SIM.L Regulatory News (SIM)

20 Feb 2007 07:01

SimiGon Limited20 February 2007 Preliminary Results for the year ended 31 December 2006 SimiGon Ltd (the Company together with its subsidiary "SimiGon" or the "Group"),a global leader in providing simulation solutions, announces its maidenpreliminary results for the year ended 31 December 2006. Financial Highlights • Revenues increased by 63.8% to $7.52 million (2005: $4.59 million) • Gross margin at 84.1% (2005: 86.4%) • Operating profit increased by 164.5% to $2.51 million (2005: $0.95 million) • Strong balance sheet with net cash and short-term deposits of $8.88 million at 31 December 2006 Operational Highlights • Successful London IPO and admission to AIM on 2 November 2006 raising $10m capital for expansion into new markets • Well established blue chip customer base in the defence sector • In 2006, revenues from AirTrack (non-defence licensing agreements) increased to 19% of the revenue for 2006 from 3% of revenues in 2005 • New contract signed with Belgian Air Force for F-16 pilot data link training • Significant product investment during 2006 - including the launch of SIMbox version 5, an advanced simulation technology platform featuring development tools, a server, and a runtime environment Ami Vizer, SimiGon's President and CEO, said: "We reached several major milestones in 2006 chiefly among them was our successful IPO. We believe that the capital raised will enable the Company to develop sales and marketing capabilities and to expand the Company's presence in key markets. Furthermore, we successfully met our 2006 earnings forecast and we are confidentwe can meet expectations for the year to December 2007. Our plans are to leverage SIMbox to increase market share in our existing and future markets over the coming years." SimiGon Ltd Ami Vizer, Chief Executive Officer +972 9 956 1777Haim Yatim, Chief Financial OfficerShiri Darie, Director of Public Relations Corfin CommunicationsHarry Chathli, Ben Hunt 020 7929 8989 Overview SimiGon announces its maiden full year results since admission to AIM on 2 November 2006, with a strong operating performance that consolidated its position as one of the world's leading developers and suppliers of e-learning simulation software. 2006 was an encouraging year, marking the maturity of SimiGon and culminating inour successful IPO and admission to AIM and the launch of SIMbox 5. During thefinancial year, we made significant progress in consolidating our position asone of the leading simulation technology suppliers to the Defence and Aerospaceindustry. SimiGon believes that workers learn better and more quickly by doing rather thanbeing shown or being told what to do. Its high-technology distributed simulationsoftware allows people to learn to use the equipment they operate in a safe andenjoyable environment. This results in a more effective and efficient trainingprogramme for organisations that reduces training time and cost while increasingknowledge transfer and trainee success rates. SimiGon's core simulation product, SIMbox, has been used to develop several Commercial Off-the-Shelf (COTS) products, including aviation training mission rehearsal, In Flight Entertainment Systems and ground debriefing systems. These products have been tested and used in the aerospace and defence environment where they have demonstrated reliability and robustness and the ability to handle complex distributed simulations. SimiGon derives the majority of its revenues from contracts in the defence sector and has established a blue chip customer base in that industry. However,in 2006 its revenues from AirTrack (non-defence licensing agreements) increasedto 19% of the revenues in 2006 from 3% in 2005. Towards the end of the year, the Group signed a contract with the Belgian AirForce, which signifies increased awareness of our technology solution andencouraged SimiGon to commit additional resources to address the European market. The contract will initially generate approximately $350,000 of revenues in2007 with expected follow-on orders worth more than $600,000 by the end of 2008.Subsequently, there has been an increased interest for SimiGon's offering in this region. After the year end, on January 24, 2007, the Group purchased the assets of Visual Training Solution Group, Inc ("VTSG"). The Group has worked closely with VTSG over the past few years, providing them with software development tools andlicenses, while they performed added value content and hardware integration services for end users. The transaction will provide us with a closer relationship with VTSG customers and a better position to leverage SIMbox capabilities. Financial Performance Revenue for the year ended 31 December 2006 was $7.52 million, compared to $4.59million in 2005, an increase of 63.8%. In terms of regional breakdown, 57.3% ofour revenues came from North America (2005: 78.6%), 37.8% from Europe and theMiddle East (2005: 12.9%) and 4.9% from the Far East (2005: 8.5%). Gross profitfor the fiscal year was $6.3million (2005: $3.96 million), an increase of 59%. Total operating expenses for the year increased by 26.4% to $3.81 million (2005:$3.015 million), mainly due to the increase in research and development expensesto $1.98 million (2005: $1.45 million) and general and administration expensesto $0.887 million (2005: $0.703 million) due to salary increases and the costsrelated to being a public company. Operating income therefore increased to $2.51 million (2005: $0.949 million) andour net income increased from $0.89 million in 2005 to $2.52 million in 2006.This resulted in net basic earnings per share of $0.08 (2005: $ 0.03 basic earning per share) and diluted earning per share of $0.07 (2005: $0.03 diluted earning per share). As of 31 December 2006, SimiGon had cash, cash equivalent anddeposits in the amount of $8.88 million. As of 31 December 2006, the Group had 55 employees, compared to 51 employees in31 December 2005. Product Development 2006 saw our highest level of expenditure yet on R&D as we sought to further stretch our technology lead over our competitors. SimiGon understands the need to remain innovative and develop new features andproducts to maintain market relevance and increase market share. In 2006, SimiGon focused on the following areas to increase its competitiveness: • New generation of the SIMbox Learning Management System has been developed with better performance, mass user support, and unique integration with SIMbox Simulation. • SIMbox training solutions have been expanded to include Air Traffic Control operator training capabilities, with high fidelity Speech Recognition capabilities and Artificial Intelligence simulation. • SIMbox Simulation has been improved to be able to easily integrate with full scale simulator hardware, providing cost effective solutions for full scale trainers. • SIMbox Graphic Engine has been improved to support urban and ground simulation with high resolution using more efficient algorithms. • SimiGon R&D has continued to be one of the earliest adapters of cutting edge software technologies for infrastructure development. • SIMbox Toolkit has been upgraded extensively with new tools and features, new content encryption tools and more content templates to reduce content development time. • SIMbox Learning Management System has been ported for use on PDA hardware, enabling access through the WebAccess application on mobile handhelds, benefiting especially instructors who provide feedback during observation. • SimiGon continues to be one of the fastest to comply with the most advanced E-learning Standard (SCORM) and is now certified for SCORM2004, 3rd Edition. • Air Traffic Control training system for improving the skills and reducing the training and certification time of air traffic controllers, models a complete base with all taxi, take-off, departure, and emergency procedures. Outlook SimiGon is well positioned within strong growth markets and, over the past year,has achieved a significant increase in revenues and net income. Looking ahead, the Group plans to leverage SIMbox to increase market share in its existing and future markets over the coming years and as a consequence, the Board believes that the Group will continue to grow and is confident that it can meet market expectations for the year to December 2007. CONSOLIDATED BALANCE SHEETS December 31, 2006 2005 2004 Note U.S. dollars in thousandsASSETS CURRENT ASSETS: Cash and cash equivalents 3 8,226 1,297 1,755 Short-term bank deposits 655 473 - Trade receivables 1,299 604 96 Other accounts receivable and prepaid expenses 4 215 446 85 Total current assets 10,395 2,820 1,936 PROPERTY AND EQUIPMENT, NET 5 179 162 133 Total assets 10,574 2,982 2,069 EQUITY AND LIABILITIES CURRENT LIABILITIES: Short-term bank loans 200 200 875 Loans from shareholders 6 - 1,521 758 Trade payables 139 176 194 Deferred revenues 104 2,493 1,751 Other accounts payable and accrued expenses 7 785 472 502 Total current liabilities 1,228 4,862 4,080 LONG-TERM LIABILITIES: Severance pay liability 8 252 67 70 Long-term deferred revenues - - 770 Total long-term liabilities 252 67 840 Total liabilities 1,480 4,929 4,920 EQUITY: 9 Share capital 89 73 73 Additional paid-in capital 14,251 5,746 5,732 Accumulated deficit (5,246) (7,766) (8,656) Total equity 9,094 (1,947) (2,851) Total equity and liabilities 10,574 2,982 2,069 The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF INCOME Year ended December 31, 2006 2005 2004 Note U.S. dollars in thousands Revenues 13 7,517 4,588 4,495 Cost of revenues 12a 1,196 624 862 Gross profit 6,321 3,964 3,633 Operating expenses: Research and development 12b 1,985 1,446 1,328 Selling and marketing 12c 939 866 780 General and administrative 12d 887 703 517 Total operating expenses 3,811 3,015 2,625 Operating profit 2,510 949 1,008Financial income (expenses), net 12e 10 (59) (67) Profit for the year 2,520 890 941 Basic earnings per share in U.S. dollars 13 0.08 0.03 0.03 Diluted earnings per share in U.S. dollars 13 0.07 0.03 0.03 Weighted average number of shares usedin computing basic earnings per share in thousands 13 31,608 30,489 30,379 Weighted average number of shares usedin computing diluted earnings per share in thousands 13 33,821 32,693 32,313 The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Additional Number Share paid-in Accumulated Total of shares capital capital deficit Equity U.S. dollars in thousands (except share amounts) Balance as of January 1, 2004 30,325,850 73 5,732 (9,597) (3,792) Exercise of employee stock options 121,988 *) - - - *) - Profit for the year - - - 941 941 Balance as of December 31, 2004 30,447,838 73 5,732 (8,656) (2,851) Share-based compensation - - 14 - 14Exercise of employee 72,493 *) - - - *) -stock optionsProfit for the year - - - 890 890 Balance as of December 31, 2005 30,520,331 73 5,746 (7,766) (1,947) Shareholders' waiver of interest on loan - - 85 - 85Issuance of shares, net **) 6,076,811 14 8,397 - 8,411Exercise of warrant issued to a bank 653,524 2 (2) - - Share-based compensation - - 25 - 25Profit for the year - - - 2,520 2,520 Balance as of December 31, 2006 37,250,666 89 14,251 (5,246) 9,094 *) Represents an amount lower than $ 1,000. **) Net of issuance expenses of $ 1,619 thousand in 2006. The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2006 2005 2004 U.S. dollars in thousandsCash flows from operating activities: Profit for the year 2,520 890 941 Adjustments to reconcile profit to net cash provided by operating activities (a) (2,236) (800) (18) Net cash provided by operating activities 284 90 923 Cash flows from investing activities: Investment in short-term deposit (182) (473) - Purchase of property and equipment (82) (77) (47) Proceeds from sale of property and equipment - 2 16 Net cash used in investing activities (264) (548) (31) Cash flows from financing activities: Issuance of shares, net 8,411 - - Proceeds from loans from shareholders - 675 - Proceeds from short-term bank loans - 200 875 Repayment of loans from shareholders (1,502) - - Repayment of short-term bank loans - (875) (875) Net cash provided by financing activities 6,909 - - Increase (decrease) in cash and cash equivalents 6,929 (458) 892Cash and cash equivalents at beginning of year 1,297 1,755 863 Cash and cash equivalents at end of year 8,226 1,297 1,755 The accompanying notes are an integral part of the consolidated financialstatements. CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2006 2005 2004 U.S. dollars in thousands (a) Adjustments to reconcile profit to net cash provided by operating activities: Income and expenses not involving operating cash flows: Depreciation 65 47 52 Share-based compensation 25 14 - Gain on sale of property and equipment - (1) (10) Accrued interest on loans from shareholders 66 88 34 Accrued severance pay, net 185 (3) 1 Changes in operating assets and liabilities: Increase in trade receivables (695) (498) (30) Decrease (increase) in other accounts receivable and prepaid expenses 231 (361) (20) Decrease in trade payables (37) (18) (2) Decrease in deferred revenues (2,389) (38) (142) Increase (decrease) in other accounts payable and accrued expenses 313 (30) 99 (2,236) (800) (18) (b) Supplemental disclosure of cash flows: Cash paid during the year for: Interest 80 19 42 Cash received during the year for: Interest 105 25 6 (c) Supplemental disclosure of non-cash financing activities: Shareholders' waiver of interest on loans 85 - - The accompanying notes are an integral part of the consolidated financialstatements. NOTE 1:- GENERAL a. SimiGon Ltd. ("the Company") commenced its operations on October 1, 1998, andis engaged in developing advanced learning, training and simulation technologiesand applications for use in professional communities. The Company's registeredoffice is in Herzlia, Israel. b. In January 2000, the Company established a wholly-owned subsidiary in theUnited States, SimiGon Inc. The subsidiary is engaged in the marketing of theCompany's products in the United States. c. On November 2, 2006, the Company completed its Initial Public Offering("IPO") on the Alternative Investment Market ("the AIM") on the London StockExchange, by issuing 6,076,811 Ordinary shares of NIS 0.01 par value each at aprice of £ 0.88 ($ 1.65) per share for a total net consideration of $ 8.4million dollars. d. On January 24, 2007, SimiGon Inc. signed an Asset Purchase Agreement withVisual Training Solution Group, Inc. ("VTSG"). VTSG was a former businesspartner of the Company whereby the Company provided the software and VTSGprovided the content and hardware integration. According to the agreement, the subsidiary will pay a total consideration of $2million dollars for the selected seller's asset as defined in the agreement.(see also Note 16). NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES a. Basis of preparation: The consolidated financial statements of the Company and its subsidiary havebeen prepared on a historical cost basis in accordance with InternationalFinancial Reporting Standards ("IFRS"). b. Accounting policies: The accounting policies adopted by the Company for all periods presented are incompliance with the IFRS that are effective at December 31, 2006. c. Functional currency and translation: Substantially all of the Company's sales are made outside Israel in non-Israelicurrencies, mainly the U.S. dollar. A substantial portion of the Company'sexpenses, mainly selling and marketing expenses, is incurred in or linked toU.S. dollars. The funds of the Company are held in U.S. dollars. Therefore, theCompany's management has determined that the U.S. dollar is the currency of theprimary economic environment of the Company, and thus its functional andpresentation currency. Monetary assets and liabilities denominated in non-U.S. dollar currencies aretranslated into U.S. dollars at the exchange rate on balance sheet date.Transactions in non-U.S. dollar currencies are translated into U.S. dollars atthe exchange rate on the date of transaction. Transaction differences areincluded in financial expenses in the statement of income. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Data regarding exchange rates for the New Israeli Shekel ("NIS") in relation tothe U.S. dollar are as follows: Exchange rate ofAs of one U.S. dollar December 31, 2006 NIS 4.225December 31, 2005 NIS 4.603December 31, 2004 NIS 4.308December 31, 2003 NIS 4.379 d. Principles of consolidation: The consolidated financial statements include the accounts of the Company andits subsidiary. Intercompany balances and transactions have been eliminated uponconsolidation. e. Cash and cash equivalents: Cash and short-term deposits in the balance sheet comprise cash at hand andshort-term deposits with an original maturity of three months or less. f. Short-term bank deposit: Bank deposits with maturities of more than three months but less than one yearare included in short-term bank deposits. Such short-term bank deposits arestated at amortized cost using the effective interest method. Short-term bankdeposits as of December 31, 2006 bear interest at an annual average rate of4%-5%. g. Trade receivables: Trade receivables are recognized and carried at the original invoice amount lessan allowance for any uncollectible amounts. An allowance for doubtful debts ismade when there is evidence that the Company will be unable to collect the fullamount. Bad debts are written-off when identified by management. As of December 31, 2006, 2005 and 2004, no allowance for doubtful debts has beenrecorded as the Company's management has concluded that there is no evidence asto uncollectibility. h. Property and equipment: Property and equipment are stated at cost, net of accumulated depreciation andimpairment in value. Depreciation is calculated by the straight-line method overthe estimated useful lives of the assets at the following annual rates: % Computers and peripheral equipment 33Office furniture and equipment 7 - 15 (mainly 15%)Motor vehicles 15Leasehold improvements Over the term of the lease or the estimated useful life, whichever is shorter NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) i. Impairment of non-current assets: The carrying values of non-current assets are reviewed for impairment whenevents or changes in circumstances indicate the carrying value may not berecoverable. If any such indication exists and where the carrying values exceedthe estimated recoverable amount, the assets or cash-generating units arewritten down to their recoverable amount. The recoverable amount is the higherof net selling price and value in use. In assessing value in use, the estimatedfuture cash flows are discounted to their present value using a pre-tax discountrate that reflects current market assessments of the time value of money and therisks specific to the asset. For an asset that does not generate largelyindependent cash inflows, the recoverable amount is determined for thecash-generating unit to which the asset belongs. As of December 31, 2006, 2005and 2004, no impairment losses have been identified. j. Research and development: Research and development costs are charged to the income statement as incurredas development costs do not meet the criteria for recognition as an intangibleasset. k. Deferred income taxes: The Company and its subsidiary provide for deferred income taxes using theliability method of accounting. Under the liability method, deferred taxes arerecognized for temporary differences between the tax basis of assets andliabilities and their carrying amounts for financial reporting purposes.Deferred taxes are measured based on enacted tax rates that are expected to bein effect in the year in which the differences are expected to reverse. Deferredtax assets in respect of carryforward losses and other temporary deductibledifferences are recognized to the extent that it is probable that they will beutilized. l. Revenue recognition: Revenues are recognized to the extent that it is probable that the economicbenefits will flow to the Company and the revenues can be reliably measured. The Company generates revenues mainly from licensing the rights to use itssoftware products and sales of software licenses that require significantcustomization. The Company also generates revenues from maintenance, support andtraining. The Company sells its products primarily through value addedresellers. The resellers usually add an additional component to the package soldor include the Company's products as part of a broader package. During the yearsended December 31, 2006, 2005 and 2004, the Company generated revenues fromsoftware licenses in the amounts of $ 5,709,909, $ 2,662,445 and $ 2,412,807,respectively. Maintenance and support revenue included in multiple element arrangements isdeferred and recognized on a straight-line basis over the term of themaintenance and support agreement. The fair value of the undelivered elements(maintenance and support services) is determined based on the price charged forthe undelivered element when sold separately. During the years endedDecember 31, 2006, 2005 and 2004, the Company generated revenues frommaintenance and support in the amounts of $ 819,782, $ 975,183 and $ 685,709,respectively. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Revenues from software licensing that requires significant customization arerecognized by reference to the stage of completion of the transaction at thebalance sheet date. When the outcome of the transaction cannot be estimatedreliably, revenues are recognized only to the extent of the costs recognizedthat are recoverable. A provision for estimated losses on uncompleted contractsis recorded in the period in which such losses are first identified. As ofDecember 31, 2006, no provision for such losses has been identified. During the years ended December 31, 2006, 2005 and 2004, the Company generatedrevenues from software licenses that require significant customization in theamounts of $ 797,606, $ 916,773 and $ 1,349,952, respectively. Under one of the software license agreements that required significantcustomization, the Company had undertaken an off-set obligation to purchasehardware from the customer or its affiliates. Accordingly, the Company deferredthe recognition of the respective revenues in the amount of $ 800,000 until suchoff-set obligation is settled or waived. In 2006, the Company reached anagreement with the customer to provide the customer with certain additionallicenses in consideration for the waiver of the off-set obligation. Accordingly,the Company recognized the deferred revenues in 2006. The Company and its subsidiary generally offer a warranty for their products. Aprovision for warranty costs is provided at the time revenues are recognized,for estimated costs during the warranty period based on the past experience. Revenues from training are recognized when performed. During the years endedDecember 31, 2006, 2005 and 2004, the Company generated revenues from trainingin the amounts of $ 188,912, $ 34,045 and $ 46,829, respectively. Deferred revenue includes unearned amounts received under maintenance andsupport contracts, and amounts received from customers but not recognized asrevenues. m. Basic and diluted earnings per share: Basic earnings per share are computed based on the weighted average number ofOrdinary shares outstanding during each year. Diluted earnings per share arecomputed based on the weighted average number of Ordinary shares outstandingduring each year, plus dilutive potential Ordinary shares considered outstandingduring the period, except when such potential shares are antidilutive. n. Severance pay liability: The Company's liability for severance pay pursuant to the Israel's Severance PayLaw is based on the last monthly salary of the employee multiplied by the numberof years of employment, as of the date of severance. The cost of providingseverance pay is determined using an independent actuary. Actuarial gains andlosses are recognized immediately in the statement of income in the period inwhich they occur. Pursuant to Section 14 of the Severance Pay Law, which covers most of theCompany's employees, monthly deposits with insurance companies release theCompany from any future severance obligations in respect of those employees(defined contribution). Deposits under Section 14 are recorded as an expense inthe Company's statement of income. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) o. Concentrations of credit risks: Financial instruments that potentially subject the Company to concentrations ofcredit risk consist principally of cash and cash equivalents, short-term bankdeposits and trade receivables. Cash and cash equivalents and short-term bank deposits are invested in majorbanks in Israel and the United States. Management believes that the financialinstitutions that hold investments of the Company and its subsidiary arefinancially sound and, accordingly, minimal credit risk exists with respect tothese investments. The Company monitors on a current basis the credit of its customers and does notoffer credit terms without a specific approval. The Company has no off-balance-sheet concentration of credit risk such asforeign exchange contracts, option contracts or other foreign hedgingarrangements. p. Fair value of financial instruments: The carrying amounts of cash and cash equivalents, short-term bank deposit,trade receivables, other accounts receivable, short-term bank loans, tradepayables and other accounts payable and long-term loans approximate their fairvalue due to the short-term maturity of such instruments. q. Share-based payment transactions: The Company applies the provisions of IFRS 2, "Share-Based Payment". IFRS 2requires an expense to be recognized where the Company buys goods or services inexchange for shares or rights over shares ("equity-settled transactions"), or inexchange for other assets equivalent in value to a given number of shares ofrights over shares ("cash-settled transactions"). The main impact of IFRS 2 onthe Company is the expensing of employees' and directors' share options(equity-settled transactions). The cost of equity-settled transactions with employees is measured by referenceto the fair value at the date on which they are granted. The fair value isdetermined by using the Black-Scholes option-pricing model taking into accountthe terms and conditions upon which the instruments were granted. The fairvalues of Ordinary shares for the purpose of calculating the fair values ofoptions and warrants were determined by management based on a number of factors,including external valuations. The cost of equity-settled transactions is recognized, together with acorresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevantemployees become fully entitled to the award ("the vesting date"). Thecumulative expense recognized for equity-settled transactions at each reportingdate until the vesting date reflects the extent to which the vesting period hasexpired and the Company's best estimate of the number of equity instruments thatwill ultimately vest. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The dilutive effect of an outstanding option is reflected as additional sharedilution in the computation of earnings per share. r. IFRS and IFRIC Interpretations not yet effective: The Company has not early adopted IFRSs and IFRIC Interpretations that have beenissued but are not effective as of December 31, 2006. Management expects thatadoption of those pronouncements will not have a material impact on thefinancial position and profit of the Company in the period of initialapplication. s. Future changes in accounting policies: IFRS 7, "Financial Instruments": IFRS 7 requires new disclosures to be presented in next year's financialstatements on a comparative basis that will enable users to evaluate thesignificance of the Group's financial instruments and the nature and extent ofrisks arising from those financial instruments. NOTE 3:- CASH AND CASH EQUIVALENTS December 31, 2006 2005 2004 U.S. dollars in thousands Cash at bank and on hand 457 1,076 1,693Short-term deposit 7,769 221 62 8,226 1,297 1,755 Cash at banks earns interest at floating rates based on daily bank depositrates. Short-term deposits are made for varying periods of between one day andthree months, depending on the immediate cash requirements of the Group, andearn interest at the respective short-term deposit rates. NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES December 31, 2006 2005 2004 U.S. dollars in thousands Deferred costs 41 335 -Government authorities 93 55 33Deposits 23 24 12Prepaid expenses 52 7 28Employee advance 6 20 11Other - 5 1 215 446 85 NOTE 5:- PROPERTY AND EQUIPMENT a. Composition and movement: Computers Office and furniture peripheral and Motor Leasehold equipment equipment vehicles improvements Total U.S. dollars in thousandsCost:Balance as of January 1, 2004 442 106 32 51 631Acquisitions during the year 34 10 - 3 47Disposals during the year - - (30) - (30) Balance as of December 31, 2004 476 116 2 54 648Acquisitions during the year 67 10 - - 77Disposals during the year (5) - (2) - (7) Balance as of December 31, 2005 538 126 - 54 718Acquisitions during the year 55 27 - - 82 Balance as of December 31, 2006 593 153 - 54 800 Accumulateddepreciation:Balance as of January 1, 2004 407 42 21 17 487Provision during the year 31 11 4 6 52Disposals during the year - - (24) - (24) Balance as of December 31, 2004 438 53 1 23 515Provision during the year 29 13 - 5 47Disposals during the year (5) - (1) - (6) Balance as of December 31, 2005 462 66 - 28 556Provision during the year 43 16 - 6 65 Balance as of December 31, 2006 505 82 - 34 621 Depreciated cost as of December 31,2006 88 71 - 20 179 Depreciated cost as of December 31,2005 76 60 - 26 162 Depreciated cost as of December 31,2004 38 63 1 31 133 b. As for charges, see Note 11c. NOTE 6:- LOANS FROM SHAREHOLDERS Composition: December 31, 2006 2005 2004 U.S. dollars in thousandsInterest rate and linkage:LIBOR + 4.5% - 362 334LIBOR + 0.5% *) - 1,159 424 - 1,521 758 NOTE 6:- LOANS FROM SHAREHOLDERS (Cont.) *) In October 2001, the Company received from a bank a $ 1.3 million long-termloan, which was guaranteed by the Company's shareholders. During 2003 and 2005,the shareholders had transferred an aggregate amount of $ 1.1 million to theCompany to repay the loan. According to agreements signed between the Company and three of its shareholdersin June 2006, loans in the principal amount of $ 988,000 will no longer bear anyinterest, and the accrued interest as of that date, in the amount of $ 85,000,has been fully waived by the shareholders, which was included as additionalpaid-in capital. During November 2006, the Company repaid all the shareholders' loans in theamount of $ 1,502 including those whose repayment date was extended. NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES December 31, 2006 2005 2004 U.S. dollars in thousands Employees and payroll accruals 456 348 221Accrued expenses 275 76 230Other 54 48 51 785 472 502 NOTE 8:- SEVERANCE PAY LIABILITY a. The amounts recognized in the balance sheet are as follows: December 31, 2006 2005 2004 U.S. dollars in thousands Liability at the beginning of the year 67 70 69 Expense recognized in the statement of income 187 2 13Benefits not paid from assets (2) (5) (12) Liability at the end of the year 252 67 70 NOTE 8:- SEVERANCE PAY LIABILITY (Cont.) b. Amounts recognized in the statement of income are as follows: Year ended December 31, 2006 2005 2004 U.S. dollars in thousands Current service cost 234 19 19Interest cost 3 4 4Net actuarial gain recognized in the year (5) (21) (10) Total expense included in statement of income 232 2 13 c. The actuarial assumptions used are as follows: Year ended December 31, 2006 2005 2004 Discount rate 3.65% 3.84% 3.90%Future salary increases 2% 2% 2%Average expected remaining working years 7.81 6.81 6.35 NOTE 9:- EQUITY a. Rights of 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. Upon the completion of the IPO, all the Preferred rights were waived and thePreferred securities received the status of an equivalent number of Ordinaryshares. c. On November 2, 2006, the Company completed its Initial Public Offering("IPO") on the Alternative Investment Market ("the AIM") on the London StockExchange, by issuing 6,076,811 Ordinary shares of NIS 0.01 par value each at aprice of £ 0.88 ($ 1.65) per share for a total net consideration of $ 8,411thousand. d. Composition: December December 31, 31, 2006, 2005 and 2004 2006 2005 2004 Authorized Issued and outstanding Number of sharesOrdinary shares of NIS 0.01 par valueeach 100,000,000 37,250,666 30,520,331 30,447,848 NOTE 9:- EQUITY (Cont.) e. Warrants: In August 2000, in connection with the lease of its facilities, the Companyissued to the lessor fully vested warrants to purchase 51,613 Ordinary shares atan exercise price of $ 0.90 per share. The options may be exercised at any timeuntil March 30, 2007. As of December 31, 2006, no warrants had been exercised. In February 2002, the Company issued to a bank fully vested warrants to purchase823,529 Ordinary shares at an exercise price of $ 0.34 per share in conjunctionwith the receipt of a loan in the amount of $ 700 thousand. In April 2003, theCompany repaid the loan to the bank and received a credit line in the amount ofthe loan. During 2004, the credit line was increased to $ 1 million. Thewarrants can be exercised at any time until February 13, 2009. On August 28, 2006, the bank notified the Company of its intention to exercisethe warrants. According to the original warrant agreement, the bank could elect a cashlessexercise based on the difference between the share price upon the IPO and theoriginal exercise price ($ 0.34 per share). Accordingly, in November 2006, thebank exercised 653,524 warrants at an exercise price of zero. f. Options to shareholders: 1. In June 2001, the Company granted to one of its shareholders who is also asenior officer, as an anti-dilution protection, 383,047 fully vested options atan exercise price of NIS 0.01 per share and in consideration of the bridgefinancing agreement an additional 635,807 fully vested options at an exerciseprice of NIS 0.01 per share. The option can be exercised at any time until June2011. 2. On September 27, 2006, the Company signed an agreement with Mr. Ami Vizer,the Chief Executive Officer of the Company, according to which Mr. Vizerreceived options to purchase 50,000 Ordinary shares of the Company at anexercise price of $ 1.65 per share. The option will vest in full over twelvemonths following the IPO. On September 27, 2006, the Company signed a letter of appointment with Mr. SimiEfrati, a non-executive director of the Company, pursuant to which Mr. Efratiwill receive options to purchase 50,000 Ordinary shares of the Company at anexercise price of $ 1.65 per share that will vest over twelve months followingthe IPO. On September 27, 2006, the Company entered into an agreement with Mr. RamiWeitz, the Chairman of the Board of Directors, pursuant to which Mr. Weitz willreceive options to purchase 50,000 Ordinary shares of the Company at an exerciseprice of $ 1.65 per share that will vest over twelve months following the IPO. These options are in addition to the options granted pursuant to the table in g.below. NOTE 9:- EQUITY (Cont.) The fair value of share options is measured at the grant date using theBlack-Scholes option pricing model taking into account the terms and conditionsupon which the options were granted. The following are the inputs to the modelused for the year ended December 31, 2006: risk-free interest rates ranging from2.37%-4.92%; a dividend yield of 0%; volatility factor of the expected marketprice of the Company's Ordinary shares of 0.8; and a weighted average expectedlife of the options of one year. The weighted average fair value of the options granted in 2006 was $ 0.23. g. Stock options plan: In August 2000, the Company's Board of Directors authorized an incentive shareoption plan and has since granted options to purchase Ordinary shares toemployees and consultants. Under the terms of these grants, options generallyvest ratably over a period of four years, commencing with the date of grant. Theexercise price of the options granted under the plan may not be less than thepar value of the shares. The options generally expire no later than 10 yearsfrom the date of the grant, and are non-transferable, except under the laws ofsuccession. On September 21, 2006, the Company decided to increase its StockOption Plan reserves by 3,000,000 options. As of December 31, 2006, an aggregateof 2,582,742 Ordinary shares of the Company are still available for futuregrant. The fair value of share options is measured at the grant date using theBlack-Scholes option pricing model taking into account the terms and conditionsupon which the options were granted. The following are the inputs to the modelused for the year ended December 31, 2006 and for the year ended December 31,2005: risk-free interest rates ranging from 2.37%-4.92%; a dividend yield of 0%;volatility factor of the expected market price of the Company's Ordinary sharesof 0.8; and a weighted average expected life of the options of six years. The weighted average fair value of the options granted in 2006 and 2005 was $0.25 and $ 0.18, respectively. A summary of the activity in options to employees, consultants, and directors(including the senior management, see h below) for the years 2006, 2005 and 2004is as follows: Year ended December 31, 2006 2005 2004 Weighted Weighted Weighted Number average Number average Number average of exercise of exercise of exercise options price options price options price Outstanding at beginning of year 1,863,467 $ 0.440 2,004,459 $ 0.430 1,951,037 $ 0.390 Granted 623,250 $ 1.480 201,150 $ 0.600 402,200 $ 0.600 Exercised - $ - (72,493) $ 0.002 (121,988) $ 0.002 Forfeited (12,600) $ 0.600 (269,649) $ 0.610 (226,790) $ 0.640 Outstanding at end ofyear 2,474,117 $ 0.701 1,863,467 $ 0.440 2,004,459 $ 0.430 Exercisable options 1,650,082 $ 0.410 1,496,575 $ 0.400 1,450,293 $ 0.360 NOTE 9:- EQUITY (Cont.) The options outstanding as of December 31, 2006, have been separated into rangesof exercise price as follows: Options Weighted Options outstanding average exercisable as of remaining as of December contractual December 31, life 31,Exercise price 2006 (years) 2006 $ 0.002 489,627 4.37 489,627$ 0.090 47,248 3.58 47,248$ 0.600 1,465,193 6.57 1,080,328$ 1.000 3,150 3.58 3,150$ 1.200 18,899 3.94 18,899$ 1.610 200,000 9.88 -$ 1.650 130,000 9.82 10,830$ 2.000 30,000 9.88 -$ 2.500 90,000 9.88 - 2,474,117 1,650,082 h. Options to the CEO and senior employees: 1. On December 31, 2003, the Company's Board of Directors granted 250,000fully-vested options to the CEO at an exercise price of NIS 0.01 per share, inconsideration of terms that were determined in a meeting of the Board ofDirectors on July 14, 2003. These options can be exercised at any time untilDecember 2013. 2. On September 21, 2006, the Company decided to grant five of its senioremployees options to purchase a total amount of 95,000 Ordinary shares of theCompany, at an exercise price equal to the price at which new Ordinary shares ofthe Company are sold in connection with the IPO. These options will vest in fullwithin twelve months from the IPO. NOTE 10:- INCOME TAXES a. Tax benefits under the Law for the Encouragement of Capital Investments,1959: The Company has been granted an "Approved Enterprise" status for an originalprogram and an additional expansion program, under the Law for the Encouragementof Capital Investments, 1959 ("the Law"). According to the provisions of theLaw, the Company has elected to enjoy the "alternative benefits track" - awaiver of grants in return for tax holidays. The "Approved Enterprise" statuswill allow the Company a tax holiday on undistributed income derived from the"Approved Enterprise" program. The income derived from this "ApprovedEnterprise" will be tax-exempt for a period of two years, and may enjoy areduced tax rate of 10% to 25% (based on percentage of foreign ownership) for anadditional five years. The seven-year period of benefits will commence with thefirst year in which the Company earns taxable income. The Company completed the implementation of its original program during 2004.The expansion program has not yet been completed. The deadline for theperformance of this plan is until July 2007. 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 receiving theapproval. The period of benefits has not yet commenced, and will expire in theyear 2016. The entitlement to the above benefits is conditional upon the Company'sfulfilling the conditions stipulated by the above Law, regulations publishedthereunder and the letters of approval for the specific investments in "ApprovedEnterprises". In the event of failure to comply with these conditions, thebenefits may be canceled and the Company may be required to refund the amount ofthe benefits, in whole or in part, including interest. Should the Company derive income from sources other than the "ApprovedEnterprise" during the period of benefits, such income shall be taxable at theregular corporate tax rate. If tax-exempt profits are distributed to shareholders, they would be taxed atthe corporate tax rate applicable to such profits as if the Company had notelected the alternative system of benefits, currently between 10%-25% for an"Approved Enterprise". A recent amendment to the Law, which was officially published effective as ofApril 1, 2005 ("the Amendment") has changed certain provisions of the Law. As aresult of the Amendment, a company is no longer obliged to implement an"Approved Enterprise" status in order to receive the tax benefits previouslyavailable under the alternative benefits provisions, and therefore there is noneed to apply to the Investment Center for this purpose (Approved Enterprisestatus remains mandatory for companies seeking grants). Rather, a company mayclaim the tax benefits offered by the Investment Law directly in its taxreturns, provided that its facilities meet the criteria for tax benefits set outby the Amendment. A company is also granted a right to approach the Israeli TaxAuthorities for a pre-ruling regarding their eligibility for benefits under theAmendment. NOTE 10:- INCOME TAXES (Cont.) Tax benefits are available under the Amendment to production facilities (orother eligible facilities), which are generally required to derive more than 25%of the company's business income from export. In order to receive the taxbenefits, the Amendment states that a company must make an investment in thebeneficiary enterprise exceeding a minimum amount specified in the Law. Suchinvestment may be made over a period of no more than three years ending at theend of the year in which the company requested to have the tax benefits apply tothe beneficiary enterprise ("the Year of Election"). Where a company requests tohave the tax benefits apply to an expansion of existing facilities, then onlythe expansion will be considered a beneficiary enterprise and the company'seffective tax rate will be the result of a weighted combination of theapplicable rates. In this case, the minimum investment required in order toqualify as a beneficiary enterprise is required to exceed a certain percentageof the company's production assets before the expansion. The duration of taxbenefits is subject to a limitation of the earlier of 7 years from theCommencement Year, or 12 years from the first day of the Year of Election. b. Measurement of results for tax purposes 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 2c, the financial statements are presented in U.S. dollars.The difference between the annual change in the Israeli CPI and in the NIS/dollar exchange rate causes a difference between taxable income or loss and theincome or loss before taxes reflected in the financial statements. c. Tax reconciliation: In 2006, 2005 and 2004, the main reconciling item between the statutory tax rateof the Group and the effective tax rate (0%) is carryforward tax losses and taxexemption for which no deferred taxes were provided. d. Carryforward losses: Domestic: As of December 31, 2006 and 2005, the Company had accumulated losses for Israelitax purposes of approximately $ 2.2 and $ 5 million, respectively, which may becarried forward, in order to offset taxable income in the future, for anindefinite period. Foreign: As of December 31, 2006 and 2005, the federal tax loss carryforwards of the U.S.subsidiary amounted to approximately $ 1.6 and $ 1.5 million, respectively. Suchlosses are available for offset against future U.S. taxable income of thesubsidiary and will expire in the years 2021-2025. NOTE 10:- INCOME TAXES (Cont.) e. Tax rates: On July 25, 2005, the Knesset (Israeli Parliament) approved the Law of 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: 2005 - 34%, 2006 - 31%, 2007 - 29%, 2008 - 27%, 2009 - 26% and 2010and thereafter - 25%. NOTE 11:- CONTINGENT LIABILITIES AND COMMITMENTS a. Royalty commitments: In June 2001, the Company and a third party signed a Cooperation and ProjectFunding Agreement with Britech, which is an establishment of the UnitedKingdom-Israel Industrial Research and Development Fund. According to theagreement, Britech agreed to fund, by conditional grant, the implementation ofthe proposal submitted by the Company and the third party for a research anddevelopment project in the maximum amount of £ 227,000. The Company shall make repayments to Britech, based on gross sales derived fromthe sale, leasing or other marketing or commercial exploitation of theinnovation, including service or maintenance contracts, commencing with thefirst commercial transaction. Such payments shall be repaid in Pounds Sterlingat the rate of 2.5% of the first year's gross sales and, in succeeding years, atthe rate of 5 % of the gross sales until 100%-150% of the conditional grant andother sums have been repaid (incremental 50% based upon agreed milestone whichwas not fulfilled). As of December 31, 2006, the Company received a total amount of $ 324 thousand,of which $ 150 thousand and $ 174 thousand were deducted from the research anddevelopment expenses in 2001 and 2003, respectively. Although the development of technology had been completed by the third party andthe Company, the Company has never received the third party's portion of thedeveloped technology upon completion of the project although it requested itfrom both the third party and Britech. Therefore, since the Company cannotutilize the developed technology without the essential portion developed by thethird party, the Company has not paid any royalties to Britech and the Company'smanagement believes that it will not be required to pay royalties in the futurefor the abovementioned project. In addition, the Company did not submit anypatent applications in connection with the Britech grant. NOTE 11:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.) b. Lease commitments: 1. Premises occupied by the Company are rented under various non-cancelablelease agreements. The rental agreements for the premises expire in 2007. 2. The Company has leased various motor vehicles under cancelable operatinglease agreements. These leases expire in 2007. 3. Premises occupied by the subsidiary are rented under a non-cancelable leaseagreement. The rental agreement for the premises expires in 2011. 4. Future minimum rental payments under non cancellable operating leases are asfollows: U.S. dollarsYear ending December 31, in thousands 2007 1272008 952009 982010 1012011 87 508 The total expense for the years ended December 31, 2006, 2005 and 2004 was $ 190thousand, $ 133 thousand and $ 204 thousand, respectively. c. Floating charge: The Company recorded a first priority unlimited floating charge on all of itsassets, in favor of a bank, in consideration for a credit line from the bank ofup to $ 1 million. As of December 31, 2006, the Company had not utilized thecredit line. d. Promotion agreement: During December 2006, the Company signed a definitive agreement with aconsultant in order to promote and enhance its business activities with targetpartners, multi billion companies which are interested in integrating theproducts into their platforms or services, as defined in the definitiveagreement. In consideration of the fulfillment obligation as described in thedefinitive agreement, the Company shall pay a one time fee of $ 5,000. In addition, the Company will pay 1% commission of gross revenues actuallyreceived from business activities with target partners which are direct resultsof consultant efforts. NOTE 11:- CONTINGENT LIABILITIES AND COMMITMENTS (Cont.) Upon signing the agreement, the Company granted the consultant 100,000 optionsat an exercise price of $ 2 per share and vesting schedule as follows: 1) 50,000 options vested quarterly over two years starting from the firstwritten and signed definitive agreement with a target partner which result fromthe consultants' activities. 2) Up to 50,000 options vested in proportion to revenues received during theterm of the agreement and for a period of two years based on a ratio of 1 optionper $ 40 in revenues. 3) Vesting of all options shall be immediately accelerated if one of thefollowing events occurs: a) Signature of a contract with a target partner with a value of at least $3,000,000. b) A sale of the Company to a target partner. Any option vested which is not exercised within 12 months starting from December2006 shall expire. During 2006, no agreement has been signed with target partners and therefore, nooptions vested. NOTE 12:- SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF INCOME Year ended December 31, 2006 2005 2004 U.S. dollars in thousandsa. Cost of revenues: Salaries and related benefits 982 390 426 Lease and office maintenance 115 85 130 Travel expenses 52 114 84 Depreciation 18 10 12 Share-based compensation 1 - - Other 29 25 210 1,196 624 862 b. Research and development expenses: Salaries and related benefits 1,739 1,231 1,105 Lease and office maintenance 209 189 193 Depreciation 29 26 30 Share-based compensation 8 - - 1,985 1,446 1,328 NOTE 12:- SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF INCOME Year ended December 31, 2006 2005 2004 U.S. dollars in thousands c. Selling and marketing expenses: Salaries and related benefits 611 579 322 Management fees 83 91 113 Advertising and sales promotion 66 44 154 Lease and office maintenance 57 54 55 Travel expenses 98 86 117 Depreciation 9 5 3 Share-based compensation 3 1 - Other 12 6 16 939 866 780 d. General and administrative expenses: Salaries and related benefits 642 341 251 Management fees 204 188 114 Lease and office maintenance 60 59 49 Travel expenses 42 26 - Professional fees 44 49 53 Depreciation 9 6 7 Share-based compensation 13 13 - Other (127) 21 43 887 703 517 e. Financial income (expenses), net: Exchange rate differences, net 145 23 (11) Interest income from banks 105 22 - Commission to the bank *) (150) - - Bank loans and overdrafts (14) (19) (35) Interest on loans from (66) (88) (34) shareholders Other (10) 3 13 10 (59) (67) *) In addition to the warrant granted and exercised by the bank (Note 9e), theCompany was obliged to pay the bank a commission in the amount of $ 150 thousandpursuant to a past agreement with the bank in the event of an IPO. NOTE 13:- REVENUES BY GEOGRAPHIC AREAS AND MAJOR CUSTOMERS The Company manages its business on the basis of one reportable segment. a. Revenues classified by geographical destinations based on the customer location: Year ended December 31, 2006 2005 2004 U.S. dollars in thousands EMEA (1) 2,841 591 366North America 4,308 3,608 3,829Asia Pacific 368 389 300 7,517 4,588 4,495 (1) Europe, Middle East and Africa. b. Information about major customers: Year ended December 31, 2006 2005 2004 Customer A 10% 32% 40% Customer B 8% 20% 37% Customer C 2% 17% 8% Customer D 14% - - Customer E 19% 3% - Customer F 15% - - Customer G 11% 4% 4% NOTE 14:- EARNINGS PER SHARE The following reflects the income and share data used in the basic and dilutedearnings per share computations: 2006 2005 2004 U.S. dollars in thousands Net profit attributable to ordinary equity holders of the parent 2,520 890 941 2006 2005 2004 Weighted average number of Ordinary shares for basic earnings per share 31,608 30,489 30,379 Effect of dilution: Share options 2,090 1,388 1,247 Warrants 123 816 687 Weighted average number of Ordinary shares adjusted for the effect ofdilution 33,821 32,693 32,313 There have been no other transactions involving Ordinary shares or potentialOrdinary shares between the reporting date and the date of completion of thesefinancial statements. NOTE 15:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES a. Balances with related parties: December 31, 2006 2005 2004 U.S. dollars in thousands Trade receivables (shareholder) - 16 - Other accounts payable and - - 12accrued expenses Loans from shareholders - 1,521 758 NOTE 15:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Cont.) b. Revenues from related party of a shareholder: Year ended December 31, 2006 2005 2004 U.S. dollars in thousands Revenues 6 47 - c. Compensation of key management personnel of the Company: Short-term employee benefits 618 587 474Management fees 287 279 227Share-based payments 6 - - 911 866 701 d. Significant agreement: On September 21, 2006, the Company signed an agreement with Mr. Ami Vizer, theChief Executive Officer of the Company, according to which Mr. Ami Vizer isengaged with a current salary of $ 313,320 (approximately £ 169,000) per annum(excluding bonuses and benefits), terminable by either party on nine months'notice. In addition, pursuant to this agreement, Mr. Vizer received options (seeNote 9f). In 2006, the Company accrued additional severance pay liability and respectiveexpenses of approximately $ 190,000 due to the change in Mr. Vizer's salary. e. On September 27, 2006, the Company signed an agreement with Mr. Simi Efrati,pursuant to which Mr. Efrati receives a fee of $ 122,520 per annum forconsulting services. The agreement may be terminated by either party on sixmonths' written notice. In addition, pursuant to this agreement Mr. Efratireceived options (see Note 9f.). Prior to this agreement, Mr Simi Efrati , hasbeen a non executive director of the company. f. On September 27, 2006, the Company entered into an agreement with Mr. RamiWeitz pursuant to which Mr. Weitz receives a fee of $ 122,520 per annum inconsideration for consulting services. The agreement may be terminated by eitherparty by at least six months' written notice. In addition, pursuant to thisagreement, Mr. Weitz received options (see Note 9f.). Prior to this agreement,Mr. Rami Weitz, has been the chairmen of the board of directors of the Company. NOTE 16:- SUBSEQUENT EVENTS On January 24, 2007, SimiGon Inc. signed an Asset Purchase Agreement with VisualTraining Solution Group, Inc. ("VTSG"). VTSG was a former business partner ofthe Company whereby the Company provided the software and VTSG provided thecontent and hardware integration. According to the agreement, SimiGon Inc. will pay a total consideration of $2million dollars for the assets acquired and liabilities assumed, as defined inthe agreement. According to the agreement, the first payment of $ 1.25 million was paid on thedate the agreement was signed and the second payment of $ 0.75 million is dueone year later. Up to 50% of the second payment can be paid by the issuance ofCompany shares. According to the agreement, the second payment is contingentupon meeting certain targets such as revenues and key employees' performance. The Company's management is presently assessing the fair values of the assetspurchased and liabilities assumed. As of the date of the approval of thefinancial statements, this valuation has not yet been completed. - - - - - - - - - - - - - - - - - - This information is provided by RNS The company news service from the London Stock Exchange