Half-yearly Report

B.S.D. CROWN LTD - Half-yearly Report

PR Newswire

London, September 1

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED

 FINANCIAL STATEMENTS

AS OF 30 JUNE 2015

UNAUDITED

IN U.S. DOLLARS

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

AS OF 30 JUNE 2015

UNAUDITED

IN U.S. DOLLARS

INDEX

Report on Review of Interim Condensed Consolidated Financial Statements

To the Shareholder and Board of Directors of

B.S.D CROWN LTD.

Introduction:

We have reviewed the accompanying interim condensed consolidated statement of financial position of B.S.D CROWN LTD. and its subsidiaries ("the Group") as of 30 June 2015 and the related interim condensed consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the six and three month period then ended and explanatory notes. Management is responsible for the preparation and presentation of those interim condensed consolidated financial statements in accordance with IAS 34, "Interim Financial Reporting ("IAS 34"). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

The Group`s financial statements as of 30 June 2014 and for the six and three months then ended reviewed by another auditor who expressed an unqualified opinion on those statements on August 28, 2014.

Scope of review:

We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion:

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

Brightman Almagor Zohar & Co.

Certified Public Accountants

A member firm of Deloitte Touche Tohmatsu Limited

Tel-Aviv 31 August ,2015

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Basic and diluted net earnings per share attributable to Company's equity holders (in U.S dollars):

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

B.S.D CROWN LTD.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

NOTE 1 - GENERAL

In August 2014 the Company effected a change of its name from Emblaze Ltd. to B.S.D Crown Ltd.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

a. Basis of preparation of the interim consolidated financial statements:

The interim condensed consolidated financial statements for six and three month periods ended 30 June 2015 have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2014.

b. Income tax:

The Group calculates the period's income tax expense using the tax rate that would be applicable to the expected total annual earnings. In order to calculate the average annual effective income tax, the company reduces tax losses in which no deferred tax assets were recognized in respect to them, and it expects them to reduce the annual current taxable profit.

The major components of income tax expense in the interim condensed statement of profit or loss are: Current income tax expense, Deferred income tax expense relating to origination and reversal of temporary Differences except to the extent that the tax arises from transactions which recognized directly in equity and business combinations.

NOTE 3 - DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THE ADOPTION

a. IFRS 13 Fair Value Measurement:

The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable). This amendment has no impact on the financial statements.

b. Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 July 2014. These amendments have no impact on the financial statements.

c. An amendment to IAS 24 "Related Party Disclosures" (regarding key management personnel)

The amendment clarifies that a management company providing key management personnel services to the reporting entity is a "related party" of the reporting entity. The amendment is applied retrospectively for annual reporting periods beginning on or after July 1, 2014 or thereafter. 

NOTE 4 - SUPPLEMENTARY INFORMATION

a. Loan agreement to controlling shareholder:

On 24 February, 2015, Israel 18, Israel 180 Ltd. (“Israel 180”) and Orot Israel 18 Ltd. (“Orot Israel” and together, the “Israel 18 Group”) entered into a loan agreement (the “Loan Agreement”) for a loan to be provided by Zwi Williger (“ZW”) and Joseph Williger (“JW” and together, the “Willigers”), either in their personal capacities or through companies under their control (the “Lenders”), pursuant to which Israel 18 was to borrower a sum of NIS 83 million (approximately USD 20.9 million) (the “Loan Amount”).

The Loan Amount was to be used, among others, for the purposes of exercising the call options in respect of a further 19.09 per cent of the Company’s shares (the “Options”).

Following the failure by the parties to the Loan Agreement to reach completion thereof The Loan Amount was returned to the Willigers on 7 May, 2015.

b. Put options over Company shares:

(1) On 4 March, 2015, ZW, a director of Willi-Food Investments Ltd. (“WFI”) and the chairman of the board of directors of G. Willi-Food International Ltd. (“WFINT”) and JW, the president of WFINT and chairman of the board of directors of WFI, each, exercised options over 66,667 shares of WFINT (the “Williger Shares”). In consideration for the Williger Shares, each of ZW and JW paid the amount of USD 433 thousand to WFI, reflecting an exercise price of USD 6.5 per each of the Williger Shares.

(2) Following ZW's and JW’s exercise of the abovementioned Williger Shares, on 24 March 2015, the Company paid an amount of USD 800 thousand to each of ZW and JW and acquired 66,667 shares of WFINT from each of ZW and JW, reflecting an exercise price of USD 12 per share of WFINT.

(3) Following a further exercise by ZW of part of his put options in respect of 166,666 shares of WFINT, on 7 May, 2015, the Company paid an aggregate total amount of USD 2 million and acquired an aggregate of 166,666 shares of WFINT.

(4) On 26 May and 30 June, 2015 the Company has paid the aggregate amount of USD 1 million and USD 3 million respectively to ZW in consideration for the WFINT Put Option in relation to 337,741 shares in WFINT.

c. During June 2015, WFI acquired 139,386 ordinary shares of NIS 0.1 per share in the amount of approximately USD 2,295 thousand. As a result of these acquisitions, WFI increased its holdings in WFINT shares to 62.39%.

Following the above mentioned transactions, the Company now directly holds 4.87% of the shares of WFINT and indirectly holds a further approximately 41.66% of the shares of WFINT through WFI.

d. Claim against former controlling shareholder:

On 24 February, 2015, Public Joint Stock Company Alfa Bank (“Alfa”), a Ukrainian banking entity, submitted a request to the Tel Aviv District Court (the “Court”) to attach certain assets as well as direct and indirect holdings of the Company’s ultimate former controlling shareholder, Oleksandr Granovskyi. This request was submitted as part of a claim filed by Alfa against Mr Granovskyi and others with respect to alleged debts owing by them to Alfa. On 11 April, 2015, Alfa and Mr Granovskyi entered into a settlement agreement, following which the Court cancelled all interim measures previously ordered by it in the course of the relevant proceedings.

NOTE 4 - SUPPLEMENTARY INFORMATION (Cont.)

e. On 1 April 2015 the Company appointed Mr. Oleksandr Granovskyi, as the chairman of the board of directors in replacement of Abraham Wolff who was appointed as a director of the Company and as a the chairman of its board of directors, on 14 August 2013. Mr. Wolff announced on the same day, his resignation as a director of the Company.

For details regarding changes in the ultimate controlling shareholder and members of the Company's Board after the Reporting Period, see Note 8(a) and (c).

f. Microsoft settlement

Further to the Company's disclosures with respect to its claim against Microsoft Corporation ("Microsoft") with reference to BSD's U.S. patent no. 6,389,473 for media streaming technology (the "patent"), the Company executed, on June 18th, 2015 a final settlement with Microsoft on all claims (the "Agreement") with full mutual releases and license, covenant not to sue, and waivers. In accordance with the Settlement Agreement, Microsoft paid the Company the agreed amount. The Agreement shall remain in full force and effect until the expiration of the Patent’s Term. The net effect of the settlement is presented in the Company's profit or loss statement in "Other income (loss)" item

g. WFI supplementary information

1. During September 2014, WFINT and Goldfrost (“Goldfrost”), a subsidiary company fully owned by WFINT, have filed a lawsuit against the property tax and compensation fund administration (the "Authorities") according to property tax and compensation fund regulations 2014, for indirect damages that they have endured following operation “Protective Shield” for the overall sum of about 6 million NIS (approximately USD 1.6 million). On 21 December, 2014, WFINT and the Authorities have signed a settlement agreement for the total amount of NIS 2,792 thousands (approximately USD 0.7 million) without any of the sides renouncing their claims and/or accepting the claims made by the other side. The sum has been fully received during the month of January, 2015.

During the month of January 2015, Goldfrost has received a total sum of NIS 1.3 million (approximately USD 0.3 million) and in June 2015 an additional sum of NIS 1 million (approximately USD 0.3 million), as advanced payments. On 20 July, 2015, Goldfrost and the Authorities have signed a compromise agreement for NIS 2 million (approximately USD 0.5 million), without any of the sides renouncing their claims and/or accepting the claims made by the other side. As a result, during the month of July 2015, Goldfrost has returned to the Authorities the excess of advanced payments along with linkage and interest.

2. On 22 June, 2015, the WFI’s board of directors has approved a dividend distribution for NIS 20 million. The dividend has been paid in cash on 12 July, 2015.The Company received on 12 July, 2015 approximately NIS 12.3 million (approximately USD 3.3 million) upon distribution of the dividend by WFI.

3. On 14 July, 2015, the district court in Lod, Israel (the "Court") has approved the request which has been submitted by Mega Retailers Ltd. on 29 June, 2015, for an arrangement with creditors according to section 350 to the Israeli Companies Law – 1999, following the financial difficulties which Mega Retailers Ltd. has been suffering (herein after: “Mega”, the "Request for arrangement” or the "Arrangement", accordingly).

As part of the Request for Arrangement, it has been determined that Mega will pay its creditors, including WFINT, for its debts up to and including 30 June, 2015 – an amount equal to 70% of the remainder of its debts to the creditors divided to 12 weekly payments starting 31 July, 2015, and the remaining 30% will be paid starting 30 June, 2017 in 36 equal monthly payments (herein after: the "Deferred debt”).

NOTE 4 - SUPPLEMENTARY INFORMATION (Cont.)

g. WFI supplementary information (Cont.)

According to the arrangement, the Deferred debt will accumulate an annual interest for 2% until 30 June, 2017 and an annual interest of 3% until the final payment of the Deferred debt. Furthermore, as part of the Arrangement, the creditors have been given the option to convert the Deferred debt to shares of Alon Ribua Kakhol Ltd, Mega’s parent company, under the conditions set in the Arrangement.

At the time of the report, Mega’s remaining debt to WFINT is NIS 5.6 million (including VAT) (approximately USD 1.5 million).

On 9 July , 2015, Mega has submitted to the Court a stay of proceedings to Eden Natural Health Market Ltd. (“Eden”), Mega’s subsidiary, (“Stay of proceedings”). As part of the Stay of proceedings, the court has appointed a trustee for Eden.

To the best knowledge of the Company, on 16 August, 2015 the Court approved the selling of eight of Eden branches operated under the brand name "Eden Teva Market" to a third party, subject to fulfillment of certain preconditions.

Eden’s remaining debt in WFINT’s books at the time of the making of the report and the time of the stay of proceedings is about NIS 0.6 million (including VAT) (approximately USD 0.2 million).

In light of the uncertainty in the payment of the Deferred debt by Mega and in light of Eden’s stay of proceedings, WFINT has provided during the second quarter of 2015 a total amount of NIS 1.7 million (approximately USD 0.5 million) for doubtful debts. The total influence on the WFI’s net profit for the time of the report, after taxes and the minority share, was a total amount of about NIS 0.7 million (approximately USD 0.2 million).

Mega constitutes the second largest retailer in Israel, after Shufersal Ltd., and it had, at the time of the request for arrangement, about 182 branches. WFINT’s scope of sales to Mega constituted about 5% of WFINT’s sales in the months of January-June 2015 and about 6% of WFINT’s sales for 2014. At the time of the publication of this report, the WFI is unable to estimate the influence of the difficulties Mega and Eden have fallen into and/or the legal proceedings that are conducted in their cases and the WFI’s business outcomes.

NOTE 5 - FINANCIAL INSTRUMENTS

Financial instruments that are not measured at fair value:

Except as detailed in the following table, the Group believes that the carrying amount of financial assets and liabilities that are presented at amortised cost in the financial statements approximates their fair value.

Financial liabilities:

Below are details of the Group's financial assets that are measured in the Company's statement of financial position at fair value by levels:

NOTE 5 - FINANCIAL INSTRUMENTS (Cont.)

Financial assets at fair value:

NOTE 6 - OPERATING SEGMENTS

a. General:

Upon the completion of the Company’s acquisition of WFI in May 2014, the Group's main activity and its sole operating segment are import, marketing and distribution of food products to retail chains, supermarkets, wholesalers, and institutions mainly in Israel.

An operating segment is identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and assess its performance.

b. Reporting segments:

 (*) Other includes mainly unallocated corporate general and administrative expenses and expenses relating to research and development activities.

(**) For recognition of impairment losses see Note 7.

Seasonality

The operating results of WFI and its subsidiaries (the “WFI Group”) may be subject to variations from quarter to quarter depending, among others, the timing of sales campaigns and major Jewish holidays. Therefore, the operating results of WFI Group in the period ended 30 June 2015 are not necessarily indicative of its operating results for the year.

NOTE 6 - OPERATING SEGMENTS (Cont.)

c. Revenues from major customers that contributed 10% or more to the Company’s group (the “Group”) revenues (as percentage of the total revenue):

The revenues from the following products contributed 10% or more to the Group revenues (as percentage of the total segment revenue):

NOTE 7 - IMPAIRMENT IN WFI GOODWILL AND OTHER ASSETS

During the reporting period the Company examined the recoverable amount of food import marketing and distribution activity ("Food activity") of WFI through its subsidiaries. The recoverable value as of 30 June 2015 was estimated at approximately NIS 191.3 million (approximately USD 50.8 million) as compare to book value as of 30 June 2015 of NIS 280.8 million (approximately USD 74.5 million). As a result, the Company recorded a loss from impairment of value of Food activity in the amount of NIS 89.5 million (approximately USD 23.8 million) which was included in the Profit or Loss statement as Other (income) loss and allocated to the shareholders of the Company and the non-controlling interests in accordance with their respective holdings.

The loss from impairment is attributed, based on the economic valuation performed by an independent appraiser, mainly due to the following reasons:

NOTE 7 - IMPAIRMENT IN WFI GOODWILL AND OTHER ASSETS (Cont.)

retailers emphasised by the conflict between Shufersal (the largest Israeli food retailer) and Unilever (one of the leading food suppliers in Israel); (3) development of private label by the Israeli food retailers such as Shufersal, Rami Levi Hasikma, the largest discount chain in Israel and other; (4) growing pressure applied by the Israeli food retailers to increase the discount rates provided by the food suppliers, including WFI.

Main assumptions used in measuring the recoverable amount

The allocation of the loss from impairment of recoverable value by asset types of the cash producing unit is as follows:

NOTE 8 - SUBSEQUENT EVENTS

On 12 July, 2015, Mrs. Keren Arad-Leibovitz, who was appointed as an external director of the Company on 30 December 2013, resigned from her position on the Board of Directors.

The Company has been informed by its ultimate controlling shareholder, Mr Oleksandr Granovskyi, and by Mr.Gregory Gurtovoy, a citizen of Israel residing in Ukraine ("Mr. Gurtovoy"), that with effect from 15 July, 2015:

Mr Oleksandr Granovskyi and Stichting Chabad Charity Foundation (both: the "Sellers") has sold to Mr. Gurtovoy their entire holdings, in Israel 18 B.V. (herein: “Israel 18” and the "Transaction", accordingly). Following the Transaction, Mr. Gurtovoy hold 'Preferred Shares' representing 90% of the voting rights in Israel 18, and which give him the right to appoint the directors of Israel 18 and hold also 'Regular Shares' of Israel 18, representing 9.5% of the voting rights and 95% of the issued share capital of Israel 18.

As part of the sale of the abovementioned shares, to the best knowledge of the Company , Mr Granovskyi committed to Mr. Gurtovoy, inter alia, as follow:

The Company was not provided with details of the consideration, nor of the timing for payment of the consideration in respect of the abovementioned Transaction, however the transfer of the shares took effect on 15 July, 2015.

Pursuant to change of control as described above, the Company made nominations to the Board of Directors which took effect on 16 July 2015:

In addition, Mr. Emil Budilovsky who currently serves as an Executive Director and vice-president of business development of the Company was appointed as a Joint CEO alongside with Mr. Schneorson, CFO and Company Secretary.

With effect from the same time, Mr Oleksandr Granovskyi has resigned from the Company's Board of directors.

NOTE 8 - SUBSEQUENT EVENTS (Cont.)

Further to Note 8(b), on 21 July 2015, the Company has been informed by Israel 18 that an arrangement was achieved with one of Israel 18's creditors - Fortissimo Capital management LTD ("Fortissimo") - in connection with the settlement of Israel 18's obligations arising from the remain consideration not yet paid by Israel 18 to Fortissimo upon the exercise of options that were assigned to Israel 18 under and in accordance with the agreements signed between BGI Investments (1961) Ltd and Fortissimo (herein: "Israel 18's outstanding consideration" and the "Arrangement"' accordingly).

Under the terms of the Arrangement:

a) 4,541,524 shares of the Company which had been held until now by Fortissimo, as a collateral for Israel 18's outstanding consideration, will continue to be held by Fortissimo. Fortissimo has undertaken to grant Israel 18 power of attorney (proxy) to act in favor of Israel 18 in respect of the said sharesSuch shares will be transferred to Israel 18 following the payment in full by Israel 18 to Fortissimo of the Israel 18's outstanding consideration /

b) Israel 18 has agreed to the assignment to Fortissimo of its right to the repayment of a loan of USD 5 million provided by Israel 18 to BGI (the “BGI Debt”), such assignment to take effect no later than 16 August 2015 provided that, BGI shall have made complete payments owing to its Series 1 bondholders. Israel 18 has also agreed that any sum received by it in connection with the repayment of the Company Debt shall be paid to Fortissimo.

c) Mr. Gregory Gurtovoy has provided a personal guarantee in favour of Fortissimo, guaranteeing the repayment of Israel 18’s debt obligations to Fortissimo, which is in addition to the existing guarantee of Mr. Oleksandr Granovkyi guaranteeing the same such obligations.