company and its subsidiaries have ahistory of losses it is more likely than not that the deferred tax assetsregarding the loss carryforwards will not be realized in the foreseeable future. f. Reconciliation of the theoretical tax expense (benefit) to the actualtax expense (benefit): In 2007, 2006 and 2006, the main reconciling items between the statutory taxrate of the Company and the effective tax rate (0%) are carryforward tax losses,for which a full valuation allowance was provided. g. Net income (loss) is comprised of the following: Year ended December 31, 2007 2006 2005Domestic $ 4,701 $ 2,972 $ (2,031)Foreign (2,926) (2,336) (860) $ 1,775 $ 636 $ (2,891) NOTE 11:- GEOGRAPHIC INFORMATION The Company manages its business on the basis of one reportable segment. a. Revenues classified by geographic destinations based on customer locations: Year ended December 31, 2007 2006 2005 Europe $ 12,913 $ 9,930 $ 8,239Asia 3,465 3,969 3,844North America 1,263 473 1,234South America 4,233 2,848 1,836Other 1,066 499 248 $ 22,940 $ 17,719 $ 15,401 b. Long-lived assets by geographic region: December 31, 2007 2006 Israel $ 1,421 $ 1,222Europe 208 255South America 67 27North America 18 6Other 39 20 $ 1,753 $ 1,530 NOTE 12:- FINANCIAL INCOME (EXPENSES), NET Year ended December 31, 2007 2006 2005Financial income:Foreign currency translation adjustments, net $ $ $ 295 244 -Interest on bank deposits 484 358 108 779 602 108 Financial expenses:Foreign currency transaction adjustments, net - (379)Bank charges (124) (78) (45)Interest on short-term bank credit (82) (57) - (206) (135) (424) $ $ $ 573 467 (316) This information is provided by RNS The company news service from the London Stock Exchange