20th Mar 2006 07:03
Adamind Ltd20 March 2006 20 March 2006 Adamind Ltd Preliminary results for the year to 31 December 2005 Adamind Ltd (Adamind or "the Company") (LSE: ADA), the leading provider ofmedia adaptation software for multimedia messages ("MMS") and content servicesmarkets, announces its financial results for the year ended 31 December 2005. Financial highlights • Revenues increased by 100% to $6.2m (Combined Pro-forma* 2004: $3.1m) • Operating loss reduced by 29% to $2.7m (Combined Pro-forma* 2004: $3.8m) • Gross margin was 90% • Net loss decreased to $1.35m (Combined Pro-forma* 2004: $3.9m) • Net cash as at 31 December 2005 amounted to $28.2m • Achieved neutral operating cash flow for the year • Loss per share decreased to $0.04 (2004: $0.20) * Adamind was formed in November 2004 from the merger of the transcoding business units of Royal Philips Electronics and Emblaze Ltd; Philips MP4NET and Emblaze Transcoding. These are the combined financial information of the two businesses in 2004 as if the business combination had occurred on January 1, 2004 as disclosed in the admission document dated 14 February 2005. Operational highlights • Increased total network deployments to over 100 from over 80 at the time of Admission to AIM in February 2005. Now working with the top five of the seven mobile infrastructure vendors and three of the top System Integrators • Revenue growth reflects new software license sales as well as capacity upgrades • Direct sales to networks increased to 25% of revenues compared with less than 10% in 2004 • Major footprint in US with Verizon Wireless and Universal • Significant inroads into APAC region with direct sales to SMART Communications in Philippines, M1 in Singapore, Optus in Australia and others • Broadened strategic partnership with Ericsson to include video content adaptation and support for Digital Rights Management • Moved into Chinese market and increased presence in APAC region with acquisition of SenseStream in February 2006 Shailendra Jain, chief executive of Adamind, said: "Adamind is in the sweet spotof the mobile content revolution as consumer use of multimedia messages and richmedia content services continues to grow strongly. "The momentum of growth seen in 2005 has continued into the New Year. Ourpipeline of new orders has expanded significantly, putting Adamind on track toachieve profitability and strong growth for the year as a whole." Enquiries: Adamind +44 20 7929 8989 on day andShailendra Jain, CEO +972 9769 9500 thereafterEli Sofer, CFO Corfin CommunicationsHarry Chathli, Neil Thapar +44 20 7929 8989 Overview Adamind announces its maiden full year results since admission to AIM with astrong operating performance that consolidated its position as the world'sleading provider of media adaptation software for multimedia messaging ("MMS")and mobile content. The total number of networks that have deployed Adamind's software increased tomore than 100 during 2005 compared with over 80 at the time of the flotation inFebruary 2005. This was achieved by increasing direct sales to major operatorsand by working closely with our strategic partners including Ericsson, LogicaCMG, Motorola and Openwave. The Company benefited from the growing popularity of MMS and rich mobile contentwith end users and the introduction of new multimedia services by operatorsworldwide, particularly in Asia and North America. Adamind's software sits at the heart of a mobile network and adapts multimedia content such as picturemessages, ringtones and video-clips so that these can be experienced without glitch across any network and mobile handset. As a result, the Company's software plays a critical function in a large and rapidly expanding market formobile content. According to industry estimates the messaging market alone isexpected to grow three-fold to nearly $30bn between 2005 and 2009 (Global MobileData Applications Forecast, Yankee Group, Dec 2005). Over the same period, thepotential market for mobile content services is expected to be even bigger atabout $60bn. Operating review The Company increased its revenues by 100% to $6.2m and reduced its net loss by66% to $1.3m in 2005 as set out in the table below: Year ended Year ended 31 Dec 2004 31 Dec 2005 ($000) ($000) Combined ------------ Pro forma* ------------ Revenues $ 3,060 $ 6,154Cost of revenues 252 632 ------------ ------------Gross profit 2,808 5,522 ------------ ------------Total operating expenses 6,652 8,249 ------------ ------------Operating loss (3,844) (2,727)Financial income (expenses), net (80) 1,379 ------------ ------------Net loss $ (3,924) $ (1,348) ============ ============ Basic and diluted net loss per share $ (0.20) $ (0.04) ============ ============ ============ ============Weighted average number of sharesused in computing basic and diluted 19,200,000 33,548,392net loss per Ordinary share ============ ============ * Adamind was formed in November 2004 from the merger of the transcoding business units of Royal Philips Electronics and Emblaze Ltd; Philips MP4NET and Emblaze Transcoding. These are the combined financial information of the two businesses in 2004 as if the business combination had occurred on January 1, 2004. The increase in revenues reflects a greater number new operator customersplanning the launch of MMS and content services. In addition, the Companybenefited from capacity upgrades purchased by existing operator customers tohandle rising MMS traffic requiring Adamind's media adaptation technology. License sales to new customers contributed 65% of total revenues while capacityupgrades and maintenance fees from existing customers accounted for theremainder. In March 2005, Adamind's media adaptation platform was deployed atVerizon Wireless, one of the two largest North American mobile phone companieswith approximately 50 million subscriber base. Since then the volume of mobiledata handled by Adamind's software in the US market has continued to grow steadily as Verizon Wireless, together with other mobile content providers rollout new services, applications and advanced new handsets to increasinglyreceptive end-users. Direct sales Direct sales to operators rose strongly during the year after the Companyincreased its sales and marketing spending to $3.1m last year (2004:$1.6m).Direct sales accounted for 25% of total revenues last year compared with lessthan 10% in 2004. Major direct wins and up-sell included several prominent regional mobile network operators including Smart Communications in Philippinesand Wind in Italy. The Company's success with Smart was particularly noteworthyas the Philippines holds the world's No1 position for achieving the highest proportion of average revenues per user from data services at 40%. Since the year-end, Adamind has also made a major breakthrough with the directsale of its content production software to Universal Music Mobile US, a subsidiary of Universal Music Group, the world's largest music company. TheCompany is currently in talks with several other global content owners regardingits content production software. Targeting high growth markets The Company expects to build on its success in the US, Western Europe and SEAsia markets. Some of the top carriers in the US will be selecting their nextgeneration media adaptation partner for content and MMS this year. In SE Asia,the company expects to make significant capacity upgrade sales this year. InEurope, there will be similar capacity upgrade sales and some new operatorreplacement deployments. The Company is making solid progress in penetrating some of the world's fastestgrowing emerging economies of Brazil, Russia, India and China. These countriescollectively account for much of the world's population, and the fastest growingmobile subscriber base. During 2006, Adamind expects to announce significant commercial breakthroughs ineach of these markets. Last month the Company announced the acquisition ofSenseStream, which provides a bridgehead into mainland China, Hong Kong andTaiwanese markets. SenseStream has key relationships with some of the territories biggest mobile operators and network equipment makers. Financial results Revenues increased by 100% to $6.2m compared with $3.1m in the correspondingpro-forma period in 2004. The increase reflects a greater number of new licencefees and capacity upgrades purchased by network operators worldwide. Revenues were broadly similar in the second half at $3.0m compared with thefirst half due to a number of new agreements expected to be concluded beforethe end of the year being formally concluded in early January 2006. Operating loss reduced by 29% to $2.7m (Combined Pro-forma 2004: $3.8m)reflecting the growth in revenues and a tight control over operationalexpenditure. Net loss amounted to $1.3m after taking into account financial income of $1.38mreflecting interest income from cash and marketable securities. The Company alsobenefited from a $0.6m one-off currency gain in the first half of 2005. Gross margin was maintained at 90%. Net cash balances amounted to $28.2m reflecting $25.5m proceeds from the placingon admission to AIM in February 2005. Cash from operations for the full year wasneutral. Trading Outlook Adamind continues to enjoy strong demand for its world-class mobile contentsoftware by major operators worldwide. The recent acquisition of SenseStream inChina and the move into the mobile content production arena with the signing ofa three-year contract with Universal has also provided a strong foundation for2006. Since the start of the New Year our pipeline of new orders has expandedsignificantly, putting Adamind on track to achieve profitability and stronggrowth for the year as a whole. CONSOLIDATED BALANCE SHEETSU.S. dollars in thousands, except share data 31 December --------------------- Note 2004 2005 ------ -------- --------ASSETS CURRENT ASSETS:Cash and cash equivalents $ 2,799 $ 1,877Short-term available-for-sale marketable securities 3 - 16,726Short-term held-to-maturity marketablesecurities 3 - 2,131Trade receivables 233 1,522Other accounts receivable and prepaid expenses 41 148 -------- --------Total current assets 3,073 22,404-------------------- -------- -------- NON-CURRENT ASSETS:Long-term held-to-maturity marketable securities 3 - 7,448Equipment, net 4 413 424Intangible assets, net 5 3,681 2,803 -------- --------Total non-current assets 4,094 10,675------------------------ -------- -------- $ 7,167 $33,079 ======== ========LIABILITIES AND EQUITY CURRENT LIABILITIES:Trade payables $ 19 $ 304Employees and payroll accruals 305 859Accrued expenses and other liabilities 6 616 1,570Deferred revenues 304 416 -------- --------Total current liabilities 1,244 3,149--------------------------- -------- -------- EQUITY: 8Share capital -Series A Convertible Preferred shares of NIS 0.01par value: Authorized: 5,000,000 and 0 shares asof 31 December 2004 and 2005, respectively; Issued and outstanding: 4,800,000 and 0 shares as of 31December 2004 and 2005, respectively 11 - Ordinary shares of NIS 0.01 par value: Authorized:45,000,000 and 50,000,000 shares as of31 December 2004 and 2005, respectively; Issuedand outstanding: 19,200,000 and 35,388,636 shares as of 31 December 2004 and 2005, respectively 43 80 Additional paid-in capital 5,956 31,078Share-based compensation - 207Accumulated deficit (87) (1,435) -------- --------Total equity 5,923 29,930------------ -------- -------- $ 7,167 $33,079 ======== ======== The accompanying notes are an integral part of the financial statements. CONSOLIDATED STATEMENTS OF OPERATIONSU.S. dollars in thousands, except share and per share data From 7 Year ended November 31 2004 (date of December commencement 2005 of operations) through 31 December Note 2004 *) ---- ---------- ----------Revenues 10 $ 978 $ 6,154Cost of revenues 60 632 ---------- ----------Gross profit 918 5,522 ---------- ----------Operating expenses:Research and development, net 391 3,157Sales and marketing 299 3,087General and administrative 175 1,127Amortization of intangible assets 5 150 878 ---------- ----------Total operating expenses 1,015 8,249 ---------- ----------Operating loss 97 2,727Financial income, net 11f 10 1,379 ---------- ----------Net loss $ 87 $ 1,348 ========== ==========Basic and diluted net loss per share $ 0.00 $ 0.04 ========== ==========Weighted average number of shares usedin computing basic and diluted net loss per Ordinary share 19,200,000 33,548,392 ========== ========== *) For additional unaudited pro forma combined statement of operations, see also Note 13. The accompanying notes are an integral part of the financial statements. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYU.S. dollars in thousands, except share data Series A Convertible Preferred shares Ordinary shares -------------------- --------------------- Number Amount Number Amount --------- --------- ---------- ---------Balance at 7 November 2004 (date of commencement of operations) - $ - - - Issuance of shares *) 4,800,000 11 19,200,000 43Net loss - - - - --------- --------- ---------- ---------Balance as of 31 December 2004 4,800,000 11 19,200,000 43 Issuance of Ordinary shares uponInitial Public Offering andconversion of Series A ConvertiblePreferred shares **) (4,800,000) (11) 16,163,636 37 Issuance of Ordinary shares uponexercise of employees' shareoptions - - 25,000 ***)-Share-based compensation - - - -Net loss - - - - --------- --------- ---------- ---------Balance as of 31 December 2005 - $ - 35,388,636 $ 80 ========= ========= ========== ========= *) Net of issuance expenses of $ 100.**) Net of issuance expenses of $ 2,906.***) Represents an amount lower than $ 1. Cont/ CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYU.S. dollars in thousands, except share data Additional paid-in Share-based Accumulated Total capital compensation deficit equity ----------- ------------ ----------- ------Balance at 7 November 2004 (date of commencement of operations) $ - $ - $ - $ -Issuance of shares *) 5,956 - - 6,010Net loss - - (87) (87) ----------- ------------ ----------- ------Balance as of 31 December 2004 5,956 - (87) 5,923Issuance of Ordinary shares uponInitial Public Offering andconversion of Series A ConvertiblePreferred shares **) 25,113 - - 25,139Issuance of Ordinary shares upon exercise of employees' shareoptions 9 - - 9Share-based compensation - 207 - 207Net loss - - (1,348) (1,348) ----------- ------------ ----------- ------Balance as of 31 December 2005 $ 31,078 $ 207 $ (1,435) $29,930 =========== ============ =========== ====== *) Net of issuance expenses of $ 100.**) Net of issuance expenses of $ 2,906.***) Represents an amount lower than $ 1. The accompanying notes are an integral part of the financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWSU.S. dollars in thousands From 7 Year ended November 31 2004 (date of December commencement 2005 of operations) through 31 December 2004 ------------- ---------Cash flows from operating activities:Net loss $ (87) $ (1,348)Adjustments to reconcile net loss to net cashprovided by operating activities:Depreciation and amortization 187 1,125Decrease (increase) in tradereceivables, other accountsreceivable and prepaid expenses 72 (1,535)Increase in trade payables,employees and payroll accruals,accrued expenses and other liabilities 700 1,439Increase in deferred revenues 84 112Share-based compensation - 207 ------------- ---------Net cash provided by operating activities 956 - ------------- ---------Cash flows from investing activities:Purchase of equipment (57) (258)Investment in short-term available-for-sale marketable securities - (16,700)Investment in short-term held-to-maturity marketable securities - (2,018)Investment in long-term held-to-maturity marketable securities - (7,448) ------------- ---------Net cash used in investing activities (57) (26,424) ------------- ---------Cash flows from financing activities:Proceeds from issuance of Series A Convertible Preferred shares 2,000 -Issuance of shares upon Initial Public Offering - 28,056Issuance expenses (100) (2,554) ------------- ---------Net cash provided by financing activities 1,900 25,502 ------------- ---------Increase (decrease) in cash and cash equivalents 2,799 (922)Cash and cash equivalents at the beginning of theperiod - 2,799 ------------- ---------Cash and cash equivalents at the end of the period $ 2,799 $ 1,877 ============= ========= Supplemental disclosure of cash flow activities:------------------------------------------------Cash received during the year for:Interest, net $ - $ 688 ============= =========Non-cash financing activities:Issuance of Ordinary shares foracquisition of Philips MP4Net mediaadaptation business (see Note 1d) $ 3,500 $ - ============ =========Issuance of Ordinary shares to Emblaze inconsideration for net assets contributed from Emblazeas follows: Trade receivables $ 79 $ -Other receivables and prepaid expenses 6 -Equipment 173 -Acquired technology 643 -Accrued expenses and other liabilities (147) -Deferred revenues (144) - ------------ --------- $ 610 $ - ============ ========= The accompanying notes are an integral part of the financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands, except share and per share data NOTE 1:- GENERAL a. Background: On 17 September 2004, Emblaze Ltd. ("Emblaze"(, a company organized under the laws of the State of Israel and traded on the London Stock Exchange, entered into an agreement ("the Agreement") with DommelRiver Israel Ltd., PhilipsDigital Networks B.V. ("PDN") and Koninklijke Philips Electronics N.V. ("Philips") (all of the aforementioned Philips companies - "Philips Parties") to transfer their respective media adaptation business to a new Israeli-based company, Adamind Ltd. ("Adamind Ltd." or "the Company"). Emblaze agreed tocontribute the Emblaze media adaptation business ("Emblaze Media Adaptation Business") and operations in consideration for the issuance of Ordinary sharesof Adamind Ltd., and the Philips Parties agreed to contribute the MP4Net media adaptation business ("Philips MP4Net media adaptation business") to Adamind Ltd.in consideration for the issuance of Ordinary shares of Adamind Ltd. and other consideration paid by Emblaze, all as set forth in the Agreement. In addition, Emblaze agreed to make an equity investment of $ 2,000 in Adamind Ltd. in consideration for the issuance of Series A Convertible Preferred shares of Adamind Ltd., as set forth in the Agreement (see c. and d. below). In 2004, the Company established a wholly-owned subsidiary in the U.S. ("AdamindInc."), which is primarily engaged in marketing, sales provision of professionalservices and certain general and administrative functions associated with the Company's activities. In February 2005, the Company completed an Initial Public Offering ("IPO") onthe London Stock Exchange Alternative Investment Market ("AIM") under the symbol"ADA". The Company issued 11,363,636 Ordinary shares to institutional and otherinvestors at a price of 1.32 GBP per share, raising approximately $ 28,000before issuance expenses of approximately $ 2,900. b. The Company is a pure play provider of rich media content adaptation andcontent enhancement software solutions for the mobile messaging, content andconvergence markets. The Company's flagship platform, Adamind SpireTM, providesautomated solutions for content adaptation and enhancement and aims to benefitvirtually every player in the mobile delivery chain. Its multimedia capabilitiesenable service operators and content providers to deploy media rich content applications and services across a wide range of disparate types of consumerdevices. c. Pursuant to the Agreement, on 7 November 2004, Emblaze transferred to the Company assets, including intellectual property, and liabilities related to themedia adaptation business with a net carrying value in the accounts of Emblaze of $610 in consideration for the issuance of 12,000,000 Ordinary shares. In addition, Emblaze transferred to the Company $ 2,000 in cash as an equity investment in consideration of 4,800,000 Series A Convertible Preferred shares.The identification of the assets and liabilities transferred ("the transferred net assets") was agreed upon between Emblaze and Philips Parties pursuant to theAgreement and related documents entered into by and between the Company, Emblazeand Philips Parties. d. Business combination: Pursuant to the Agreement, on 7 November 2004, the Philips Parties agreed tocontribute the Philips MP4Net media adaptation business to the Company in consideration for the issuance of Ordinary shares of the Company and other consideration paid by Emblaze. The transaction has been accounted for under the purchase method of accounting,under which the Company is considered as the acquirer of the Philips MP4Net media adaptation business from Philips. Accordingly, the results of operationsof Philips MP4Net media adaptation business were included in the consolidated statements of operations of the Company, commencing 7 November 2004. The estimated fair value of the identifiable assets acquired and liabilities assumed as of 7 November 2004 are as follows: Current assets $ 262Equipment 217Acquired technology 2,266Customer agreements 248 ------- 2,993 -------Accrued expenses and other liabilities (91)Deferred revenues (76) ------- (167) -------Fair value of net assets 2,826Goodwill arising on acquisition 674 ------- $ 3,500 ======= See Note 13 for unaudited pro forma combined statements of operations for 2004. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of the Company and its subsidiary havebeen prepared in accordance with International Financial Reporting Standards("IFRS"). The significant accounting policies applied in the financial statements, on a consistent basis, are as follows: a. Functional and presentation currency: Substantially all of the Company's sales are made outside Israel in non Israelicurrencies, mainly the U.S. dollar. A substantial portion of the Company's expenses, mainly selling and marketing expenses is incurred in or linked to U.S.dollars. The funds of the Company are held in U.S. dollars. Therefore, the Company's management has determined that the U.S. dollar is the currency of theprimary economic environment of the Company, and thus its functional and presentation currency. b. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiary. Intercompany balances and transactions have been eliminated uponconsolidation. c. Cash equivalents: The Company considers all highly liquid investments originally purchased with maturities of three months or less to be cash equivalents. d. Investments in financial assets: Certain investments in financial assets in the scope of IAS 39, "Financial Instruments: Recognition and Measurement" are classified as either at held-to-maturity investments or available-for-sale financial assets, as appropriate. These financial assets are recognized initially at fair value. TheCompany determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation atbalance sheet date. Held-to-maturity investments Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold to maturity and are stated at amortized cost. The amortized cost of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and interest are included in financial income. Losses due to impairment are recognized in the statement of operations when there is subjective evidence that an impairment has been incurred. As of 31 December 2005, no impairment has been identified. Available-for-sale financial assets After initial recognition, available-for-sale financial assets are measured at fair value with gains or losses being recognized as a separate component of shareholders' equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in shareholders' equity is included in the consolidatedstatement of operations. As of 31 December 2005, no impairment has been identified. The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market prices at the close of business on the balance sheet date. e. Trade receivables: Trade receivables are recognized and carried at original invoice amount, less anallowance for any uncollectible amounts. An allowance for doubtful debts is madewhen there is objective evidence that the Company will not be able to collectthe full amount. Bad debts are written-off when identified by management. As of31 December 2005 and 2004, no allowance for doubtful debts was recorded. f. Equipment: Equipment is stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at the following annual rates: % ------------Computers and peripheral equipment 25 - 33Office furniture and equipment 7 - 15 The carrying value of the equipment is reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying value may not be recoverable. As of 31 December 2005 and 2004, no impairment losses have been identified. g. Intangible assets: The cost of intangible assets acquired on acquisition is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairmentlosses. The useful lives of intangible assets are assessed to be either finiteor indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed 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 with a finite useful life is reviewed at least at each financial year-end. The amortization expense on intangible assets with finite lives is recognized in the statement of operations. The Company's intangible assets consist of acquired technology and customer agreements. The acquired technology is amortized using the straight-line methodover an estimated useful life of five years during which benefits are expectedto be received. The customer agreements are amortized using the straight-linemethod over an estimated useful life of a period between twelve and eighteen months during which benefits are expected to be received. As of 31 December 2005and 2004, no impairment losses have been identified. h. Goodwill: Goodwill acquired in a business combination is initially measured at cost beingthe excess of the cost of the business combination over the acquirer's interestin the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortized and is reviewed forimpairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. When the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss isrecognized. Where goodwill forms part of a cash-generating unit and part of theoperation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation whendetermining the gain or loss on disposal of the operation. Goodwill disposed ofin this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. Asof 31 December 2005 and 2004, no impairment losses have been identified. i. Revenue recognition: The Company and its subsidiary generate revenues mainly from licensing the rights to use the Company's software products, and from royalty arrangements upon licensing of the Company's software to end-users. The Company also generates revenues from maintenance, support, training and professional services. The Company does not grant a right of return to its customers. Revenues from software licensing arrangements are recognized to the extent thatit is probable that the economic benefits will flow to the Company and therevenues can be reliably measured. Revenues from professional services arerecognized when the services are rendered. Revenues from royalty arrangements are recognized in the period when such royalties are reported to the Company, provided that all other revenue recognition criteria are met. Royalties are recognized as revenues by the Company, consistently in the quarter following the quarter in which such royalties are earned. There is a consistent lag of one quarter between the period in which the royalties are earned based on sales to end users and theperiod in which such royalties are recognized as revenue by the Company. Maintenance and support revenues are recognized on a straight-line basis overthe term of the maintenance and support agreement. Deferred revenue includes unearned amounts received under maintenance and support contracts. j. Research and development: Research costs are expensed to operations as incurred. k. Government grants: Royalty-bearing grants from the Government of Israel for funding approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the costs incurred. These grants arepresented as a reduction of research and development expenses when there is reasonable assurance that the grants will not be repaid based on estimated future sales of the funded product. The management reevaluates the estimatedfuture sales of the funded projects on each reporting period. l. Income taxes: The Company and its subsidiary account for income taxes under the liability method of accounting. Under the liability method, deferred taxes are providedbased on the differences between the financial reporting and tax basis of assetsand liabilities and are measured at enacted tax rates that are expected to be applicable in the year in which the differences reverse. Deferred tax assets inrespect of carryforward losses and other temporary deductible differences arerecognized to the extent that it is probable that they will be utilized. m. Exchange rates and linkage basis: Assets and liabilities in or linked to the Israeli currency, New Israeli Shekels("NIS"), or the Euro are included in the financial statements based on the representative exchange rate as published by the Bank of Israel on balance sheetdate. Data regarding exchange rates of NIS and Euro in relation to U.S. dollar are asfollows: Exchange rate of Exchange rate ofAs of one U.S. dollar one U.S. dollar------------- ---------------- ----------------31 December 2005 Euro 0.845 NIS 4.60331 December 2004 Euro 0.733 NIS 4.308 n. Basic and diluted net loss per share: Basic net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each period, plus dilutive potential Ordinary shares considered outstanding during the period. o. Fair value of financial instruments: The carrying amounts of cash and cash equivalents, trade and other receivables,and trade and other payables approximate their fair value due to the short-termmaturity of such instruments. The fair values for marketable securities are based on quoted market prices. p. Concentrations of credit risk: Financial instruments that potentially subject the Company to concentrations ofcredit risk consist principally of cash and cash equivalent, marketablesecurities and trade receivables. The majority of the Company's cash and cash equivalents are invested in major banks in the United States and Israel, in U.S. dollars. Management believes thatthe financial institutions that hold the Company's investments are financially sound and accordingly, minimal credit risk exists with respect to these investments. The Company's marketable securities include investments in auction rate securities, government debentures and corporate debentures. Management believesthat those corporations and governments are financially sound and that theportfolios are well-diversified, and accordingly, minimal credit risk existswith respect to these marketable securities. Trade receivables are derived from sales to customers primarily located inEurope, North America and Asia Pacific. The Company and its subsidiary performongoing credit evaluations of their major customers and to date have notexperienced any material losses. As of 31 December 2005, the Company has no significant off-balance sheetconcentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements. q. Share-based payment transactions: On 1 January 2005, the Company adopted IFRS 2, "Share-based Payment". IFRS 2requires an expense to be recognized where the Company buys goods or services inexchange for shares or rights over shares ("equity-settled transactions"), or inexchange for other assets equivalent in value to a given number of shares ofrights over shares ("cash-settled transactions"). The main impact of IFRS 2 onthe Company is the expensing of employees' and directors' share options (equity-settled transactions). The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted. The fair value is determined by using the Black-Scholes option-pricing model, taking into account the terms and conditions upon which the instruments were granted. The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ("the vesting date"). Thecumulative expense recognized for equity-settled transactions at each reportingdate until the vesting date reflects the extent to which the vesting period hasexpired and the Company's best estimate of the number of equity instruments that will ultimately vest. No expense is recognized for awards that do not ultimatelyvest. The effect of the adoption of IFRS 2 on the year ended 31 December 2005 was anincrease in employee benefits expense and an increase in net loss in the amountof $ 207, with a corresponding increase in equity. The effect of the initial adoption of IFRS 2 (retrospective application) on theperiods prior to 1 January 2005 is immaterial. NOTE 3:- UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS The following proforma combined statement of operations for 2004 assumes the acquisition of the Philips MP4Net media adaptation business described in Note 1 had occurred at the beginning of 2004. The proforma results are not necessarilyindicative of what actually could have occurred had the acquisition been ineffect for the period presented. Ten months ended From 7*) 31 October 2004 November 2004 (date of commencement of operations) through 31 December 2004 ---------------- ------------- ------------------------ Emblaze PHILIPS Media MP4Net Combined Adapt- media Un- ation adapt- audited ation Adamind Adjust- Refer- Pro business Ltd. ments ences forma ------- ------ ------------- ------- ------- ------- Historical Historical (audited) (audited) ---------------- -------------Revenues $ 1,307 $ 775 $ 978 $ 3,060Cost of revenues 101 91 60 252 ------- ------ ------------- ------- -------Gross profit 1,206 684 918 2,808 ------- ------ ------------- ------- -------Operating expenses:Research and development,net 1,069 2,222 391 (137) A 3,545Sales and marketing 574 722 299 1,595General andadministrative 355 200 175 730Amortization of intangibleassets 264 - 150 368 B 782 ------- ------ ------------- ------- -------Total operatingexpenses 2,262 3,144 1,015 231 6,652 ------- ------ ------------- ------- ------- Operating loss (1,056) (2,460) (97) (231) (3,844)Financial income(expenses), net - (90) 10 (80) ------- ------ ------------- ------- -------Net loss $(1,056) $(2,550) $ (87) $(231) $(3,924) ======= ====== ============= ======= =======Basic and diluted netloss per share $ (0.20) =======Weighted average numberof shares used in computing basic anddiluted net loss per share 19,200,000 ========== *) The results of operations from 1 November 2004 through 6 November 2004 were considered immaterial. References: A Elimination of research and development costs related to duplicated activities.B Amortization of intangible assets acquired from Philips MP4Net media adaptation business for the year ended 31 December 2004. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Adams