Final results for 2019

M.T.I Wireless Edge Ltd.

Consolidated Statements of Financial Position

 

		As at December 31,		As at December 31,
		2019	2019	2018	2018
	Note	$'000	$'000	$'000	$'000
ASSETS
Non-current assets:
Property, plant and equipment	10	5,212		4,245
Intangible assets	11	1,116		881
Deferred tax assets	12	664		687
Long-term prepaid expenses		31		32
Total non-current assets			7,023		5,845
Current assets:
Inventories	13	5,748		6,005
Current tax receivables		672		153
Unbilled revenue	14	2,866		2,271
Trade and other receivables	14	9,799		9,591
Cash and cash equivalents	15	8,140		5,401
Total current assets			27,225		23,421
TOTAL ASSETS			34,248		29,266
LIABILITIES
Non-curent liabilities:
Contingent consideration	27B	69		-
Lease liabilities		224		-
Loans from banks, net of current maturities	16	141		427
Employee benefits, net	17	843		701
Total Non-current liabilities		1,277			1,128
Current Liabilities:
Current tax payables		230		12
Trade and other payables	18	9,139		6,530
Current maturities and short term bank credit	19	312		581
Total current liabilities		9,681			7,123
Total liabilities			10,958		8,251
TOTAL NET ASSETS			23,290		21,015

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

 

 

M.T.I Wireless Edge Ltd.

Consolidated Statements of Financial Position (Cont.)

 

		As at December 31,		As at December 31,
		2019	2019	2018	2018
	Note	$'000	$'000	$'000	$'000
Capital and reserves attributable to    owners of the parent	23
Share capital		207		205
Additional paid-in capital		22,868		22,388
Capital reserve from share-based payment transactions		52		366
Translation differences		(62)		(124)
Accumulated losses		(658)		(2,195)
			22,407		20,640
Non-controlling interests			883		375
TOTAL EQUITY			23,290		21,015

 

 

The financial statements on pages 4 to 53 were approved by the Board of Directors and authorised for issue on March 1, 2020, and were signed on its behalf by:

 

March 1, 2020
Date of approval	Moshe Borovitz	Elhanan Zeira	Zvi Borovitz
of financial statements	Chief Executive Officer	Controller	Chairman of the Board

 

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

 

 

 

M.T.I Wireless Edge Ltd.

Consolidated Statements of Cash Flows

 

		For the year ended December 31,				For the year ended December 31,
		2019		2019		2018		2018
		$'000		$'000		$'000		$'000
Operating Activities:
Profit for the year		2,955				2,329
Adjustments for:
Depreciation and amortization		973				589
Gain from investments in financial assets		-				(29)
Equity settled share-based payment expense		8				14
Gain on disposal of property, plant and equipment		(8)				(7)
Finance expense (income), net		32				(11)
Income tax expense		454				321
				4,414				3,206
Changes in working capital and provisions
Decrease (increase) in inventories		523				(634)
Decrease in trade receivables		233				451
Increase in unbilled revenues		(595)				(509)
Decrease (increase) in other accounts receivables		(137)				70
Increase (decrease) in trade and other accounts payables		1,821				(111)
Increase (decrease) in employee benefits, net		136				(11)
				1,981				(744)
Interest received		44				40
Interest paid		(77)				(70)
Income tax paid		(764)				(171)
				(797)				(201)
Net cash provided by operating activities				5,598				2,261

 

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

 

 

 

M.T.I Wireless Edge Ltd.

Consolidated Statements of Cash Flows (Cont.)

 

	For the year ended December 31,					For the year ended December 31,
	2019			2019		2018		2018
	$'000			$'000		$'000		$'000
Investing Activities:
Proceeds from sale of property, plant and equipment	31					39
Sale (purchase) of investments in financial assets, net	-					2,040
Acquisition of initially consolidated subsidiaries	(23)					-
Purchase of property, plant and equipment	(707)					(515)
Net cash provided by (used in) investing activities				(699)				1,564
Financing Activities:
Exercise of share options	117					-
Dividend	(1,306)					(1,096)
Short term loan from banks	-					(21)
Payments of lease liabilities	(511)					-
Treasury shares acquired	(428)					-
Treasury shares sold	471					-
Long term loan received from banks	-					120
Repayment of long-term loans from banks	(554)					(878)
Net cash used in financing activities				(2,211)				(1,875)
Increase (decrease) in cash and cash equivalents				2,688				1,950
Cash and cash equivalents at the beginning of the year				5,401				3,508
Exchange differences on balances of cash and cash equivalents				51				(57)
Cash and cash equivalents at the end of the year				8,140				5,401
Appendix A - Non-cash transactions:
						For the year ended December 31,
						2019		2018
						$'000		$'000
Purchase of property, plant and equipment with credit						94		47
Scrip dividend (Note 9)						-		677

 

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

 

 

 

M.T.I Wireless Edge Ltd.

Appendix B - Acquisition of subsidiary, net of cash acquired:

		For the year ended December 31,				For the year ended December 31,
		2019		2019		2018		2018
		$'000		$'000		$'000		$'000
Working capital (excluding cash and cash equivalents)		163				-
Property, plant and equipment		112				-
Intangible assets		192				-
Goodwill		81				-
Deferred taxes		(54)				-
The subsidiaries' assets (excluding cash and cash equivalents) and liabilities at date of acquisition				494				-
Non-controlling interests				(402)				-
Contingent consideration				(69)				-
Total				23				-

                

 

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

 

 

 

M.T.I Wireless Edge Ltd.

 

1.     General description of the Group and its operations

M.T.I Wireless Edge Ltd. (hereafter - the "Company", or collectively with its subsidiaries, the "Group") is an Israeli corporation. The Company was incorporated under the Companies Act in Israel on December 30, 1998, and commenced operations on July 1, 2000. Since March 2006, the Company's shares have been traded on the AIM market of the London Stock Exchange.

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

The Company and its subsidiaries are engaged in the following areas:

-     Development, design, manufacture and marketing of antennas for the military and civilian sectors.

-     A leading provider of remote control solutions for water and irrigation applications based on Motorola's IRRInet state of the art control, monitoring and communication technologies.

-     Providing consulting, representation and marketing services to foreign companies in the field of RF and Microwave.

-     Providing engineering services in the field of floating systems and system engineering services.

 

2.     Accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

A.    Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, except for the measurement of Employee benefit assets.

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

B.    Estimates and assumptions

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

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

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

C.    New IFRSs applied in the period:

1.   IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.

The Company has implemented the requirements of IFRS 9 retrospectively on the basis of the facts and circumstances that existed as of 1 January 2018 by recognizing the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings and other components of equity as of January 1, 2018. See note 2 (M) for the accounting policy applied

The adoption of IFRS 9 did not have an impact on the financial statements.

2.     IFRS 15 Revenue from Contracts with Customers

IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards.

The Company elected to apply IFRS 15 retrospectively for the first time by recognizing the cumulative effect of the retroactive application as an adjustment to the opening balance of retained earnings as at 1 January 2018. See note 2 (D) for the accounting policy applied

The adoption of IFRS 15 did not have an impact on the financial statements.

D.    Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services

1.   Revenues from Construction Contracts are recognized based on the percentage of completion to date. The percentage of completion is determined by dividing actual completion costs incurred to date by the total completion costs anticipated. When a loss from a contract is anticipated, a provision for the entire loss that is anticipated is made in the period in which this first becomes evident, as assessed by the Company's management. 

The Company recognizes revenue from construction contracts over time, since the Company's performance does not create an asset with alternative use to the Company and the Company has enforceable right to payment for performance completed up to that date.

The payment terms for these projects are based on milestones specified in the contract, which are determined in relation to the rate of progress. The Company believes that recognising revenue based on costs incurred to the satisfy performance obligations faithfully depicts its performance in construction contracts. Therefore, when revenue is recognized before a specified milestone is achieved, the Company recognizes the costs incurred to satisfy the related performance obligation as unbilled revenue.

The Company estimates the total cost of completing each project based on estimates of material costs, labor costs, subcontractor performance, and other factors.

Financing components - The Company does not have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year.

The Company elected not to adjust the transaction price for the effects of financing components in contracts where the period between when the Company transfers a promised good or a service to the customer and when the customer pays for it is one year or less.

2.   Revenues from the sale of goods are recognized at the point in time when control of the asset is transferred to the customer, generally upon delivery of the equipment.

Volume rebates give rise to variable consideration. The variable consideration is estimated at contract inception and constrained until the associated uncertainty is subsequently resolved. The application of the constraint on variable consideration increases the amount of revenue that will be deferred.

To estimate the variable consideration to which it will be entitled, the Company applied the 'most likely amount method' for contracts with a single volume threshold and the 'expected value method' for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration was primarily driven by the number of volume thresholds contained in the contract. The Company includes in the transaction price amounts of variable consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

At the end of each reporting period, the Company updates its estimates of variable consideration.

E.    Assets and liabilities arising from contracts with customers

Contract assets (presented as "Unbilled revenue ")    

A contract asset is the Company's right to consideration in exchange for goods or services the entity has transferred to a customer that is conditional on something other than the passage of time

 Trade receivables

A receivable represents the Company's right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).

F.    Basis of consolidation

The Group controls an investee if and only if the Group has:

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

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

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

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

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control over the subsidiary.

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

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

G.    Consolidated financial statements

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

H.    Goodwill

Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost of a business combination comprises the fair values of assets given, liabilities assumed and equity instruments issued. Any costs of acquisition are charged to profit or loss (if the costs of acquisition are related to the issue of debt or equity, they charged to equity or liability respectively). Goodwill is recognized as an intangible asset with any impairment in carrying value being charged to profit or loss. Goodwill is not systematically amortized and the company reviews goodwill for impairment once a year or more frequently if events or changes in circumstances indicate that there may be an impairment.

I.     Intangible assets

Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured on initial recognition at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized development costs, are recognized in profit or loss when incurred.  Intangible assets with finite useful lives are amortized over their useful lives and reviewed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year end. Intangible assets with indefinite useful lives are not systematically amortized and are tested for impairment annually or whenever there is an indication that the intangible asset may be impaired. The useful lives of these assets are reviewed annually to determine whether such assessment continues to be supportable. If the events and circumstances do not continue to support the assessment, the change in the useful lives assessment from indefinite to finite is accounted for prospectively as a change in accounting estimate and on that date the intangible asset is tested for impairment.

J.     Impairment of non-financial assets

Impairment tests on goodwill and indefinite useful lives assets are undertaken annually on December 31 or sooner when there are indicators of impairment. Other non-financial assets (excluding Inventories) are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of the non-financial asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to dispose), the asset is written down and an impairment charge is recognized accordingly in the profit or loss. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is performed on the asset's cash-generating unit level (i.e. the smallest Group of assets to which the asset belongs that generates cash inflow that are largely independent of cash inflows from other assets). Goodwill is allocated at initial recognition to each of the Group's cash-generating units that are expected to benefit from the synergies of the business combination giving rise to the goodwill. An impairment loss is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) is lower than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses allocated to goodwill cannot be reversed in subsequent periods. An impairment loss allocated to asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. A reversal of an impairment loss, as above, is limited to the lower of the carrying amount of the asset that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years and the assets recoverable amount. The reversal of an impairment loss of an asset is recognized in profit or loss. Impairment charges are included in general and administrative expenses line item in the statement of comprehensive income. During the 2018 and 2019 financial years no impairment charges of non-financial assets were recognized.

K.    Foreign currency transactions

Transactions denominated in foreign currency (other than the functional currency) are recorded on initial recognition at the exchange rate as of the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional

currency at the exchange rate as of that date. Exchange differences, other than those capitalized to qualifying assets are recognized in profit or loss. Non-monetary assets and liabilities measured at cost are translated at the exchange rate of initial recognition.

Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date on which the fair value was determined.

L.     Fair value measurement

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

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

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

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

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

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

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

Classification by fair value hierarchy:

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

Level 1	-	Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2	-	Inputs other than quoted prices included within Level 1 that are observable either directly or indirectly.
Level 3	-	Inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data).

M.   Financial instruments:

1.     Financial assets

The Group classifies its financial assets into one of the following categories, based on the business model for managing the financial asset and its contractual cash flow characteristics. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

This category comprises in-the-money derivatives and out-of-money derivatives where the time value offsets the negative intrinsic value (see "Financial liabilities" section for out-of-money derivatives classified as liabilities).  They are carried in the statement of financial position at fair value with changes in fair value recognized in the consolidated statement of comprehensive income in the finance income or expense line.  Other than derivative financial instruments which are not designated as hedging instruments, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.

Amortized cost

These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest.  They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortized cost using the effective interest rate method, less provision for impairment. 

Impairment provisions for trade receivables are recognized based on the simplified approach within IFRS 9 using a provision in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognized within general and administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

2.     Financial Liabilities

The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

This category comprises out-of-the-money derivatives where the time value does not offset the negative intrinsic value (see "Financial assets" for in-the-money derivatives and out-of-money derivatives where the time value offsets the negative intrinsic value). They are carried in the consolidated statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income. The Group does not hold or issue derivative instruments for speculative purposes, but for hedging purposes and they are not accounted for as hedges . Other than these derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss.

Other financial liabilities include the following items:

Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

- Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

3.     De-recognition:

Financial assets - The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the rights to receive the contractual cash flows.

Financial Liabilities - The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.

 

N.    Government grants

Grants received from the Israel-U.S. Bi-national Industrial Research and Development Foundation (henceforth "BIRD") as support for a research and development projects include an obligation to pay back royalties conditional on future sales arising from the project. Grants received from BIRD, are accounted for as forgivable loans, in accordance with IAS 20 (Revised), pursuant to the provisions of IFRS 9. Accordingly, when the liability for the loan is first recognized, it is measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grants received and the fair value of the liability is accounted for upon recognition of the liability as a grant and recognized in profit or loss as a reduction of research and development expenses. After initial recognition, the liability is measured at amortized cost using the effective interest method.

Changes in the projected cash flows are discounted using the original effective interest and recorded in profit or loss in accordance with the provisions of IFRS 9. 

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

O.    Deferred tax

Deferred taxes are computed in respect of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the amounts attributable for tax purposes. Deferred taxes are recognized in Profit or loss, except when they relate to items recognized in other comprehensive income or directly in equity. 

Deferred taxes are measured at the tax rates that are expected to apply in the period when the temporary differences are reversed in profit or loss, other comprehensive income or equity, based on tax laws that have been enacted or substantively enacted at the end of the reporting period. Deferred taxes in profit or loss represent the changes in the

carrying amount of deferred tax balances during the reporting period, excluding changes attributable to items recognized in other comprehensive income or directly in equity or deferred tax arising on business combination. 

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

Any resulting reduction or reversal is recognized on "income tax" within the statement of comprehensive income. Taxes that would apply in the event of the disposal of investments in investees have not been taken into account, as long as the disposal of such investments is not expected in the foreseeable future and the group has control over such disposal. In addition, deferred taxes that would apply in the event of distribution of dividends have not been taken into account, if distributions of dividends involve an additional tax liability; the Group's policy is not to initiate distribution of dividends that triggers an additional tax liability.

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

P.    Current taxes:

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with the tax liability in respect of previous years.

Q.    Inventories

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

R.    Property, plant and equipment

Items of property, plant and equipment are initially recognized at cost including directly attributable costs. Depreciation is calculated on a straight line basis, over the useful lives of the assets at annual rates as follows:

	Rate of depreciation	Mainly %
buildings	3 - 4 %	3.13
Machinery and equipment	6 - 20 %	10
Office furniture and equipment	6 - 15 %	6
Computer equipment	10 - 33 %	33
Vehicles	15 %

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss.

S.     Cash and cash equivalents

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

T.     Provision for warranty

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

U.    Share-based payments

Where equity settled share options are awarded to employees, the fair value of the options calculated at the grant date is charged to the statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted.

V.    Employee benefits

1.     Short-term employee benefits: Short-term employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

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

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

Law. The liability for post employment benefits is measured using the projected unit credit method. The actuarial assumptions include rates of employee turnover and future salary increases based on the estimated timing of payment. The amounts are presented based on discounted expected future cash flows using a discount rate determined by reference to yields on high quality corporate bonds with a term that matches the estimated term of the benefit plan.

In respect of its severance pay obligation to certain of its employees, the Company makes deposits into pension funds and insurance companies ("plan assets"). Plan assets comprise assets held by a Long-term employee benefits fund or qualifying insurance policies. Plan assets are not available to the Group's own creditors and cannot be returned directly to the Group. The liability for employee benefits presented in the statement of financial position presents the present value of the defined benefit obligation less the fair value of the plan assets.

W.    Earnings per Share (EPS)

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

X.    Segment reporting

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

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

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

3.     For which separate financial information is available.

Segment revenue and segment costs include items that are attributable to the relevant segments and items that can be allocated to segments. Items that cannot be allocated to segments include the Group's financial income and expenses and income tax.

Y.     Leases

The accounting policy applied until December 31, 2018 in regards of financial instruments is as follows:

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

The accounting policy applied as from 1 January 2019 in regards of financial instruments is as follows:

The Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on 1 January 2019.

The main impact of adopting the standard is the elimination of the requirement on lessees to classify leases as operating leases (off-balance sheet) or finance leases, and they are now required to use a single accounting model for all leases, similarly to how finance leases under IAS 7 are currently accounted for. In agreements where the Group is the Lessee, it applies IFRS 16 using a single accounting model under which it recognizes a right-of-use asset and a lease liability upon inception of the lease contract. It does so for all leases in which the Group has the right to control the use of identified assets for a period of time in exchange for consideration.

Accordingly, the Group recognizes depreciation and depreciation charges on the right-of-use asset and tests the need for recognizing impairment of the right-of-use asset in compliance with IAS 36 "Impairment of Assets", and also recognizes finance expenses in relation to a lease liability. Therefore, beginning on first-time adoption, rent expenses relating to properties rented, are now presented as assets that are depreciated through depreciation of assets. For all leases, the Group applied the transitional provisions such that it initially recognized a liability at the commencement day at an amount equal to the present value of the lease payments during the lease, discounted using the effective interest rate as of that date, and concurrently recognized a right-of-use asset at an amount identical to the liability. As a result, the standard had no impact on equity and the accumulated losses of the Group as at initial application. As part of the initial application, the Group elected to adopt the following practical expedients, as permitted by the standard:

a. The use of a single discount rate for a portfolio of leases with similar characteristics;

b. Not separating lease and non-lease components of a contract, and instead accounting for all components as a single lease;

c. Excluding initial direct costs from the measurement of the right-of-use asset as at initial application;

d. Use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease;

The following new significant accounting policy for agreements in which the Group is the lessee was applied beginning on 1 January 2019 following initial application of the standard: 

Right-of-use assets: 

The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any accumulated impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets comprises the amount of the initial measurement of the lease liability; lease payments made at or before the commencement date less any lease incentives received; and initial direct costs incurred. The recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. The right-of-use assets are presented within property, plant and equipment.

Lease liabilities:

At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option that is reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.

The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

Lease term:

The term of a lease is determined as the non-cancellable period for which a lessee has the right to use an underlying asset, together with both periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

Depreciation of a right-of-use asset: 

Subsequent to the inception of the lease, a right-of-use asset is measured using the cost method, less accumulated depreciation and accumulated impairment losses, and is adjusted for re-measurements of the lease liability. Depreciation is measured using the straight-line method over the useful life or contractual lease term, whichever ends earlier. Lessees will be also required to re-measure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will recognize the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset, until the carrying amount is reduced to zero. The following table presents a summary of the impact on the consolidated statement of financial position as of 1 January 2019.

The impact on the consolidated statement of financial position as of 1 January 2019:

	Under Previous policy	The change	Under IFRS 16
	U.S. $ in thousands
Non-current assets:
Property, plant and equipment	4,245	920	5,165
Current liabilities:
Other accounts payable	2,532	452	2,984
Non-current liabilities:
Lease liabilities	-	468	468

Upon initial adoption, the Group measured the right-of-use assets in an amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognized. Lease liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. There was no impact on retained earnings upon initial adoption of the standard.

The following is a reconciliation of the Company's liabilities in respect of operating leases, discounted at the incremental interest rate on the initial implementation date and lease commitments recognized on 1 January 2019:

	U.S. $ in thousands
Operating lease commitments as of 31 December 2018	970
Weighted average incremental borrowing rate as of 1 January 2019	4.8%
Discounted operating lease commitments	920
Lease liabilities as of 1 January 2019	920

Z.     New standards, interpretations and amendments not yet effective

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2020:

-    IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material)

-    IFRS 3 Business Combinations (Amendment - Definition of Business)

-    Revised Conceptual Framework for Financial Reporting

In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2022.

The Group is currently assessing the impact of these new accounting standards and amendments. The Group does not believe that those amendments will have a significant impact on the financial statement.

 

3.     Revenues

			For the year ended December 31,
			2019		2018
Revenues arises from:			$'000		$'000
Sale of goods *			32,236		27,734
Rendering of services **			4,299		4,209
Projects **			3,508		3,528
			40,043		35,471

(*) at the point of time

(**) over time

 

4.     Profit from operations

			For the year ended December 31,
			2019		2018
This has been arrived at after charging:			$'000		$'000
Material and subcontractors			20,635		16,509
Wages and salaries			12,195		11,649
Plant, Machinery and Usage			897		1,407
Depreciation and amortization			981		579
Travel and Exhibition			595		566
Advertising and Commissions			492		552
Consultants			368		488
Others			429		804
			36,592		32,554

 

5.   Operating segments

The Company and its subsidiaries are engaged in the following segments:

-     Development, design, manufacture and marketing of antennas for the military and civilian sectors.

-     A leading provider of remote control solutions for water and irrigation applications based on Motorola's IRRInet state of the art control, monitoring and communication technologies.

-     Providing consulting, representation and marketing services to foreign companies in the field of RF and Microwave, including engineering services in the field of aerostat systems and system engineering services.

1.     Segment information

Year ended December 31, 2019

	Antennas	Water Solutions	Distribution & Consultation	Adjustment & Elimination	Total
	U.S. $ in thousands
Revenues
External	12,015	16,518	11,510	-	40,043
Inter-segment	-	-	171	(171)	-
Total	12,015	16,518	11,681	(171)	40,043
Segment profit	444	1,562	1,228	225	3,459
Finance expense, net					50
Tax expenses					454
Profit					2,955

 

December 31, 2019

	Antennas	Water Solutions	Distribution & Consultation	Adjustment & Elimination	Total
	U.S. $ in thousands
Segment assets	14,576	9,793	5,729	-	30,098
Unallocated assets					4,150
Segment liabilities	3,514	1,836	3,837	-	9,187
Unallocated liabilities					1,771

 

 

Year ended December 31, 2018

	Antennas	Water Solutions	Distribution & Consultation	Adjustment & Elimination	Total
	U.S. $ in thousands
Revenues
External	12,670	14,298	8,503	-	35,471
Inter-segment	-	-	238	(238)	-
Total	12,670	14,298	8,741	(238)	35,471
Segment profit	630	1,395	728	171	2,924
Finance expense, net					274
Tax expenses					321
Profit					2,329

 

 

 

December 31, 2018

	Antennas	Water Solutions	Distribution & Consultation	Adjustment & Elimination	Total
	U.S. $ in thousands
Segment assets	13,800	8,772	3,232	-	25,804
Unallocated assets					3,462
Segment liabilities	3,651	2,025	1,953	-	7,629
Unallocated liabilities					622

 

 

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

	For the year ended December 31,
	2019		2018
	$'000		$'000
Israel	22,417		19,717
America	5,459		5,331
Europe Middle East & Africa	8,549		6,749
Asia Pacific	3,618		3,674
	40,043		35,471

3.     Additional information about revenues:

There is no single customer from which revenues amount to 10% or more of total revenues reported in the financial statements.

 

6.     Finance expense and income

	For the year ended December 31,
	2019	2018
	$'000	$'000
Finance expense
Interest on bank loans	32	70
Net Foreign exchange loss	-	58
Leases	45
Interest and bank fees	134	160
	211	288
Finance income
Interest from bank deposits	44	14
Net Foreign exchange gain	117	-
	161	14
	50	274

7.     Tax expenses

A.    Tax Laws in Israel

1.  Amendments to the Law for the Encouragement of Capital Investments, 1959 (the "Encouragement Law"):

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the Amendment"), which prescribes, among others, amendments to the Law. The Amendment became effective as of January 1, 2011. According to the Amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income. Commencing from the 2011 tax year, the Group will be able to opt to apply (the waiver is non-recourse) the Amendment and from the elected tax year and onwards, it will be subject to the amended tax rates that are: 2014 and thereafter will be 16% (in development area A - 9%).

The Group applied the Amendment effectively from the 2011 tax year.

 

 

2.  Tax rates:

On December 29, 2016, the Law for Economic Efficiency (Legislative Amendments for Achieving the Budgetary Goals for 2017-2018) was published in Reshumot (the Israeli government official gazette), which enacts, among other things, the following amendments:

-      Decreasing the corporate tax rate to 24% in 2017 and to 23% in 2018 and thereafter (instead of 25%).

-    Commencing tax year 2017 and thereafter the tax rate on the income of preferred enterprises of a qualifying Company in Development Zone A as stated in the Encouragement of Capital Investment Law, shall decrease to 7.5% (instead of 9%) and for companies located in zones other than Zone A the rate shall remain 16%.

-     In addition, the tax rate on dividends distributed on January 1, 2014 and thereafter originating from preferred income under the Encouragement Law will be raised to 20% (instead of 15%).

Therefore the applicable corporate tax rate for 2014 and thereafter is 16%.

B.    The principal tax rates applicable to the subsidiaries whose place of incorporation is outside Israel are:

A company incorporated in India - The statutory tax rate is 28% and the Company was in an exempt zone until end of March 2013 and further in a 50% tax exempt zone until end of March 2018. Nevertheless from the Tax Year 2011-12, in the absence of taxable income or tax due on taxable income (calculated as per normal rates) being less than 18.5% of the Accounting Book Profits during a particular year, the Indian regulation states that the company has to pay a Minimum Alternate tax at a rate of 18.5% of the Accounting Book Profits for that year. Such excess Minimum Alternate Tax paid on book profits over the Tax due on Actual Taxable Income (calculated as per normal rates) of each year is capable of set off against the taxable profits of future years.

A company incorporated in Switzerland - The weighted tax rate applicable to a company operating in Switzerland is about 25% (composed of Federal, Cantonal and Municipal tax). Provided that the company meets certain conditions, the weighted tax rate applicable to its income in Switzerland will not exceed 10%.

A company incorporated in South Africa - The statutory tax rate is 28%

A company incorporated in Australia - The statutory tax rate is 30%

A company incorporated in United States of America - The statutory tax rate is 21%.

A Company incorporated in Russia - the statutory tax rate is 20%.

A Company incorporated in China - the statutory tax rate is 25% but for small entities the tax rate is 10%. To be classified as a small entity all following should apply (i)Annual taxable income not exceeding 3 million yuan, (ii) Number of employees not exceeding 300 and (iii) Total assets not exceeding 50 million yuan. The Company meets the criteria of a small entity.

C.    Income tax assessments

The Company has tax assessments considered as final up to and including the year 2016.

 

	For the year ended December 31,
	2019	2019	2018	2018
	$'000	$'000	$'000	$'000
Current tax expense
Income tax on profits for the year	402		222
Taxes in respect of previous years	29		186
		431		408
Deferred tax income (see note 12)
Origination and reversal of temporary  differences	23		(87)
		23		(87)
Total tax expenses		454		321

 

 

The adjustments for the difference between the actual tax charge for the year and the standard rate of corporation tax in Israel applied to profits for the year are as follows:

	For the year ended December 31,
	2019	2018
	$'000	$'000
Profit before income tax	3,409	2,650
ax using the Company's domestic tax rate of 16%	545	424
Non-deductible expenses (Tax-exempt income)	(95)	58
Taxes resulting from different tax rates applicable to foreign and other subsidiaries	79	(25)
Adjustments for current income tax of prior years	(29)	(186)
Other	(46)	50
Total income tax expense	454	321

 

 

8.     Earnings per share

Net earnings per share attributable to equity owners of the parent

	For the year ended December 31,
	2019		2018
	$'000		$'000
Net Earnings used in basic EPS	2,849		2,337
Net Earnings used in diluted EPS	2,849		2,337
Weighted average number of shares used in basic EPS	87,229,851		86,565,298
Effects of:
Employee options	-		421,619
Weighted average number of shares used in diluted EPS	87,229,851		86,986,917
Basic net EPS (dollars)	0.0327		0.0270
Diluted net EPS (dollars)	0.0327		0.0269

The employee options have been included in the calculation of diluted EPS as the weighted average share price during the year greater than their exercise price (i.e. they are in-the-money) and therefore it would be advantageous for the holders to exercise those options. The total number of options in issue is disclosed in note 23.

 

9.     Dividends

	For the year ended  December 31,
	2019		2018
	$'000		$'000
Dividend paid	1,306		1,096
Scrip dividend (1)	-		677
	1,306		1,773

(1)   Under the scrip dividend policy, shareholders have the option to elect to receive dividends in new shares of the Company rather than in cash. The default arrangement will be for the payment of dividends in cash, and if the shareholder prefers to receive their dividends in new shares of the Company, then they would have to make an election. There would be no ability to make mixed elections and each shareholder would be able to choose either cash or new shares but not both. The decision to offer shareholders a scrip dividend alternative for future dividend payments will be at the sole discretion of the board. The Company has not offered a scrip dividend alternative in relation to the final dividend declared for the year ended 31 December 2019.

 

10.   Property, plant and equipment

	Building	Machinery & equipment	Office furniture & equipment	Computer equipment	Vehicles	Right of use asset	Total
	$'000
Cost:
Balance as of January 1, 2019	5,069	5,680	640	2,325	707	-	14,421
Recognition of initial application of IFRS 16	-	-	-	-	-	920	920
Acquired through business combinations	14	6	4	3	85	-	112
Acquisitions	28	554	28	26	118	204	958
Disposals	-	-	-	-	(76)	(26)	(102)
Exchange differences	(65)	1	1	-	(2)	-	(65)
Balance as of December 31, 2019	5,046	6,241	673	2,354	832	1,098	16,244
Accumulated Depreciation:
Balance as of January 1, 2019	2,244	4,887	583	2,193	269	-	10,176
Additions	84	181	14	44	129	483	935
Disposals	-	-	-	-	(53)	(26)	(79)
Balance as of December 31, 2019	2,328	5,068	597	2,237	345	457	11,032
Net book value as of December 31, 2019	2,718	1,173	76	117	487	641	5,212

 

 

Lease liabilities	Year ended December  31
	2019
	$'000
Interest expense	45
Total cash outflow for leases	511
Additions to right-of-use assets	204

 

 

December 31, 2019		Less than one year		1 to 2 years		2 to 3 years		3 to 4 years		> 4 years		Total
		$'000
Lease liabilities		613		512		150		32		-		694

 

 

 

	Building	Machinery & equipment	Office furniture & equipment	Computer equipment	Vehicles	Total
	$'000
Cost:
Balance as of January 1, 2018	5,065	5,318	631	2,311	680	14,005
Acquisitions	4	363	12	19	161	559
Disposals	-	-	-	-	(104)	(104)
Exchange differences	-	(1)	(3)	(5)	(30)	(39)
Balance as of December 31, 2018	5,069	5,680	640	2,325	707	14,421
Accumulated Depreciation:
Balance as of January 1, 2018	2,153	4,697	568	2,132	244	9,794
Additions	91	190	17	65	112	475
Disposals	-	-	-	-	(78)	(78)
Exchange differences	-	-	(2)	(4)	(9)	(15)
Balance as of December 31, 2018	2,244	4,887	583	2,193	269	10,176
Net book value as of December 31, 2018	2,825	793	57	132	438	4,245

 

11.   Intangible assets

	Goodwill from business combination	Customer relations *	Total
	$'000
Cost:
Balance as of January 1, 2019	2,007	523	2,530
Acquired through business combinations	81	192	273
Balance as of December 31, 2019	2,088	715	2,803
Accumulated Amortization:
Balance as of January 1, 2019	1,227	422	1,649
Amortization charge	-	38	38
Balance as of December 31, 2019	1,227	460	1,687
Net book value as of December 31, 2019	861	255	1,116

 

	Goodwill from business acquisitions	Customer relations *	Total
	$'000
Cost:
Balance as of December 31, 2018	2,007	523	2,530
Accumulated Amortization:
Balance as of January 1, 2018	1,227	308	1,535
Amortization charge	-	114	114
Balance as of December 31, 2018	1,227	422	1,649
Net book value as of December 31, 2018	780	101	881

(*) Customer relations is amortized over an economic useful life of between 6.5 to 10 years.

 

 

12.   Deferred tax assets

Deferred tax asset is calculated on temporary differences under the liability method using the tax rates that are expected to apply to the period when the asset is realised.

The movement in the deferred tax asset is as shown below:

		2019		2018
		$'000		$'000
At January 1		687		600
Charged to other comprehensive income		-		-
Charged to profit or loss		(23)		87
At December 31		664		687

 

Deferred tax assets have been recognized in respect of all differences giving rise to deferred tax assets because it is probable that these assets will be recovered.

 

Composition:

		31.12.2019		31.12.2018
		$'000		$'000
Accrued severance pay		99		96
Other provisions and employee-related obligations		105		87
Research and development expenses deductible over 3 years		201		259
Carry forward tax losses		259		245
		664		687

 

Deferred tax assets relating to carry forward capital losses of the Group total approximately $1,059 and $1,020 thousand as of December 31, 2019 and 2018 respectively were not recognized in the financial statements because their utilization in the foreseeable future is not probable.

 

13.   Inventories

		31.12.2019		31.12.2018
		$'000		$'000
Raw materials and consumables		4,049		4,518
Work-in-progress		130		310
Finished goods and goods for sale		1,569		1,177
		5,748		6,005

 

14.   Trade receivables, other receivables and unbilled revenue

		31.12.2019		31.12.2018
		$'000		$'000
Trade receivables		8,727		8,685
Unbilled revenue - Projects		2,866		2,271
Other receivables		1,072		906
		12,665		11,862

Trade receivables:

		31.12.2019		31.12.2018
		$'000		$'000
Trade receivables (*)		8,424		8,505
Notes receivable		398		364
Allowance for doubtful accounts		(95)		(184)
		8,727		8,685

(*)   Trade receivables are non-interest bearing. They are generally on 60-120 day terms.

 

As at 31 December 2019 trade receivables of $ 946K (2018 - $632K) were past due but not impaired.

They relate to the customers with no default history.

 

Unbilled revenue:

		31.12.2019			31.12.2018
		$'000			$'000
Actual completion costs		4,529			4,172
Revenue recognised		4,415			2,405
Billed revenue		(6,078)			(4,307)
Total Unbilled receivables - Projects			2,866			2,271

 

Other receivables:

		31.12.2019		31.12.2018
		$'000		$'000
Prepaid expenses		755		409
Advances to suppliers		161		163
Tax authorities - V.A.T		101		102
Employees		54		62
Other receivables		1		170
		1,072		906

 

15.   Cash and cash equivalents

		31.12.2019		31.12.2018
		$'000		$'000
In U.S. dollars		5,295		4,332
In other currencies		2,845		1,069
		8,140		5,401

 

16.   Loans from banks

		31.12.2019		31.12.2018
		$'000		$'000
US Dollars - unlinked		313		563
NIS		77		374
South African Rand		63		71
Less - current maturities		(312)		(581)
		141		427

In 2011 the Company received a US$ 2.5 Million loan for the purchase of the company building in Rosh ha'ayin, Israel, secured by a mortgage on the said asset. The loan is for 10 years, with repayment on a quarterly basis from April 2011 until January 2021 and bears interest at a fixed rate of 4.9%.

On August 2016, the Company received NIS 100,000 (approximately US$ 29 thousand) loan respectively for purchase of car. The loan is for 4 years with a monthly repayment starting August 2016 and bears interest of Prime +0.6% (2.35% as of December 31, 2019).

During 2018 two additional loans for purchases of cars were taken, which total NIS 320,000 (approximately US$ 85 thousand). These loans are for 4 years with a monthly repayment and bears interest of Prime +0.4% (2.15% as of December 31, 2019). All bank loans for the purchase of cars are secured by a fixed lien on the car. 

On June 2015 the Company received NIS 8 Million (approximately US$ 2.08 Million) loan for funding the acquisition of Mottech. The loan is for 4 years, with repayment on a quarterly basis from September 2015 until June 2019 and bears interest at a fixed rate of 3.5%.

During 2017 Mottech South Africa entered into loan agreement of approximately US$ 37 thousand for purchase of cars payable in 60 months on a monthly basis. Interest rate is linked to the South Africa prime lending rate.

During 2018 Mottech South Africa had entered into loan agreement of approximately US$ 30 thousand for the purchase of cars, which is payable in 36 - 48 months on a monthly basis. The interest rate is linked to the South Africa prime lending rate.  

 

At December 31 2019		First year		Second year		Third  year		Fourth year		Fifth year and thereafter
		$'000
Long-term loan		312		107		23		7		4

 

 

17.   Employee benefits

A.    Composition:

	As at December  31
	2019		2018
	$'000		$'000
Present value of the obligations	1,818		1,691
Fair value of plan assets	(975)		(990)
	843		701

B.    Movement in plan assets:

	Year ended December  31
	2019		2018
	$'000		$'000
Year begin	990		1,100
Foreign exchange gain (loss)	80		(79)
Interest income	19		21
Contributions	18		16
Benefit paid	(152)		(15)
Re measurements gain (loss)
Actuarial profit (loss) from financial assumptions	3		(2)
Return on plan assets (excluding interest)	17		(51)
Year end	975		990

C.    Movement in the liability for benefit obligation:

	Year ended December  31
	2019		2018
	$'000		$'000
Year begin	1,691		1,834
Foreign exchange (gain) loss	152		(135)
Interest cost	63		47
Current service cost	48		46
Benefits paid	(162)		(26)
Re measurements loss (gain)
Actuarial loss (gain) from financial assumptions	78		(46)
Adjustments (experience)	(52)		(29)
Year end	1,818		1,691

Supplementary information

1.  The Group's liabilities for severance pay retirement and pension pursuant to Israeli law and employment agreements are recognized by full - in part by managers' insurance policies, for which the Group makes monthly payments and accrued amounts in severance pay funds and the rest by the liabilities which are included in the financial statements.

2.  The amounts funded displayed above include amounts deposited in severance pay funds with the addition of accrued income. According to the Severance Pay Law, the aforementioned amounts may not be withdrawn or mortgaged as long as the employer's obligations have not been fulfilled in compliance with Israeli law.

3.  Principal nominal actuarial assumptions:

		As at December 31,
		2019		2018
Discount rate on plan liabilities		3.51%		3.02%
Expected increase in pensionable salary		2%		2%

4.  Sensitivity test for changes in the expected rate of salary increase or in the discount rate of the plan assets and liability:

	Change in defined benefit obligation
	As at December 31,
	2019	2018
	$'000	$'000
The change as a result of:
Salary increase of 1 %	75	61
Salary decrease of 1 %	(64)	(53)
The change as a result of:
Increase of 1% in discount rate	(62)	(51)
Decrease of 1% in discount rate	74	61

 

	Year ended December 31,
	2019	2018
	$'000	$'000
Expenses in respect of defined contribution plans	441	337

18.   Trade and other payables

		As at December 31,
		2019		2018
		$'000		$'000
Trade payables		6,289		3,998
Employees' wages and other related liabilities		1,569		1,377
Advances from trade receivables		58		134
Accrued expenses		392		471
Government authorities		52		46
Lease liability		389		-
Others		390		504
		9,139		6,530

19.   Current maturities

			As at December 31,
	Interest rate as at December 31, 2019		2019		2018
	%		$'000		$'000
Current maturities In NIS	Prime+0.6		39		40
Current maturities In NIS	3.5		-		267
Current maturities In SA ZAR	9.5 - 11		23		24
Current maturities In US $	4.9		250		250
Total Current maturities and short-term bank loans			312		581

 

Changes in liabilities arising from financing activities

Reconciliation of the changes in liabilities for which cash flows have been, or will be classified as financing activities in the statement of cash flows

	Loans and borrowings	Lease liabilities	total
	$'000
At 1 January 2019	1,008	-	1,008
Changes from financing cash flows:
Recognition of initial application of IFRS 16	-	920	920
Payments of lease liabilities	-	(511)	(511)
Repayment of long-term loans from banks	(554)	-	(554)
Total changes from financing cash flows	454	409	863
Changes in fair value:
New leases	-	204	204
Leases cancelled before maturity	-	(26)	(26)
Interest expense	-	45	45
Interest paid	-	(45)	(45)
Total changes from financing cash flows	-	178	178
Effects of foreign exchange	(1)	26	25
At 31 December 2019	453	613	1,066

 

	Loans and borrowings
	$'000
At 1 January 2018	1,824
Changes from financing cash flows:
Proceeds from long term loan received from banks	116
Repayment of long-term loans from banks	(878)
Total changes from financing cash flows	(762)
Effects of foreign exchange	(54)
At 31 December 2018	1,008

 

 

20.   Financial instruments - Risk Management

        The Group is exposed through its operations to the following financial risks:

·    Foreign currency risk

·    Liquidity risk

·    Credit risk

Foreign currency risk

Foreign exchange risk arises when Group companies enter into transactions denominated in a currency other than their functional currency.

The Group's policy is to allow the Group's entities to pay liabilities denominated in their functional currency using the cash flows generated from the operations of each entity. When the Group's entities have liabilities denominated in a currency other than their functional currency (and the entity does not have sufficient cash balances in this currency to settle the liability) the Group, if possible, transfers cash balances in one entity to another entity in the Group. The Group's currency risks are as follows:

A.  Most of the Company's revenues are in US dollars or linked to that currency, and the Company's inputs are mainly linked due to the importation of raw materials into the US dollar, but the wages and salaries

expenses (which constitutes a material input in the Company's operations) are in NIS. Therefore, there is an exposure to changes in the exchange rate of the NIS against the dollar.

B.   The exercise price of the options granted to employees is denominated in British pounds (GBP) while the functional currency is the US dollar, and therefore the Company is exposed to changes in the exchange rate in respect of these options.

Management mitigates that risk by holding some cash and cash equivalents and deposit accounts in NIS. The company also purchases from time to time some forwards on the NIS/$ exchange rate to hedge part of the salaries costs. As of December 31, 2019 no such transactions were open. Since the purchase of Mottech the Group has an additional currency risk due to its subsidiaries activity.

The following is a sensitivity analysis of a change of 5% as of the date of the financial position in the NIS exchange rates against the functional currency, while the rest of the variables remain constant, and their effect on the pre-tax profit or loss on equity:

	Profit (loss) from change	Book value	Profit (loss) from change
	December 31, 2019
NIS exchange rate	0.303	0.289	0.275
Total assets, net	63	1,260	(63)

 

	December 31, 2018
NIS exchange rate	0.280	0.269	0.255
Total assets, net	87	1,749	(87)

The Company's exposure to changes in foreign currency in all other currencies is immaterial.

 

 

 

Liquidity Risk

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of insufficient liquidity means to fulfil its immediate obligations. The Group's objective is to maintain a balance between continuity of funding and flexibility. The Group have sufficient availability of cash including the short-term investment of cash surpluses and the raising of loans to meet its obligations by cash management, subject to Group policies and guidelines.

The table below summarizes the maturity profile of the Group's financial liabilities based on contractual undiscounted payments (including interest payments):

December 31, 2019		Less than one year		1 to 2 years		2 to 3 years		3 to 4 years		> 4 years		Total
		$'000
Loans from banks		312		107		23		7		4		453
Trade payables		6,289		-		-		-		-		6,289
Payables		2,850		-		-		-		-		2,850
		9,451		107		23		7		4		9,592

 

December 31, 2018		Less than one year		1 to 2 years		2 to 3 years		3 to 4 years		> 4 years		Total
		$'000
Loans from banks		581		309		100		18		-		1,008
Trade payables		3,998		-		-		-		-		3,998
Payables		2,532		-		-		-		-		2,532
		7,111		309		100		18		-		7,538

Credit risks

Financial instruments which have the potential to expose the Group to credit risks are mainly deposits accounts, trade receivables and other receivables. The Group holds cash and cash equivalents in deposit accounts in big banking institutions in Israel, thereby substantially reducing the risk to suffer credit loss. With respect to trade receivables, the Group believes that there is no material credit risk which is not provided in light of Group's policy to assess the credit risk of customers before entering contracts. Moreover, the Group evaluates trade receivables on a day to day basis and adjusts the allowance for doubtful accounts accordingly and since January 2019 had entered into an agreement with credit insurance company to further mitigate this risk.

The aging analysis of these trade-receivable balances by business segment:

December 31, 2019				Past due trade receivables with aging of
	Revenues	Total trade  receivables	Neither past due nor impaired	< 30 days	>30 days
Antennas - other  receivables	12,015	6,131	5,642	300	189
Water Solutions - other  receivables	16,518	2,405	2,248	148	9
Distribution & Consultation  - other  receivables	11,681	3,057	2,758	271	28
intercompany	(171)	-	-	-	-
total	40,043	11,593	10,648	719	226

 

December 31, 2018				Past due trade receivables with aging of
	Revenues	Total trade  receivables	Neither past due nor impaired	< 30 days	>30 days
Antennas - other  receivables	12,670	5,919	5,485	132	302
Water Solutions - other  receivables	14,298	3,097	2,927	153	17
Distribution & Consultation  - other  receivables	8,748	1,940	1,940	17	11
intercompany	(238)	-	-	-	-
total	35,478	10,956	10,324	302	330

Fair value

The carrying amount of cash and cash equivalents, trade receivables, other accounts receivable, credit from banks and others, trade payables and other accounts payable approximate their fair value.

Sensitivity tests relating to changes in market price of listed securities

The Group has performed sensitivity tests of the principal market risk factors that are liable to affect its reported operating results or financial position. The sensitivity tests present the profit or loss and change in equity (before tax) in respect of each financial instrument for the relevant risk variable chosen for that instrument as of each reporting date. The test of risk factors was determined based on the materiality of the exposure of the operating results or financial condition of each risk with reference to the functional currency and assuming that all the other variables are constant. The sensitivity tests for listed investments with quoted market prices (bid price) were performed on possible changes in these market prices.

The Group is not exposed to cash flow risk due to interest rate since the long-term loan bears fixed interest.

The following table demonstrates the carrying amount and fair value of the groups of financial instruments that carrying amounts does not approximate fair value:

		Carrying amount				Fair value
		2019		2018		2019		2018
Financial liabilities:		$'000
Long-term loan with interest (1)		453		1,008		454		1,013

 

(1)        The fair value of the long-term loan received with fixed interest is based the present value of cash flows using an interest rate currently available for a loan with similar terms.

 

Linkage terms of financial liabilities by groups of financial instruments pursuant to IAS 39

December 31, 2019:

	NIS	Unlinked	S.A Rand	Total
	$'000
Financial liabilities measured at amortized cost	77	313	63	453

 

December 31, 2018:

	NIS	Unlinked	S.A Rand	Total
	$'000
Financial liabilities measured at amortized cost	374	563	71	1,008

Capital management

The Group's objective is to maintain, as much as is possible, a stable capital structure. In the opinion of Group's management its current capital structure is stable. Consistent with others in the industry, the Group monitors capital, including others also, on the basis of the gearing ratio.

This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the consolidated statement of financial position) less cash and cash equivalents. Total capital is calculated as 'equity' as shown in the consolidated statement of financial position plus net debt. 

The gearing ratios at 31 December 2019 and 2018 were as follows:

	31.12.2019	31.12.2018
Loans from banks	453	1,008
bank credit	-	-
Total liabilities	453	1,008

 

	31.12.2019	31.12.2018
Share capital	207	205
Additional paid-in capital	22,868	22,388
Retained earnings	(658)	(2,195)
Capital reserves	(10)	242
Non-controlling interest	883	375
Total equity	23,290	21,015
Leverage ratio	1.9%	4.8%

The net debt ratios stem from the Board of Directors' decision to continue to invest in the Company's development, but without the use of excessive leverage. The Group intends to examine the leverage ratio from time to time and to define it according to its needs. The decrease in the net debt ratio in 2019 derived mainly from the repayment of credit, in accordance with the repayment schedules, alongside an increase in the Company's equity as a result of the Company's profits. The Group intends to maintain the leverage ratio in future periods as well. Beyond that stated above, there were no other material changes in the objectives, policies or processes of managing the Group's capital during the year, as well as in the Group's definition of capital.

 

 

21.    Subsidiaries:

The principal subsidiaries of Company, all of which have been consolidated in these consolidated financial statements, are as follows:

Name	Country of incorporation	Proportion of ownership interest at 31 December		Held by
		2019	2018
AdvantCom Sarl	Switzerland	100%	100%	M.T.I Wireless Edge
Global Wave Technologies PVT Limited	India	80%	80%	AdvantCom Sarl
Ginat Wave India Private ltd.	India	49%	49%	M.T.I Wireless Edge
Mottech water solutions ltd.	Israel	100%	100%	M.T.I Wireless Edge
Aqua water control solution ltd	Israel	100%	100%	Mottech water solutions
Mottech Water Management (pty) ltd.	South Africa	85%	85%	Mottech water solutions
Mottech Water Management (pty) ltd. *	Australia	-	97.5%	Mottech water solutions
Mottech USA Inc.	United states	100%	100%	Aqua water control solution
M.T.I Engineering ltd.	Israel	100%	100%	M.T.I Wireless Edge
Summit electronics ltd.	Israel	100%	100%	M.T.I Engineering ltd.
M.T.I Summit electronics ltd.	Israel	100%	100%	M.T.I Wireless Edge
M.T.I Summit SPB ltd.	Russia	99.9%	99.9%	M.T.I Summit electronics ltd.
Mottech Water Management (Shenzhen) Ltd.	China	60%	60%	Mottech water solutions ltd.
Mottech Parkland (pty) Ltd.**	Australia	50%	-	Mottech water solutions ltd.

(*) Ceased its operations in 2019 as a result of the acquisition of 50% in Mottech Parkland (pty) Ltd

 

22.   Share capital

	Authorized
	2019			2019		2018			2018
	Number			NIS		Number			NIS
Ordinary shares of NIS 0.01 each	100,000,000			1,000,000		100,000,000			1,000,000
	Issued and fully paid
	2019		2019				2018			2018
	Number		NIS				Number			NIS
Ordinary shares of NIS 0.01 each at beginning of the year	87,038,724		870,388				85,224,754			852,248
Changes during the year
Scrip dividend	-		-				1,813,970			18,140
Exercise of options to share capital	790,000		7,900				-			-
At end of the year	87,828,724		878,288				87,038,724			870,388

 

23.   Share-based payment

An Option Plan was adopted by the Company at the shareholders meeting held on July 5, 2013. Under the Plan, all previous plans were cancelled and the new plan entered into effect. The new plan includes a total of 2 million options to be converted to 2 million shares of the Company (approximately 4% of the Company's outstanding shares) at a price of 9.5 pence per share (approximately 15 cents).

The vesting period of the options is as follows: 2 years for 50% of the options, 3 years for an additional 25% of the options and 4 years for the rest of the options. An approval for the replacement of plans was received from the tax

authorities on July 22, 2013, providing the Company, the employees and the trustee of the plan to submit the documentation required within 60 days from approval. As part of the grant of this plan an allocation of 280,000, 250,000 and 200,000 options was granted to the CEO, CFO and the Chairman of the board, respectively.

The weighted average fair value of the options as at the grant date was 2 pence (approximately 3 cents) per option, and was estimated using a Black and Scholes option pricing model based on the following significant data and assumptions:

Share price - 7 pence (representing approximately 11 cents)

Exercise price - 9.5 pence (representing approximately 15 cents)

Expected volatility - 25.90%

Risk-free interest rate - 0.8%

And expected average life of options 4.375 years

On May 18, 2016 a new option scheme for key Employees was approved at the Company's Annual General Meeting. Under the plan, options to purchase 800 thousand ordinary shares were granted (each option to one ordinary share) at a price of 27 pence per share (approximately 33 cents). This represents approximately 1.5% of the Company's current issued and voting share capital on a fully diluted basis. The vesting period of the options shall be as follows: 2 years for 50% of the options, 3 years for an additional 25% of the options and 4 years for the reminder of the options. Unexercised options expire nine years after the date of the grant after which they will be void. Options are forfeited when the employee leaves the Company.

There is no cash settlement of the options. The weighted average fair value of the options as at the grant date is 6 pence (approximately 9 cents) per option, and was estimated using a Black and Scholes option pricing model based on the following significant data and assumptions:

Share price - 19.88 pence (representing approximately 29 cents)

Exercise price - 27 pence (representing approximately 39 cents)

Expected volatility - 45.34%

Risk-free interest rate - 0.85%

And expected average life of options 4.375 years

The volatility measured the standard deviation of expected share price returns is based on the historical volatility of the Company. The options were granted as part of a plan that was adopted in accordance with the provision of section 102 of the Israeli Income Tax Ordinance.

The expense recognized in the financial statements for employee services received for the year ended December 31, 2019 and 2018 was US $6,000 and US $14,000 respectively.

The following table lists the number of share options, the weighted average exercise prices of share options and modification in employee option plans during the current year:

	2019		2019		2018		2018
	weighted average exercise price		Number		weighted average exercise price		Number
	$				$
Outstanding at beginning of year	0.35		1,500,000		0.36		1,500,000
Exercised during the year	0.15		790,000		-		-
Granted during the year	-		-		-		-
Forfeited during the year	-		(-)		-		(-)
Outstanding at the end of the year	0.35		710,000		0.35		1,500,000
Exercisable at the end of the year	0.35		510,000		0.20		1,100,000

The weighted average remaining contractual life for the share options outstanding as of December 31, 2019 was 0.17 years.

 

24.    Commitments and guarantees

A.    Royalty commitments

(i) The Group is committed to pay royalties to the Government of Israel on proceeds from sales of products in the research and development of which the Government of Israel participates by way of grants. Under the terms of Group's funding from the Government of Israel, royalties of 2%-3.5% are payable on sales of products developed from a project so funded, up to 100% of the amount of the grant received, including amounts received by the Parent Company and its subsidiaries through July 1, 2000. 

The maximum royalty amount payable by the Group at December 31, 2019 is US$ 470,000.

No provision is recognized due to the lack of expectation to sale relevant products in the foreseeable future.

During 2019 the Group did not pay any royalties.

(ii) The Group is committed to pay royalties to the Government of Israel on proceeds from growth in sales of Mottech's products in China of which the Government of Israel participates by way of grants. Under the terms of the Group's funding from Government of Israel, royalties of 3% from the increase of sales in China (base year was 2017) shall be paid up to 100% of the amount of the grant received. Payment of royalties shall begin after completion of the grant receipt, which is expected in 2020. The maximum royalty amount payable by the Group at December 31, 2019 is US$ 129,000.

B.    Guarantees

The Group has provided guarantees in favour of customers and government institutes in the amount of US$ 700,000 and US$ 400,000 respectively. The guarantees are mainly to guarantee advances received from customers and performance of contracts signed.

C.    Charges

In order to secure the Group's liabilities, real estate properties were mortgaged and fixed charges were recorded on property and some bank deposits (see also note 16).

 

25.    Transactions with related parties:

A.      Service Agreement with controlling shareholder:

As part of the Merger agreement between MTI Computers & Software Services (1982) Ltd ("MTIC") and the Company, it was concluded that Mr. Zvi Borovitz who served as the Chair of MTIC and serves as the Chair of the Company's board of directors, will cease to serve, on the Date of Completion, as the Chair of MTIC board of directors, but will continue to serve as the Chair of the Company's board of directors, at a cumulative scope of employment that reflects his employment as the Chair of MTIC board of directors and as the Chair of the Company's board of directors (that is, at a cumulative scope of employment that will not be less than 55%), with no change in the terms of his service and employment, other than as set forth below. The consideration to which Mokirey Aya Management Ltd. (hereinafter: the "Management Company") will be entitled with respect to Mr. Borovitz's service as the Chair of the Company's board of directors, starting on the Date of Completion, will reflect a cumulative consideration with respect to his service as the Chair of MTIC board of directors and as the Chair of the Company's board of directors up to the Date of Completion, with no change (and specifically, the cumulative monthly management fees will continue to be in the amount of NIS 52,000, linked to the increase in the Consumer Price Index from the month of April 2016, plus VAT as provided by law).

On March 1, 2019, following the Merger, an amendment to the agreement was renewed to include remuneration (per month) of:

1.   55,000 NIS to Mr. Zvi Borovitz for his service as a chairman of the board of the Company in capacity of at least 50% and

2.   77,000 NIS to Mr. Moni Borovitz for his service as CEO of the Company in capacity of at least 90%.

All amounts are prior to VAT which will be added to the invoices and are linked to the increase in the consumer price index. In addition to the above, and in accordance with the remuneration policy adopted by the Company, as required under rule 20 to the Israeli Companies Law, a bonus scheme was granted to each of the managers. The bonus scheme states that Zvi Borovitz and Moni Borovitz will be entitled (each one of them) to a bonus amounting 2.5% of the Company's net profit exceeding US$800,000 per year, prior to any bonuses grant in the Company. In the case of a loss in a year the bonus for the next year will be for a net profit exceeding US$800,000 above the loss made in the previous year. In addition Mr. Moni Borovitz shall be entitled to a bonus equal to three months management fee, based on the meeting of targets specified by the remuneration committee at the beginning of each year or per the remuneration committee decision to give such for special performance plus one month's management fee if the consolidated revenue of the Company increases by more than 5% from previous year. A ceiling to the bonuses was set at eight months management fees for Mr. Moni Borovitz and US$100,000 for Mr. Zvi Borovitz. The agreement also states that the Company shall reimburse the management of the Company for any expense made in performance of the manager's duty. The Company shall also provide each of the managers with a car and phones and will be responsible for all its related expenses, including all relevant taxes.

B.    Transaction with the Parent Group:

The following transactions occurred with the Controlling shareholder and other related parties:

	2019		2018
	$'000		$'000
Management Fee	714		657

 

Compensation of key management personnel of the Group:

	2019		2018
	$'000		$'000
Short-term employee benefits *)	1,153		1,052

 

*) Including Management fees for the CEO, Directors, Executive Management and other related parties including the Controlling shareholder.

Balances with related parties:

	2019		2018
	$'000		$'000
Other accounts payables	231		187

 

26.    Merger

During March 2018 the Company announced that it was in preliminary discussions with its majority shareholder, MTI Computers & Software Services (1982) Ltd ("MTIC"), regarding a potential merger between the two companies. MTIC, whose shares were listed on the Tel Aviv Stock Exchange, at that point held 53.2% of the Company's issued ordinary shares. Following the announcement in March 2018, on 1 May , 2018 the Company announced that it had entered into a merger agreement (the "Merger Agreement") with its majority shareholder, MTIC and the Company together being the "Merging Companies", according to which, and in accordance with the provisions of Sections 350-351 of the Israeli Companies Law, 5759-1999 (the "Companies Law"), as a court approved scheme of arrangement between the Company, MTIC and their shareholders (the "Scheme of Arrangement"), MTIC was to be merged into the Company in a statutory merger, so that MTIC would be dissolved and all of its activities, assets and liabilities, subject to certain qualifications, would be transferred to the Company in consideration for the allotment of new ordinary shares of the Company and the transfer of MTIC's existing holdings in the Company, to all of MTIC's shareholders (the "Merger").

The Merger does not constitute a business combination within the scope of IFRS 3 and accordingly is treated by the Company in the financial statements as a pooling of interest. According to this method, the Company prepared its financial statements in order to reflect as if the Merger was in effect as of the establishment of the Company, while making the adjustments as follows:

The capital balance of the transferred activities was classified in the statement of changes in equity as part of the additional paid-in capital. Dividend distribution to the owners prior to the date of the merger were classified to the statement of changes in equity as retained earnings.

As consideration for the Merger, the Company was to allocate to the shareholders of MTIC 31,600,436 new ordinary shares in the Company, subject to a Conversion Ratio Mechanism (as defined below). In addition, MTIC's existing holdings in the Company were also to be transferred to all of the shareholders in MTIC, pro rata to their holdings of shares in MTIC.

On the date of record for the Merger the Company was to allocate to the shareholders of MTIC (the "Date of Record for the Merger" and the "Shareholders of MTIC" respectively) 31,600,436 new ordinary shares in the Company, according to the Conversion Ratio (as defined below) as of the date of the Merger Agreement, subject to the Conversion Ratio Mechanism (as defined below) (the "Allotted Shares") and was to transfer them, together with MTIC's Holdings in the Company (the "Sold Shares"), to all of the shareholders in MTIC, pro rata to their holdings of shares in MTIC on the Date of Record for the Merger, according to the Conversion Ratio. With respect to the Merger Agreement, the "Conversion Ratio" - a ratio of 5.2689055 Sold Shares for each share in MTIC as of the date of entry into the Merger Agreement, was determined according to a valuation of the business activities of MTIC and the Company, on the basis of the consolidated and audited financial statements for the year ended 31 December 2017 of each company as valued by an independent appraiser (the "Appraiser"), was subject to updates, as necessary, according to the Conversion Ratio Mechanism (as defined below). According to the aforesaid valuation, which constituted part of the Merger Agreement (the "Valuation"), the equity ratio as of 31 December 2017, between the value of MTIC excluding MTIC's holdings in the Company (approximately US$ 10.7 million as of 31 December 2017) when compared with the value of the Company (approximately US $ 18.8 million as at 31 December 2017) was approximately 1.75: in favour of the Company.

Following completion of the Merger, assuming the Conversion Ratio is not adjusted in accordance with the Conversion Ratio Mechanism (5.26891) and provided none of the options granted by the Company are exercised, the issued share capital of the Company was to be 87,038,724 ordinary shares.

The Merger was completed on 20 August, 2018.

 

27.    Significant Events:

A.   On January 24 2019 the Company announced a share repurchase program to conduct market purchases of ordinary shares of par value 0.01 Israeli Shekels each ("Ordinary Shares") in the Company up to a maximum value of £150,000 (the "Programme"). The Programme will be managed by Peterhouse Capital Limited ("Peterhouse Capital").

The Company has entered into an arrangement with Peterhouse Capital in relation to the Programme where Peterhouse Capital will make the trading decisions concerning the timing of the market purchases of Ordinary Shares independently of and uninfluenced by the Company, with such trading decisions being in line with the terms of the Programme. Purchases may continue during any prohibited periods of the Company, as defined by the Market Abuse Regulation 596/2014/EU ("MAR"), which may fall during the term of the Programme.  The Company reserves the right to bring a halt to the Programme under circumstances that it deems to be appropriate, provided that it is permissible for this to occur in compliance with MAR.

The Programme commenced on 28 January 2019 and will continue until no later than 26 July 2019. On 24 July 2019, the Company announced that the board of directors of the Company and the board of directors of MTI Engineering had decided to continue with the Programme for another six months until 26 January 2020. Ordinary Shares acquired as a result of the Programme will be held by MTI Engineering and in accordance with the Israeli Companies Law, 1999 will not have any voting rights. An objective of the Programme is that Ordinary Shares acquired by MTI Engineering will be resold, provided that this occurs under circumstances that the Board of MTI deems to be appropriate and in compliance with MAR. Cash generated from any eventual resales of Ordinary Shares acquired by MTI Engineering under the Programme will be credited to an account held with a third party, which will be under the direction of Peterhouse Capital and such cash may be used by Peterhouse Capital to make future purchases of Ordinary Shares under the Programme.

As at 31 December 2019, no Ordinary Shares were held in treasury under the Programme.

In 2019, MTI Engineering generated a profit of $43,000, which was recorded in additional paid-in-capital.

B.    On 24 June 2019 the Company announced that Mottech Water Solution Ltd ("Mottech"), has entered into a share purchase agreement to acquire 50% of Parkland Australia Pty Ltd ("Parkland Australia"), a value added reseller of Mottech's solutions in Australia, for a consideration of up to 0.8m Australian dollars ("AUD") (approximately US$0.55m).  0.6m AUD (US$0.41m) of the consideration was paid upon closing and the remainder is to be paid in two tranches by July 2020 and July 2021 based on the financial performance of Parkland Australia in FY 2020 and FY 2021 (ending 30 June 2020 and 2021 respectively) (the "Acquisition"). The Acquisition was completed on 30 July 2019. The consideration for the acquisition of Parkland Australia is not viewed as a material expenditure for the Company.

C.    During July and December 2019, employees of the Company exercised options over 340,000 Ordinary Shares in exchange for a total consideration of approximately $62,000.

D.    During April 2019, the Company's Chairman and the Chief Executive Officer, exercised options over 450,000 shares in exchange for a total consideration of approximately $56,000.

 

28. Subsequent events

A.      On 23 January 2020, the Company announced that the board of directors of the Company and the board of directors of MTI Engineering had decided to continue with the Programme for another six months until 26 July 2020.

B.      The Board of directors has decided to declare a cash dividend of 2 US cents per share being approximately $1,758,000. This dividend will be paid on 3 April 2020 to shareholders on the register at the close of trading on 20 March 2020.

C.      During January 2020, employee of the Company exercised options over 60,000 Ordinary Shares in exchange for a total consideration of approximately $21,000.

D.      The financial statements were authorized for issue by the board as a whole following their approval on March 1, 2020.