RNS Number:7209R
Atia Group Limited
06 April 2008
PART 2
NOTE 6 - FIXED ASSETS
Composition in the consolidated balance sheet:
Computers and Convenience
peripheral equipment translation
NIS' 000 �' 000
Cost:
As at 1 January 2007 - -
Initial consolidation of a subsidiary 63 8
_______ _______
As at 31 December 2007 63 8
---------- ----------
Accumulated depreciation:
As at 1 January 2007 - -
Provision during the year 5 1
Initial consolidation of a subsidiary 11 1
_______ _______
As at 31 December 2007 16 2
---------- ----------
_______ _______
Depreciated cost:
As at 31 December 2007 47 6
_______ _______
_______ _______
As at 31 December 2006 - -
_______ _______
_______ _______
NOTE 7 - OTHER ASSETS
Composition in the consolidated balance sheet:
Software Convenience
translation
NIS' 000 �' 000
Cost:
As at 1 January 2007 - -
Initial consolidation of a subsidiary 111 15
_______ _______
As at 31 December 2007 111 15
---------- ----------
Accumulated amortization:
As at 1 January 2007 - -
Initial consolidation of a subsidiary 28 4
Amortization during the year 5 1
_______ _______
As at 31 December 2007 33 5
---------- ----------
_______ _______
Amortized cost:
As at 31 December 2007 78 10
_______ _______
_______ _______
As at 31 December 2006 - -
_______ _______
_______ _______
NOTE 8 - INVESTMENT REAL ESTATE
The Croatian subsidiary obtained the contractual rights to the assets
listed below (hereinafter - the "Land" or the "Assets") from the company, Atia
Projekt, at the value of these assets on the books of the Atia Projekt. In view
of the fact that these real estate assets are held for an as yet undetermined
future use, this real estate was reported as investment real estate in
accordance with Accounting Standard No. 16 of the Israel Accounting Standards
Board. The subsidiary elected to measure the investment real estate at fair
value as its accounting policy. The differences between the cost of the assets
and their fair value derive mainly from the consolidation of individual assets
into one large lot, the value of which as a single unit is greater than the
costs of its parts.
As at 31 December 2007, the contractual rights of the subsidiary in
these assets included the following rights in land in Samobor, Croatia:
Detail Sq.m.
3782 1,574
3783 1,965
3780 1,554
3783 1,965
3777 5,927
3778 6,289
3779 6,992
3723 3,257
3724/1 3,227
3724/2 3,007
3722/2 3,420
3732/1 2,454
3743 1,664
3740 2,604
3737 3,038
3738 1,562
3742 1,612
3731 5,224
3744 2,588
3726 899
3727/2 714
3727/1 1,947
3737 3,038
3738 1,562
3776 6,618
______
74,701
______
______
The cost of the real estate as at 31 December 2007 includes 5%
purchase tax on the real estate, for a total amount of NIS 50,827 thousand.
The fair value of the real estate as at 31 December 2007 amounted to
NIS 69,121 thousand.
The fair value of the property was determined on the basis of a
valuation conducted by Dr. Ali Kreisberg, a partner in the firm of Giza, Zinger
Even, a professional appraiser in Israel, as at 11 July 2007. The appraisal was
based on the method of comparing the market value of the assets with similar
assets having similar characteristics in similar transactions, all at the time
the appraisal was made.
This information was based on a visit by the appraiser to the area of
the property in Samobor, Croatia. Additional information was obtained from
other appraisers and real estate sites on the Internet.
According to the valuation, the value of a square meter of property
which was purchased is 1,182 Croatian Kuna.
In making his evaluation, the appraiser assumed the following:
A. There are no rental agreements in respect of the property.
B. Since the property is comprised of adjacent lots, the property was
appraised as a single lot.
NOTE 8 - INVESTMENT REAL ESTATE (cont.)
In the opinion of Company Management, based on, among other things,
the position of the appraiser, the fair value of the property is influenced by
changes in exchange rates of the euro and the kuna (the Croatian currency) that
are relevant to Croatia and less influenced by changes in the exchange rate of
the dollar. Therefore, in the opinion of Company Management, a decline in the
exchange rate of the dollar will not impact on the fair value of the property.
In addition, in the opinion of Company Management, there was no
material change in the fair value of the investment real estate as at 31
December 2007 versus the fair value that was appraised in July 2007.
Ownership rights to the land in Croatia are registered in the names of
the sellers of the land and not in the name of the Croatian subsidiary. The
sellers deposited with a notary public documents that will enable the Croatian
subsidiary to register the ownership rights to the land on the date on which the
sellers are paid the balance of the consideration. The Atia Projekt registered
a caveat on these properties in the land registry office in the Samobor
municipal court.
NOTE 9 - SELLERS OF LAND
The Atia Projekt (a related party) paid the sellers of the land 10% of
the agreed-upon amount in respect of the land. The balance of the debt, in an
amount of Kuna 54,971 thousand (NIS 42,570 thousand), has to be paid by the
subsidiary to the sellers of the land directly. The subsidiary has to make the
payments by May 2008.
NOTE 10 - SUPPLIERS AND SERVICE PROVIDERS
Composition:
Convenience
Translation
Consolidated Company Consolidated
31 December 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
Open debts 2,519 202 327
______ ______ ______
______ ______ ______
NOTE 11 -ACCOUNTS PAYABLE AND CREDIT BALANCES
Composition:
Convenience
Translation
Consolidated Company Consolidated
31 December 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
Employees and payroll-related institutions 4 - 1
Institutions 50 50 6
Legal claim settlement fees 260 - 34
Accrued expenses and others 844 598 109
______ ______ ______
1,158 648 150
______ ______ ______
______ ______ ______
NOTE 12 - LIABILITY FOR EMPLOYEE TERMINATION BENEFITS, NET
As at 31 December 2007, the Company has no employer-employee
relationships whatsoever and, therefore, it has no liability for employee
termination benefits.
NOTE 13 -SHAREHOLDERS' EQUITY
A. Composition of share capital:
Registered Issued and paid-in
Quantity of shares
31 December
2007 2006 2007 2006
Ordinary no par value shares 5,000,000,000 450,000,000 1,259,166,770 179,197,588
_____________ _____________ _____________ _____________
_____________ _____________ _____________ _____________
B. The ordinary shares grant their owners voting rights and the right to
participate in the shareholders meetings, the right to share in income and the
right to participate in the surplus of the assets upon liquidation.
C. The shares of the Company are registered by name and are listed for
trading on the Tel Aviv Stock Exchange and the London Stock Exchange - Main
Market.
D. As part of the compromise agreement signed with the banks in 2005, in
connection with the Company's creditors arrangement, the Company allotted to the
banks 8,131,053 option warrants. The exercise price of each option was set at
$0.0178 per share. The option warrants are supposed to be exercisable until 12
May 2009.
E. As part of the agreement signed between the Company and the FITE Fund,
the Company allotted the FITE Fund 44,771,404 option warrants which proximate to
the date on which the creditors arrangement went into effect constituted 19.9%
of the issued share capital of the Company. The exercise price of each option
was set at $0.041 per share. The option warrants are supposed to be exercisable
from January 2007 until July 2009.
F. Further to the going into effect of the creditors arrangement, the
existing option holders waived all of their rights under these options.
G. Increasing the registered capital of the Company
On 30 October, 2007, the general shareholders meeting of the Company
authorized the Company to increase the registered share capital of the Company
to 5,000,000,000 ordinary shares, no par value.
The increase in the registered share capital will be effected on 2
November 2007.
See also Notes 1C, 1D and 15.
NOTE 14 -TAXES ON INCOME INCLUDED IN THE PROFIT AND LOSS ACCOUNTS
A. Taxation of companies in Israel
General
The Company is taxed in Israel under the provisions of the Israel Tax
Ordinance (New Version) - 1961 (hereinafter - the "Ordinance").
Income Tax Law (Inflationary Adjustments) - 1985
Until 31 December 2007, the Company was subject to the Income Tax Law
(Inflationary Adjustments) - 1985, whereby the results of operations for tax
purposes are measured on a "real" basis" by adjusting the income for changes in
the ICPI. Commencing on 1 January 2008, this law has been cancelled and
transition provisions were set out. Accordingly, the results of operations will
be measured for tax purposes on a nominal basis.
Tax rates applicable to the income of the Company
On July 25, the Israeli parliament passed an amendment to the Income Tax
Ordinance (No. 147) - 2005 (hereinafter - the "Amendment") which stipulates,
among other things, that the corporate tax rate will be gradually reduced to the
following tax rates: 2006 - 31%; 2007 - 29%; 2008 - 27%; 2009 - 26%; 2010 and
thereafter - 25%.
B. Benefits pursuant to the Law for the Encouragement of Capital Investment
In the past, as part of its discontinued operations (see Note 21 below),
the Company had expansion plans for its plant, which were approved as an
"approved enterprise" pursuant to the Law for the Encouragement of Capital
Investment - 1959 (hereinafter - the "Law"). These plans granted the Company
tax benefits which were contingent upon compliance with the conditions set out
in the law, in the regulations enacted thereunder, and in the letter of
approval. According to the law, in the event that the Company did not meet the
terms set out in the law and in the letters of approval, it would have to refund
the investment grants received, plus interest and linkage differentials and, in
addition, the tax benefits from which the Company benefited under the law would
be cancelled. Company Management believes that it is not exposed to the risk of
a demand being made to repay the amounts received in the past.
As at 31 December 2007, the Company has no valid plans for approved
enterprises.
C. Benefits pursuant to the Law for the Encouragement of Industry
In the past, the Company was an "Industrial Company" pursuant to the Law
for the Encouragement of Industry (Taxes) - 1969.
Pursuant to this law, as part of its discontinued operations (see Note
21 below), the Company was entitled in the past to accelerated depreciation, as
set out in the regulations enacted under the Income Tax Law (Inflationary
Adjustments).
D. Taxes on income included in the profit and loss accounts - Consolidated
and Company:
Convenience
Translation
Consolidated Company Consolidated
Year ended 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
In respect of deferred taxes, net 3,541 - 459
_______ _______ _______
Taxes on income 3,541 - 459
_______ _______ _______
_______ _______ _______
NOTE 14 -TAXES ON INCOME INCLUDED IN THE PROFIT AND LOSS ACCOUNTS (cont.)
E. Tax reconciliations
The difference between the amount of the tax computed on the pre-tax
income at the regular tax rate and the amount of tax reported in the statement
of operates is explained as follows:
Convenience
Translation
Consolidated Company Consolidated
Year ended 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
Pre-tax income as reported in the profit and loss accounts 43,244 43,244 5,609
(including the income from discontinued operations and
creditors arrangement)
______ ______ ______
______ ______ ______
Ordinary tax rate 29% 29% 29%
______ ______ ______
______ ______ ______
Taxes on income computed at the ordinary tax rate 12,541 12,541 1,627
Increase (decrease) in tax burden:
Non-deductible expenses 12 12 1
Amounts in respect of which deferred taxes, net, were not (9,012) (12,553) (1,169)
generated and utilization of tax losses of prior years
______ ______ ______
Taxes on income as reported in the profit and loss accounts 3,541 - 459
______ ______ ______
______ ______ ______
F. Deferred taxes - consolidated as at 31 December 2007
In respect of In respect of tax Total
investment real loss carryforwards
estate
NIS'000 NIS'000 NIS'000
(3,133) 98 (3,035)
______ ______ ______
______ ______ ______
�' 000 �' 000 �' 000
(407) 13 (394)
______ ______ ______
______ ______ ______
Deferred taxes were calculated at a rate of 20%.
G. Assessments and losses for tax purposes
1. Final tax assessments were received by the Company up to and including
the 2003 tax year. Other subsidiaries have not been assessed since inception.
2. The Company has tax loss carryforwards as at 31 December 2007 in an
amount of NIS 70 million.
Due to the uncertainty regarding the future existence of taxable income,
no deferred tax assets were recorded on the books of the Company.
NOTE 14 -TAXES ON INCOME INCLUDED IN THE PROFIT AND LOSS ACCOUNTS (cont.)
H. On 10 February 2008, the Tax Authority issued a notification (hereinafter
the - "Notification") of the setting up of a joint forum together with
professional organizations, the goal of which is to work out various standard
related issues that arose as part of the implementation of IFRS in Israel and
the practical application thereof in tax returns. It was also decided by the
Tax Authority that taxable income will continue to be computed pursuant to the
guidelines that were in effect in Israel prior to the adoption of IFRS (except
for Accounting Standard No. 29, Adoption of IFRS). The calculation of taxable
income, as above, will be carried out during an interim period until it is
decided how to apply IFRS to Israeli tax laws.
I. Taxation in Croatia
1. Corporate tax
Regular income is taxed in Croatia (hereinafter - "Croatian Corporate
Tax") at a rate of 20%. Therefore, income from construction, sale or rental of
real estate in Croatia is liable for Croatian Corporate Tax at this rate. Tax
losses may be carried forward over a five-year period but they cannot be carried
back to prior periods. There is no limit to the amount of the loss that can be
carried forward.
2. Recognition of financing expenses for tax purposes
Financing expenses are tax deductible in Croatia. However, a
distinction is made between loans from third parties and loans granted or
guaranteed by related parties.
According to the thin financing rules in Croatia, the company may not
take into account for tax purposes interest charges on loans received from
foreign shareholders holding at least 25% of the share capital or voting rights
in the Company, if the amount of the loan is four times the share of the
shareholder in the capital of the borrower at any given point in time during the
tax period. This law applied to loans granted by a third party but guaranteed
by a shareholder.
3. VAT and purchase tax
The sale of apartments and commercial properties is subject to VAT of
22%. However, the part of the purchase price attributed to land is exempt from
VAT, but is subject to purchase tax of 5%. According to Croatian law, the
purchaser is required to pay the purchase tax and the VAT.
This law is also applicable to the sale of buildings for business
purposes.
J. Taxation in Nevada, USA
Corporate tax in the U.S. amounts to 35% (progressive).
To the best of the knowledge of the Company, as at the date of the
signing of the financial statements, Nevada has no state tax.
NOTE 15 -COMMITMENTS, LIENS AND CONTINGENT LIABILITIES
A. Investment agreement with Trafalgar
In January 2008, the Company entered into a Committed Equity Facility
agreement with an international investment fund, Trafalgar Capital Specialized
Investment Fund (hereinafter - "Trafalgar") (hereinafter - the "Investment
Agreement" or "CEF"), whereby Trafalgar undertook to invest in the capital of
the Company an amount of NIS 46,685 thousand over a three-year period, in return
for an allotment of ordinary shares of the Company. The major principles of the
agreement were as follows:
1. The investment in the capital of the Company by Trafalgar will be done in
stages, as required by the Company from time to time.
2. Against every amount invested by Trafalgar, the Company will allot to
Trafalgar ordinary shares of the Company at a price equal to 94% of the average
stock market price of the shares of the Company during the five days following
the demand notification of the Company that it requires funds pursuant to the
investment agreement.
3. Unless agreed upon otherwise with Trafalgar, every amount invested shall
be limited in such a way that the aggregate investment amount during a calendar
week does not exceed the lower of the following: (1) an amount that grants
Trafalgar an allotment of shares equal to 15% of the market trading volume in
the Company's shares during the five consecutive day period preceding the
investment amount demanded by the Company; or (2) an amount that grants
Trafalgar an allotment of the quantity of shares equal to 2.99% of the total
number of shares issued as of that date.
4. In return for its commitment to invest in the Company pursuant to the
CEF, Trafalgar is entitled to an allotment of shares, without consideration,
with a value of up to $1,500 thousand, to be allotted to Trafalgar over a
ten-month period, on the basis of the market price of the share on the date the
agreement was signed. 45% - 55% of the payment will be paid on the basis of the
market price of the share on the date of the signing of the agreement, and the
balance will be paid on the basis of the average market price of the share
during the week preceding the date of the allotment. Notwithstanding the above,
in the event that the approval of the publication of the shelf-prospectus is not
forthcoming from the Israel Securities Authority, all of the shares will not be
allotted during the aforementioned 10 month period, and 32.5% of the payment
will be paid through allotments to be made after receipt of approval of the
aforementioned authority.
5. The Company undertook to obtain all of the approvals required by law for
the allotment, including to have the allotted shares listed for trade.
6. Trafalgar will be entitled to receive from the Company a commission of 4%
of all investment amounts demanded by the Company, which commission shall be
deducted from any investment amount transferred to the Company pursuant to the
agreement.
7. A condition for the performance of any investment by Trafalgar is that
the Company issue a shelf-prospectus whereby Trafalgar is entitled to sell the
shares it is allotted under the agreement during the course of trading on the
stock market. The Company intends on taking the steps to issue a
shelf-prospectus on the basis of its 31 December 2007 financial statements.
Trafalgar entered into an agreement with Emvelco Corporation, one of the
controlling shareholders of the Company, whereby in the event that the Company
is unable to issue a shelf-prospectus, Emvelco will sell Trafalgar shares from
the available for trading shares held by Emvelco, of a quantity that is
identical to the quantity of the shares to be allotted to Trafalgar, against the
shares to be allotted to Trafalgar which will be transferred to the ownership of
Emvelco.
NOTE 15 -COMMITMENTS, LIENS AND CONTINGENT LIABILITIES
A. Investment agreement with Trafalgar (cont.)
8. Notwithstanding the above, it was agreed between the parties that, in the
event that the shelf-prospectus is issued by the Company no later than 30 June
2008, the discount rate to which Trafalgar will be entitled from the price of
the share (as mentioned in 2 above) will be 5% instead of 6% and the commission
rate due Trafalgar as per item 6 above will be 3% (instead of 4%).
9. Trafalgar undertakes not to sell the shares of the Company short.
Concurrent with the signing of the investment agreement, as above, the
Company entered into a loan agreement with Trafalgar whereby Trafalgar would
lend the Company an amount of $500 thousand, bearing interest at an annual rate
of 8.5% to be repaid in installments in the form of an allotment of shares in
accordance with the mechanism set out in the investment agreement described
above, until 30 April 2009. Alternatively, the amount of the loan will be
repaid in equal installments commencing in July 2008 through April 2009.
Trafalgar shall be entitled to a commission of 10% of each amount of the loan
that is repaid in cash. The Company has the right to repay part of the loan in
cash and the rest of the loan in shares, in accordance with the CEF
Subsequent to the balance sheet date, the Company received the
aforementioned loan.
10. Further to the signing of the investment agreement with Trafalgar, the
board of directors of the Company decided to allot Trafalgar 69,375,000 ordinary
shares of the Company, no par value each (the "offered shares") which, following
the allotment, will constitute 5.22% of the capital rights and voting rights in
the Company, both immediately following the allotment and fully diluted.
The offered shares will be allotted piecemeal, at the following dates:
18,920,454 shares will be allotted immediately following receipt of
approval of the stock exchange to the listing for trade of the offered shares.
25,227,273 of the offered shares will be allotted immediately following
receipt of all of the necessary approvals in order for the offered shares to be
swapped on 30 April 2008 against a quantity of shares equal to those held by
Emvelco Corp. at that same date.
The balance of the offered shares, a quantity of up to 25,277,273
shares, will be allotted immediately after receipt of the approval of the Israel
Securities Authority for the issuance of a shelf prospectus. Notwithstanding,
if the approval of the shelf prospectus will not be granted by the Israel
Securities Authority by the beginning of May 2008, only 12,613,636 shares will
be allotted to Trafalgar at that same date.
NOTE 15 -COMMITMENTS, LIENS AND CONTINGENT LIABILITIES (cont.)
B. Agreement for the management of the project in Las Vegas
In January 2008, the subsidiary, Verge Living Corporation, entered into
an agreement with TWG Consultants LLC (a third party, unrelated to the Company),
a project management company operating in Las Vegas (hereinafter - "TWG"),
whereby TWG will provide management, consultancy, representation and control
services in connection with the Verge project in Las Vegas (hereinafter - the "
Project"), during the duration of the project, including handling the various
aspects involving the general contractor, professional consultants, and the
authorities, will cost the project and will supervise the performance of its
budget, monitor the project timetables, supervise the carrying out of various
tasks involving the project and assist in the bookkeeping of the project.
In return for the services to be provided by TWG under the agreement, it
will be entitled to the following amounts:
1. Reimbursement of expenses, including the salary of an engineer and/or
supervisor as required and an administrative employee in a part-time position
(at a total cost estimated at $12,500 a month) and reimbursement of office
overhead expenses up to an amount of $20,000 a month.
2. A monthly payment of $24,750.
3. An additional bonus of the higher of $1,000,000 or 5% of the EBITDA. The
bonus will be paid on the basis of the progress of the work, commencing on the
date that the accompanying loan is granted to the project, with the final amount
to be paid upon receipt of the temporary approvals for occupancy of 85% of the
units in the project.
The term of the agreement was set at the earlier of 5 years or 6 months
prior to the completion of the project. Notwithstanding the above, each of the
parties is entitled to terminate the agreement for any reason whatsoever, upon
advance notice of 30 days.
C. Agents commissions
The subsidiary in the U.S. entered into agreements with real estate
agents for the payment of commissions in respect of the sale of apartments in
the Las Vegas project. According to the agreements, the Company will pay
commissions of between 3.8% and 5.8% of each apartment sold. 50% of the amount
of the commission will be paid to the real estate agent upon the signing of the
agreement, and the other 50% will be paid to the agent when ownership of the
apartment is transferred to the purchaser. As at 31 December 2007, the
subsidiary has an off-balance sheet commitment in an amount of $2.4 million in
respect of agreements for the sale of apartment, signed as at that date.
D. Legal claim settlement fees
Verge, a subsidiary of the Company, is in adversary legal Proceedings with two
different parties:
1. In December 2007, American LLC (hereinafter - "American"), which served
as the company listing agents, filed a complaint in Bankruptcy Court (As
American entered in 2007 into Chapter 11 in NV Bankruptcy Court) and an Order to
Show Cause to Require Turnover of Funds. In January 2008, Verge filed an answer
denying wrong doing as well as counterclaim. As of December 31, 2007, American
balances include in the balances of Verge of approximately $49 thousand as
receivable (for un-used portion of advances) and approximately $56,000 as credit
for fees and expenses. The Court set the trial for early January 2009, and also
set a settlement conference for July 31, 2008.
2. On November 21, 2007 LM Construction filed a demand for arbitration
proceeding against Verge in connection with amounts due for general contracting
services provided by them during the construction of Verge's Sales Center. Verge
agreed to enter into arbitration, deny any wrong doing and counterclaim damages.
Amount in dispute is approximately $68 thousand and is included in accounts
payable and credit balances in the consolidated balance sheet.
NOTE 16 -FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
A. Linkage balance sheets:
1. Composition in the Consolidated:
The following table presents the linkage balance sheet of assets and
liabilities as at 31 December 2007:
Linked to the Linked to the Linked to the Unlinked Non-monetary Total
dollar Kuna pound sterling assets
NIS'000 NIS'000 NIS'000 NIS'000 NIS'000 NIS'000
Assets
Cash and cash equivalents 211 36 39 963 - 1,249
Accounts receivable and - 257 - 15 570 842
debit balances
Restricted cash 17,306 - - - - 17,306
Buildings under construction - - - - 43,819 43,819
Fixed assets - - - - 47 47
Other assets - - - - 78 78
Investment real estate - - - - 69,121 69,121
_______ _______ _______ _______ _______ _______
Total assets 17,517 293 39 978 113,635 132,462
----------- ----------- ----------- ----------- ----------- -----------
Liabilities
Loans from interested 2,972 4,482 - - - 7,454
parties
Land sellers - 42,570 - - - 42,570
Suppliers and service 434 1,883 45 157 - 2,519
providers
Accounts payable and credit 506 4 - 648 - 1,158
balances
Advances from customers 17,306 - - - - 17,306
Deferred taxes - - - - 3,035 3,035
_______ _______ _______ _______ _______ _______
Total liabilities 21,218 48,939 45 805 3,035 74,042
----------- ----------- ----------- ----------- ----------- -----------
_______ _______ _______ _______ _______ _______
Excess of assets over (3,701) (48,646) (6) 173 110,600 58,420
liabilities (liabilities
over assets)
_______ _______ _______ _______ _______ _______
_______ _______ _______ _______ _______ _______
A. NOTE 16 -FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (cont.)
A. Linkage balance sheets (cont.):
1. Composition in the Consolidated (cont.):
The following table presents the linkage balance sheet of assets and
liabilities as at 31 December 2007:
Convenience Translation
Linked to the Linked to the Linked to the Unlinked Non-monetary Total
dollar Kuna pound sterling assets
�' 000 �' 000 �' 000 �' 000 �' 000 �' 000
Assets
Cash and cash equivalents 27 5 5 125 - 162
Accounts receivable and - 33 - 2 74 109
debit balances
Restricted cash 2,244 - - - - 2,244
Buildings under construction - - - - 5,684 5,684
Fixed assets - - - - 6 6
Other assets - - - - 10 10
Investment real estate - - - - 8,965 8,965
_______ _______ _______ _______ _______ _______
Total assets 2,271 38 5 127 14,739 17,180
----------- ----------- ----------- ----------- ----------- -----------
Liabilities
Loans from interested 386 581 - - - 967
parties
Land sellers - 5,521 - - - 5,521
Suppliers and service 56 244 6 21 - 327
providers
Accounts payable and credit 66 1 - 83 - 150
balances
Advances from customers 2,244 - - - - 2,244
Deferred taxes - - - - 394 394
_______ _______ _______ _______ _______ _______
Total liabilities 2,752 6,347 6 104 394 9,603
----------- ----------- ----------- ----------- ----------- -----------
_______ _______ _______ _______ _______ _______
Excess of assets over (481) (6,309) (1) 23 14,345 7,577
liabilities (liabilities
over assets)
_______ _______ _______ _______ _______ _______
_______ _______ _______ _______ _______ _______
NOTE 16 -FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (cont.)
A. Linkage balance sheets (cont.):
2. Composition in the Company:
The following table presents the linkage balance sheet of assets and
liabilities as at 31 December 2007:
Linked to the Unlinked Non-monetary Total
pound sterling assets
NIS'000 NIS'000 NIS'000 NIS'000
Assets
Cash and cash equivalents 39 963 - 1,002
Accounts receivable and debit balances - 15 138 153
Investments in investee companies - - 58,115 58,115
______ ______ ______ ______
Total assets 39 978 58,253 59,270
--------- --------- --------- ---------
Liabilities
Trade accounts payable 45 157 - 202
Accounts payable and credit balances - 648 - 648
--------- --------- --------- ---------
______ ______ ______ ______
Total liabilities 45 805 - 850
______ ______ ______ ______
______ ______ ______ ______
Excess of assets over liabilities (6) 173 58,253 58,420
(liabilities over assets)
______ ______ ______ ______
______ ______ ______ ______
The following table presents the linkage balance sheet of assets and
liabilities as at 31 December 2006:
Linked to the Linked to the Unlinked Non-monetary Total
dollar euro assets
NIS'000 NIS'000 NIS'000 NIS'000 NIS'000
Assets
Total assets attributed to 94 - 577 37,039 37,710
discontinued operations
--------- --------- --------- --------- ---------
Liabilities
Total liabilities attributed to 40,061 508 39,516 146 80,231
discontinued operations
--------- --------- --------- --------- ---------
______ ______ ______ ______ ______
Excess of assets over liabilities (39,967) (508) (38,939) 36,893 (42,521)
(liabilities over assets)
______ ______ ______ ______ ______
______ ______ ______ ______ ______
B. Credit risks
The mortgage credit markets in the U.S. have been experiencing
difficulties as a result of the fact that many debtors are finding it difficult
to obtain financing (hereinafter - the "Sub-prime crisis"). The sub-prime
crisis resulted from a number of factors, as follows: an increase in the volume
of repossessions of houses and apartments, an in crease in the volume of
bankruptcies of mortgage companies, a significant decrease in the available
resources for purposes of financing through mortgages, and in the prices of
apartments.
NOTE 16 -FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (cont.)
B. Credit risks (cont.)
The financing of the project of the Verge subsidiary is contingent upon
the future impact of the sub-prime crisis on the financial institutions
operating in the U.S. The sub-prime crisis may have an impact on the ability of
the Verge subsidiary to procure the financing required to complete its
construction project and on the terms of the financing, if procured, and it may
also impact in the ability of the customers of the Company to procure mortgages,
if necessary, and on the terms under which the mortgages will be obtained.
C. As at 31 December 2007, the balances of cash and cash equivalents and the
short-term deposits of the Group are mostly on deposit with banking institutions
in Israel and in the United States. Accordingly, in the opinion of Company
Management, the credit risk in respect of these balances is remote.
NOTE 17 - ADDITIONAL INFORMATION REGARDING PROFIT AND LOSS ACCOUNTS ITEMS
A. Selling and marketing expenses
Convenience
Translation
Consolidated Company Consolidated
Year ended 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
Miscellaneous 106 - 14
______ ______ ______
______ ______ ______
B. General and administrative expenses
Convenience
Translation
Consolidated Company Consolidated
Year ended 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
Salaries and related expenses 167 7 22
Directors fees 41 41 5
Professional fees 1,302 899 169
Management fees to an interested party 160 160 21
Other management fees 101 101 13
Others 404 312 52
______ ______ ______
2,175 1,520 282
______ ______ ______
______ ______ ______
C. Financing income (expenses), net
Convenience
Translation
Consolidated Company Consolidated
Year ended 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
Interest income in respect of a loan to a subsidiary - 135 -
Exchange rate differentials in respect of a loan to a (243) (243) (32)
subsidiary
Valuation of monetary items and other financing income (506) 39 (65)
(expenses), net
______ ______ ______
(749) (69) (97)
______ ______ ______
______ ______ ______
NOTE 18 - INTERESTED PARTIES
A. Balances of interested parties
Consolidated Company Convenience
Translation
31 December 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
Loan to subsidiary - 7,058 -
______ ______ ______
______ ______ ______
The highest debit balance during the year 376 376 49
______ ______ ______
______ ______ ______
Loans received from interested parties (*) 7,454 - 967
______ ______ ______
______ ______ ______
(*) The balance of loans from interested parties is comprised of the following
two components:
1. A loan in an amount of $773 thousand (NIS 2,972 thousand) granted by
Emvelco Corporation, the controlling shareholder in the Company, to Verge, and
partially converted into shares of Verge.
The loan is dollar-denominated and bears interest of 12% per annum. The
loan is scheduled to be repaid by the end of 2008.
2. A loan in an amount of Kuna 5,788 thousand (NIS 4,482 thousand) does not
bear interest and is Kuna - denominated. The repayment date has not yet been
determined.
B. Transactions with interest parties
Consolidated Company Convenience
Translation
Year ended 31 December
2007 2007 2007
NIS'000 NIS'000 �' 000
Management fees to interested parties 160 160 21
______ ______ ______
______ ______ ______
Interest income in respect of a loan to a subsidiary - 135 18
______ ______ ______
______ ______ ______
Exchange rate differentials in respect of a loan to a 243 243 32
subsidiary
______ ______ ______
______ ______ ______
C. Benefits to interested parties
Number of Convenience
Translation
people in Year ended 31 December
2007 2007 2007
NIS'000 �' 000
Interested parties who render services to the Company (*)
Vice President and director, ;Mr. Yosef Atia 1 80 10
CEO and director, Mr. Shalom Atia 1 80 10
Fees of directors who are not employed by the Company: 3 41 6
Mr. Meir Matana 13 2
Mr. Iftach Mazar 12 2
Mr. Ramzi Gabay 16 2
(*) Including through management companies owned by them.
See Note 10 regarding the management fee agreements with Mr. Yosef Atia and Mr.
Shalom Atia and the private placements to the related parties.
There were no granting of share options or long term incentive schemes to the
directors of the Company.
NOTE 18 - INTERESTED PARTIES - COMPANY AND CONSOLIDATED (cont.)
D. Replacement of the Company's By-Laws, granting indemnification and
exemption of officer and purchase of insurance for offices
1. On 30 October 2007, the general shareholders meeting of the Company
approved the replacement of the by-laws of the Company with a new set of by-laws
that define, among other things, the volume of the permitted indemnification of
directors and officers. The proposed by-laws permit the Company, among other
things, to insure the liability of directors and officers and grant them
indemnification of the maximum amount allowed by law, and permit the Company to
exempt the directors and officers from their fiduciary responsibilities, all
subject to the existing restrictions by law.
2. After receipt of approval from the audit committee and the board of
directors of the Company, the general shareholders meeting of the Company
approved the granting of a writ of indemnification for all of the officers
currently serving at the Company and all of the officers that will serve the
Company from time to time in the future.
3. After receipt of approval from the audit committee and the board of
directors of the Company, the general shareholders meeting of the Company
approved the purchase of an insurance policy for the liability of directors and
officers of the Company, for all of the officers that will serve in the Company,
including officers who are not employees of the Company, including officers who
may be considered to be controlling shareholders of the Company, within the
limits of liability of up to $3 million per event and $6 million per period, at
an annual premium of up to $15 thousand and a deductible that will not exceed
$15 thousand per event.
The policy will not include known suits and/or circumstances which may
result in suits deriving from or related to the non-compliance of the Company
with the preservation rules or suspension of trading on the stock market.
4. After receipt of approval from the audit committee and the board of
directors of the Company, the general shareholders meeting of the Company
approved the granting of an a priori exemption from damage liability due to a
breach of the fiduciary responsibility on the part of directors or officers
serving with the Company or who will serve the Company in the future from time
to time, from damage liability to be caused and/or that was caused by them to
the Company, as a result of a breach in their fiduciary relationship with the
Company, except for a breach of the fiduciary responsibility in distribution (as
defined in the Companies Law), on condition that their actions were taken by
virtue of their being directors and/or officers at the Company. The said
exemption is in effect commencing on the date of their appointment as directors
and/or officers at the Company.
E. Commitments of controlling shareholders in respect of applicable tax
payments, should they apply, in subsidiaries.
1. Emvelco sent a letter to the Company in which it undertook to indemnify
the Company in respect of any tax to be paid by Verge, deriving from the
difference between (a) Verge's taxable income from the Las Vegas project, up to
an amount of $21.7 million and (b) the book value of the project in Las Vegas
for tax purposes on the books of Verge, at the date of the closing of the
transfer of the shares of Verge to the Company. Accordingly, the amount of the
indemnification is expected to be the amount of the tax in respect of the
aforementioned difference, up to a maximum difference of $11 million.
2. A/P Bookkeeper Holdings sent a letter to the Company in which it
undertook to indemnify the Company in respect of any tax to be paid by Sitnica,
deriving from the difference between (a) Verge's taxable income from the Samobor
project, up to an amount of $5.14 million and (b) the book value of the project
in Samobor for tax purposes on the books of Sitnica, at the date of the closing
of the transfer of the shares of Sitnica to the Company. Accordingly, the
amount of the indemnification is expected to be the amount of the tax in respect
of the aforementioned difference, up to a maximum difference of $0.9 million.
3. The Atia Projekt undertook to bear any additional purchase tax (if any is
applicable) that Sitnica would have to pay in respect of the transfer of the
contractual rights in investment real estate in Croatia, from the Atia Projekt
to Sitnica.
F. See also Note 15.
NOTE 19 - GEOGRAPHIC SEGMENTS - CONSOLIDATED
1. Profit and loss data
Year ended 31 December 2007
Israel USA Croatia Total
Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Change in fair value of investment real estate - - 18,294 18,294
______ ______ ______ ______
______ ______ ______ ______
Segmental results (1,520) (283) 17,816 16,013
Net financing expenses (69) (680) - (749)
Taxes on income - - (3,541) (3,541)
______ ______ ______ ______
Income (loss) for the year from continuing (1,589) (963) 14,275 11,723
operations
Income from discontinued operations including 31,521 - - 31,521
income from creditors arrangement
______ ______ ______ ______
Net income (loss) for the year 29,932 (963) 14,275 43,244
______ ______ ______ ______
______ ______ ______ ______
Convenience translation
Year ended 31 December 2007
Israel USA Croatia Total
Consolidated
�' 000 �' 000 �' 000 �' 000
Change in fair value of investment real estate - - 2,373 2,373
______ ______ ______ ______
______ ______ ______ ______
Segmental results (197) (37) 2,311 2,077
Net financing expenses (10) (87) - (97)
Taxes on income - - (459) (459)
______ ______ ______ ______
Income (loss) for the year from continuing (207) (124) 1,852 1,521
operations
Income from discontinued operations including 4,088 - - 4,088
income from creditors arrangement
______ ______ ______ ______
Net income (loss) for the year 3,881 (124) 1,852 5,609
______ ______ ______ ______
______ ______ ______ ______
NOTE 19 - GEOGRAPHIC SEGMENTS - CONSOLIDATED (cont.)
2. Other data
31 December 2007
Israel USA Croatia Total
Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Segmental assets 1,155 61,893 69,414 132,462
______ ______ ______ ______
______ ______ ______ ______
Segmental liabilities 850 22,668 50,524 74,042
______ ______ ______ ______
______ ______ ______ ______
Convenience translation
31 December 2007
Israel USA Croatia Total
Consolidated
�' 000 �' 000 �' 000 �' 000
Segmental assets 150 8,027 9,003 17,180
______ ______ ______ ______
______ ______ ______ ______
Segmental liabilities 110 2,940 6,553 9,603
______ ______ ______ ______
______ ______ ______ ______
Year ended 31 December 2007
Israel USA Croatia Total
Consolidated
NIS' 000 NIS' 000 NIS' 000 NIS' 000
Purchase cost of long-term general assets - - 50,712 50,712
______ ______ ______ ______
______ ______ ______ ______
Depreciation and amortization - 10 - 10
______ ______ ______ ______
______ ______ ______ ______
Convenience translation
Year ended 31 December 2007
Israel USA Croatia Total
Consolidated
�' 000 �' 000 �' 000 �' 000
Purchase cost of long-term general assets - - 6,577 6,577
______ ______ ______ ______
______ ______ ______ ______
Depreciation and amortization - 2 - 2
______ ______ ______ ______
______ ______ ______ ______
NOTE 20 -PRO FORMA DATA
A. General
As mentioned in Note 1A of the financial statements, in the fourth
quarter of 2007, an allotment of Company shares was made against an investment
in the shares of the subsidiaries in Croatia and the United States.
The pro forma data reflect the results of operations of the Company
under the assumption that the aforementioned share allotment was effected on the
date of incorporation of the subsidiaries. The pro forma data were prepared on
the basis of the data from the audited financial statements of the subsidiaries
in Croatia and the U.S. on the basis of the assumptions detailed in item B below
and in accordance with the reporting principles and accounting policies set out
in Note 2.
NOTE 20 -PRO FORMA DATA (cont.)
B. The assumptions used for purposes of presenting the pro forma
consolidated profit and loss accounts:
1. The pro forma consolidated profit and loss accounts were prepared to
reflect the situation whereby, in all reporting periods, the Company is in its
current position, i.e., after the going into effect of the creditors arrangement
which was approved by the court on 10 June 2007. Accordingly, the former
activities of the Company were presented in the pro forma profit and loss
accounts for 2007 and 2006 as discontinued operations, in accordance with the
principles of Accounting Standard No. 8 of the Israel Accounting Standards
Board.
2. The allotment of shares to AP Holdings and Emvelco, in return for 100%
of the share capital of Sitnica and Verge Living Corporation held by them,
respectively, occurred on the date that those companies were incorporated by
their former owners. In other words, in return for the shares of Verge Living
Corporation, the allotment took place on 13 February 2006 and in return for the
shares of Sitnica, the allotment took place on 23 May 2007. Accordingly, the
operations of the subsidiaries are reflected in the pro forma statements of
income, commencing from the date of inception of the operations of those
companies. In other words, the results of operations of Verge Living
Corporation are reflected commencing on 13 February 2006 and thereafter, and the
results of Sitnica commencing on 1 March 2007 and thereafter.
3. The Company paid management fees of $10,000 a month to the CEO of the
Company, Mr. Yosef Atia, commencing in February 2006 and to the Deputy CEO of
the Company, Mr. Shalom Atia, commencing in March 2007.
4. The increase in value of the land in Samobor, Croatia, in accordance
with the valuation conducted by the external appraiser, occurred until 11 July
2007.
C. Consolidated pro forma profit and loss accounts
Convenience translation
into � (Note 2)
Year ended 31 December
2007 2006 2007 2006
NIS' 000 NIS' 000 �' 000 �' 000
Change in fair value of investment real estate 18,294 - 2,373 -
Rental revenue - 13 - 2
______ ______ ______ ______
Total revenues 18,294 13 2,373 2
Selling and marketing expenses (658) - (86) -
General and administrative expenses (4,318) (782) (560) (102)
______ ______ ______ ______
Operating income (loss) 13,318 (769) 1,727 (100)
Financing expenses (3,957) (1,271) (513) (165)
______ ______ ______ ______
Income (loss) before tax 9,361 (2,040) 1,214 (265)
Taxes on income (3,484) - (452) -
______ ______ ______ ______
Income (loss) from continuing operations 5,877 (2,040) 762 (265)
Income (loss) from discontinued operations including income 31,521 (18,383) 4,088 (2,384)
from creditors arrangement
______ ______ ______ ______
Net income (loss) 37,398 (20,423) 4,850 (2,649)
______ ______ ______ ______
______ ______ ______ ______
NOTE 21 -DISCONTINUED OPERATIONS AND INCOME FROM CREDITORS ARRANGEMENT
Until 2007, the Company was engaged in the manufacture, importing, and marketing
of plastic products. As a result of the difficulties experienced by the Company
and the stay of proceedings and the creditors arrangement, which were approved
by the court, the Company ceased its activity in the area of plastics. For
details, see Note 1A and 1B.
Commencing in November 2007, the Company is engaged in the field of residential
real estate in Las Vegas, Nevada, U.S.A, and it holds the contractual rights to
investment real estate in Croatia.
According to Accounting Standard No. 8 of the Israel Accounting Standards Board,
the previous activities of the Company and the results of the creditors
arrangement were presented as discontinued operations.
The following financial information pertains to the discontinued operations of
the Company:
A. Condensed Statement of Net Assets in Liquidation
31 December
2006
NIS' 000
A S S E T S
Current Assets
Cash and cash equivalents 45
Trade accounts receivables 63
Accounts receivable and debit balances 658
Investment in investee company 14,644
Fixed assets 22,300
_______
Total Assets 37,710
_______
_______
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Credit from banking institutions 23,519
Suppliers and service providers 7,752
Accounts payable and credit balances 18,516
Loans from investment funds 14,644
Liabilities, the repayment of which is conditional 12,905
Loans from interested party 1,095
Liabilities attributed to the discontinued operation 1,800
_______
Total Liabilities 80,231
----------
Shareholders' Deficit (42,521)
----------
_______
37,710
_______
_______
NOTE 21 -DISCONTINUED OPERATIONS AND INCOME FROM CREDITORS ARRANGEMENT (cont.)
B. Condensed profit and loss accounts
Year ended 31 December Convenience
translation Year
ended 31 December
2007 2006 2005 2007
NIS' 000 NIS' 000 NIS' 000 � 000
Sales 5,022 109,343 108,385 651
Cost of sales 6,259 107,192 102,804 811
______ ______ ______ ______
Gross profit (loss) (1,237) 2,151 5,581 (160)
--------- --------- --------- ---------
Selling expenses 32 3,075 5,214 4
General and administrative expenses 554 9,322 10,258 72
______ ______ ______ ______
586 12,397 15,472 76
--------- --------- --------- ---------
______ ______ ______ ______
Operating loss (1,823) (10,246) (9,891) (236)
Financial expenses, net (891) (483) (5,164) (116)
______ ______ ______ ______
Loss after finance (2,714) (10,729) (15,055) (352)
Gain on erasure of liabilities to banking - - 1,398 -
institutions
Other income, net 198 277 598 26
______ ______ ______ ______
Loss before taxes on income (2,516) (10,452) (13,059) (326)
Taxes on income - (913) (1,785) -
______ ______ ______ ______
Loss after taxes on income (2,516) (11,365) (14,844) (326)
Group's share in profit (loss) of investee - 54 (149) -
company
Net loss on presentation of assets on the - (7,072) - -
basis of realizable values
______ ______ ______ ______
Loss from discontinued operations before (2,516) (18,383) (14,993) (326)
income from creditors arrangement
Income from creditors arrangement 34,037 - - 4,414
______ ______ ______ ______
Net income (loss) for the year 31,521 (18,383) (14,993) 4,088
______ ______ ______ ______
______ ______ ______ ______
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In July 2006, the Israel Accounting Standards Board issued Accounting Standard
No. 29, Adoption of International Financial Reporting Standards (IFRS)
(hereinafter - the "Standard") which stipulates that an entity that is subject
to the Securities Law- 1968 and is required to report in accordance with the
regulations of the law, shall present its financial statements in accordance
with International Financial Reporting Standards (hereinafter - "IFRS
Standards"). This stipulation applies to periods commencing on or after 1
January 2008 (i.e., the interim financial statements for the first quarter of
2008), with the transition date being 1 January 2007 (hereinafter - the "
transition date"). The first financial statements of an entity in accordance
with IFRS Standards shall be considered the annual financial statements for
2008.
IFRS are standards and clarification that were adopted by the International
Accounting Standards Committee and they include:
A. International Financial Reporting Standards (IFRS)
B. International Auditing Standards (IAS)
C. Clarifications made by the International Financial Reporting
Interpretations Committee (IFRIC) or by the committee that preceded the IFRIC
regarding interpretations of international accounting standards (SIC).
An entity that presented its financial statements not in accordance with IFRS
and is either required or elected to present its financial statements according
to IFRS, is required to implement the provisions of IFRS 1, First time Adoption
of International Financial Reporting Standards, for Transitional Purposes.
IFRS 1 sets out guidelines as to how to make the transition from reporting on
the basis of former accounting principles (accounting principles generally
accepted in Israel) to reporting on the basis of IFRS. Among other things, IFRS
1 mandates that the financial statements presented for the first time in
accordance with IFRS contain comparative data for at least one year.
Accordingly, the financial statements for the year ended 31 December 2008 shall
contain as comparative data the balance sheet as of 31 December 2007 and the
profit and loss accounts, statement of changes in shareholders' equity and
statement of cash flows for the year then ended.
IFRS 1 stipulates that an entity implement the same accounting policy in its
opening balance as of 1 January 2007 (hereinafter - "Opening Balance" or
"Transition Date") in accordance with the IFRS that are in effect on the
reporting date of the first annual financial statements. All comparative
amounts presented in the financial statements must also be presented
accordingly. In other words, the IFRS in effect on the reporting date of the
first annual financial statements must be applied retrospectively. Changes and
adjustments to balances to be included in the balance sheet that is presented
for the first time in accordance with IFRS as opposed to the balances included
in accordance with previously accepted accounting principles, should be carried
directly to retained earnings (or, if appropriate, another category of equity).
The Group elects to follow the following exemptions as allowed by IFRS 1:
Business combinations and investments in investee companies
The Company elected to implement the provisions of IFRS 3, Business
Combinations, only in respect of business combinations occurring after 1 January
2007 (the transition date).
Accumulated translation differences
Translation differences in respect of autonomous investees in respect of periods
that preceded the implementation date shall be carried to retained earnings on
the date of the initial implementation of IFRS.
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
We present below data regarding the expected impact of implementation of IFRS on
the financial statements of the Company for the year ended 31 December 2007,
including on the opening balance sheet (1 January 2007). The data was prepared
in accordance with the disclosure requirements of Standard No. 29 and the
additional disclosure requirements publicized by the Israel Securities Authority
as part of a question and answer file (FAQ 6) "The Required Disclosure in the
Financial Statements for the year ended 31 December 2007 in Connection with
Adoption of IFRS". Please note that there may be changes in these estimates
upon the preparation of full financial statements in accordance with IFRS for
2008.
Reconciliation between reporting under accounting principles generally accepted
in Israel and reporting under IFRS
Statement of net assets in liquidation (balance sheets) and shareholders'
deficit as at 1 January 2007 - In NIS
1 January 2007
Israeli GAAP Impact of IFRS
transition(*)
NIS' 000 NIS' 000 NIS' 000
A S S E T S
Current Assets
Cash and cash equivalents - 131 131
Accounts receivable and debit balances - 1,082 1,082
Inventory of buildings under construction - 21,480 21,480
Assets attributed to discontinued operations 37,710 (37,710) -
_______ _______ _______
37,710 (15,017) 22,693
----------- ----------- -----------
Long-term Assets and Investments
Fixed assets - 42 42
Other assets - 97 97
_______ _______ _______
- 139 139
----------- ----------- -----------
_______ _______ _______
37,710 (14,878) 22,832
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Suppliers, accounts payable and credit balances - 1,931 1,931
Liabilities attributed to discontinued operations 80,231 (80,231) -
_______ _______ _______
80,231 (78,300) 1,931
----------- ----------- -----------
Loans from Interested Parties - 23,064 23,064
----------- ----------- -----------
Shareholders' Deficit (42,521) 40,358 (2,163)
----------- ----------- -----------
_______ _______ _______
37,710 (14,878) 22,832
_______ _______ _______
_______ _______ _______
(*) See Note A below regarding the reconciliation in respect of the accounting
treatment of the reverse acquisition.
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted
in Israel and reporting under IFRS (cont.)
Statement of net assets in liquidation (balance sheets) and shareholders'
deficit as at 1 January 2007 (cont.) -
Convenience translation into �
1 January 2007
Israeli GAAP Impact of IFRS
transition(*)
� 000 � 000 � 000
A S S E T S
Current Assets
Cash and cash equivalents - 17 17
Accounts receivable and debit balances - 140 140
Inventory of buildings under construction - 2,786 2,786
Assets attributed to discontinued operations 4,890 (4,890) -
_______ _______ _______
4,890 (1,947) 2,943
----------- ----------- -----------
Long-term Assets and Investments
Fixed assets - 5 5
Other assets - 13 13
_______ _______ _______
- 18 18
----------- ----------- -----------
_______ _______ _______
4,890 (1,929) 2,961
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Suppliers, accounts payable and credit balances - 250 250
Liabilities attributed to discontinued operations 10,405 (10,405) -
_______ _______ _______
10,405 (10,155) 250
----------- ----------- -----------
Loans from Interested Parties - 2,991 2,991
----------- ----------- -----------
Shareholders' Deficit (5,515) 5,235 (286)
----------- ----------- -----------
_______ _______ _______
4,890 (1,929) 2,961
_______ _______ _______
_______ _______ _______
(*) See Note A below regarding the reconciliation in respect of the accounting
treatment of the reverse acquisition.
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted
in Israel and reporting under IFRS (cont.)
Balance sheets and shareholders' equity as at 31 December 2007 - In NIS
31 December 2007
Israeli GAAP Impact of IFRS
transition
NIS' 000 NIS' 000 NIS' 000
A S S E T S
Current Assets
Cash and cash equivalents 1,249 - 1,249
Accounts receivable and debit balances 842 - 842
Restricted cash 17,306 - 17,306
Inventory of buildings under construction C, D 43,819 (17,293) 26,526
_______ _______ _______
Total current assets 63,216 (17,293) 45,923
----------- ----------- -----------
Long-term Assets and Investments
Fixed assets 47 - 47
Other assets 78 - 78
Investment real estate 69,121 - 69,121
_______ _______ _______
Total long-term assets and investments 69,246 - 69,246
----------- ----------- -----------
_______ _______ _______
132,462 (17,293) 115,169
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Loans from interested parties 7,454 - 7,454
Sellers of land 42,570 - 42,570
Suppliers and service providers 2,519 - 2,519
Accounts payable and credit balances 1,158 - 1,158
Advances from customers 17,306 - 17,306
_______ _______ _______
Total current liabilities 71,007 - 71,007
----------- ----------- -----------
Long-term Liabilities
Deferred taxes 3,035 - 3,035
_______ _______ _______
Total long-term liabilities 3,035 - 3,035
----------- ----------- -----------
Shareholders' Equity A, C, D 58,420 (17,293) 41,127
----------- ----------- -----------
_______ _______ _______
132,462 (17,293) 115,169
_______ _______ _______
_______ _______ _______
Reconciliation between reporting under accounting principles generally accepted
in Israel and reporting under IFRS (comt.)
Balance sheets and shareholders' equity as at 31 December 2007 (cont.)
Convenience translation into �
31 December 2007
Israeli GAAP Impact of IFRS
transition
� 000 � 000 � 000
A S S E T S
Current Assets
Cash and cash equivalents 162 - 162
Accounts receivable and debit balances 109 - 109
Restricted cash 2,244 - 2,244
Inventory of buildings under construction C, D 5,684 (2,243) 3,441
_______ _______ _______
Total current assets 8,199 (2,243) 5,956
----------- ----------- -----------
Long-term Assets and Investments
Investments in investee companies - - -
Fixed assets 6 - 6
Other assets 10 - 10
Investment real estate 8,965 - 8,965
_______ _______ _______
Total long-term assets and investments 8,981 - 8,981
----------- ----------- -----------
_______ _______ _______
17,180 (2,243) 14,937
_______ _______ _______
_______ _______ _______
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Loans from interested parties 967 - 967
Sellers of land 5,521 - 5,521
Suppliers and service providers 327 - 327
Accounts payable and credit balances 150 - 150
Advances from customers 2,244 - 2,244
_______ _______ _______
Total current liabilities 9,209 - 9,209
----------- ----------- -----------
Long-term Liabilities
Deferred taxes 394 - 394
_______ _______ _______
Total long-term liabilities 394 - 394
----------- ----------- -----------
Commitments, liens and contingent liabilities
Shareholders' Equity A, C, D 7,577 (2,243) 5,334
----------- ----------- -----------
_______ _______ _______
17,180 (2,243) 14,937
_______ _______ _______
_______ _______ _______
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted
in Israel and reporting under IFRS
Profit and loss accounts for the year ended 31 December 2007 - In NIS
Israeli GAAP Impact of IFRS
transition
NIS' 000 NIS' 000 NIS' 000
Change in fair value of investment real estate 18,294 - 18,294
--------- --------- ---------
Selling and marketing expenses A, C 106 19,692 19,798
General and administrative expenses A 2,175 1,401 3,576
______ ______ ______
2,281 21,093 23,374
--------- --------- ---------
______ ______ ______
Operating income (loss) before financing 16,013 (21,093) (5,080)
Financing expenses A, D (749) (1,041) (1,790)
______ ______ ______
Operating income after financing and before taxes on income 15,264 (22,134) (6,870)
Taxes on income (3,541) - (3,541)
______ ______ ______
Income (loss) from continuing operations 11,723 (22,134) (10,411)
Income from discontinued operations and from creditors 31,521 (31,521) -
arrangement
______ ______ ______
Net income (loss) for the year A 43,244 (53,655) (10,411)
______ ______ ______
______ ______ ______
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
Reconciliation between reporting under accounting principles generally accepted
in Israel and reporting under IFRS (cont.)
Profit and loss accounts for the year ended 31 December 2007 (cont.)
Convenience translation into �
Israeli GAAP Impact of IFRS
transition
� 000 � 000 � 000
Change in fair value of investment real estate 2,373 - 2,373
--------- --------- ---------
Selling and marketing expenses A, C 14 2,554 2,568
General and administrative expenses A 282 182 464
______ ______ ______
296 2,736 3,032
--------- --------- ---------
______ ______ ______
Operating income (loss) before financing 2,077 (2,736) (659)
Financing expenses A, D (97) (135) (232)
______ ______ ______
Operating income after financing and before taxes on income 1,980 (2,871) (891)
Taxes on income (459) - (459)
______ ______ ______
Income (loss) from continuing operations 1,521 (2,871) (1,350)
Income from discontinued operations and from creditors 4,088 (4,088) -
arrangement
______ ______ ______
Net income (loss) for the year A 5,609 (6,959) (1,350)
______ ______ ______
______ ______ ______
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 1, 2007 and 31
December 2007 and to the statement of operations for the year ended 31 December
2007:
A. Reverse acquisition
In the financial statements presented in accordance with accounting principles
generally accepted in Israel, the principles of reverse acquisition were applied
to a business combination transaction that occurred during 2007, as follows:
- The assets and liabilities of the accounting purchaser (the Verge
subsidiary) were recorded in the consolidated financial statements at their book
values immediate prior to the reverse acquisition transaction.
- In view of the fact that the accounting acquiree (the Company) constituted
a stock market shell as at the date of acquisition, no goodwill or original
difference was generated in respect thereof.
- The retained earnings and other equity items of the consolidated entity
following the merger are those of the Company, with the effect of the recording
of the net assets and liabilities of the accounting acquirer being reflected in
an increase to share capital and premium on shares.
- The comparative amounts of the merged entity are those that were publicized
in the past as part of the financial statements of the Company, and accordingly,
the former activity of the Company was presented as discontinued operations in
accordance with Accounting Standard No. 8 of the Israel Accounting Standards
Board.
In implementing IFRS, in accordance with the principles of IFRS 3, there is no
change in the economic concept - Verge was identified as the accounting acquirer
and, therefore, the principles of reverse acquisition were applied.
Accordingly, the assets and liabilities of Verge, the accounting acquirer, were
recorded in the consolidated financial statements on the basis of their value in
the books of the accounting acquirer immediately prior to the reverse
acquisition transaction. According to IFRS 3, consolidated financial statements
prepared after the reverse acquisition are described as the continuation of the
financial statements of the legally acquired company (the accounting acquirer)
and therefore, the following differences exist between the accounting treatment
and the treatment used under accounting principles generally accepted in Israel:
- Retained earnings and other equity items of the consolidated entity
following the merger are those of the accounting acquirer, which is the legal
subsidiary, Verge, immediately prior to the business combination (although the
legal capital structure, i.e., type and number of shares, remains that of the
legal parent company).
- Comparative amounts of the merged entity are those of the legal subsidiary,
Verge. Accordingly, there is no expression given to the former activity of the
Company as part of the financial statements.
Based on the above, and in view of the fact that the business combination
transaction in 2007, as part of which the Company was purchased by the Verge
subsidiary by way of reverse acquisition, was carried out in accordance with the
principles of IFRS 3, the balance sheet of the Company as of 1 January 2007,
which is presented in the financial statements presented in accordance with
IFRS, is based on the balance sheets of the accounting acquirer, Verge, as at 1
January 2007.
In this content, please note that, due to the fact that the financial statements
of the Company as at 1 January 2007 (the statement of net liquidated assets as
at 31 December 2006), which were presented in accordance with accounting
principles generally accepted in Israel, were presented at realization values in
accordance with accounting principles of businesses in liquidation, no change
would be needed in these financial statements were they required to be presented
in accordance with IFRS.
In the statements of operations for 2007 presented in accordance with IFRS,
there were changes in the following items, in view of the fact that the results
of Verge were presented in them from the beginning of the year and not from the
date of acquisition:
- An increase in selling and marketing expenses in an amount of NIS 547
thousand.
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 1, 2007 and 31
December 2007 and to the statement of operations for the year ended 31 December
2007 (cont.):
A. Reverse acquisition (cont.)
- An increase in general and administrative expenses in an amount of NIS 1,401
thousand.
- An increase in financing expenses in an amount of NIS 3,173 thousand.
The above amounts are before the effect of items C and D below.
B. Combinations of businesses under common control
In the financial statements presented under accounting principles generally
accepted in Israel, the transaction as part of which the Company acquired the
Sitnica subsidiary was treated in accordance with Israel Securities Authority
Decision 2-10 dated April 2007, The Treatment of Transactions of Combinations of
Businesses under Common Control. According to the decision of the authority,
combinations of businesses under common control are to be handled in accordance
with a method that is similar to the Pooling of Interests method.
According to this method, in the financial statements of the Company, the assets
and liabilities of Sitnica were recorded at their book value in Sitnica's
financial statements and the financial statements were presented in order to
reflect the financial position and results of operations of the Company and of
Sitnica (after the effect of the treatment of the reverse acquisition as per "A"
above) as if the transaction had been conducted on the same day that the
businesses came under the same control.
IFRS 3, Business Combinations, excludes combinations of businesses under common
control. Moreover, there is no other international standard that deals with the
issue. On the basis of the preference order for accounting treatment under
international standards, in the absence of an international standard or
interpretation, the Company implemented the pooling of interests method even
though the financial statements are presented in accordance with IFRS. The
source for this method is the U.S. body of standards, and it is also the common
practice under international standards. Therefore, the transition to IFRS had
no impact on the Company's accounting treatment of the aforementioned
transaction.
C. Capitalization of costs directly to buildings under construction
According to accounting principles generally accepted in Israel, general and
administrative expenses and selling and marketing expenses that can be
specifically attributed to a specific building project constitute direct costs
of the project and are carried to the cost of the project. According to IFRS,
these costs are expensed when incurred. The impact of the transition to IFRS as
at 1 January 2007 and 31 December 2007 is a decrease in the inventory of
buildings under construction in an amount of NIS 2,742 thousand and NIS 20,407
thousand, respectively, against a decrease in retained earnings. In addition,
in the statement of operations for the year ended 31 December 2007, there was an
increase in selling and marketing expenses of NIS 19,145 thousand.
D. Capitalization of credit costs
According to Accounting Standard No. 3 of the Israel Accounting Standards Board,
Capitalization of Credit Costs, credit costs can be capitalized in respect of
assets, the period of construction of which exceeds three years or the period of
construction of which or volume of investment in which deviates from the
accepted construction period or accepted volume of investment in respect of
assets of this type in the same business. In connection with real estate
assets, the commencement of capitalization is from the earlier of the date of
submission of the request to obtain a building permit or the date of
commencement of work.
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 1, 2007 and 31
December 2007 and to the statement of operations for the year ended 31 December
2007 (cont.):
D. Capitalization of credit costs (cont.)
Under IFRS, capitalization of credit costs is treated in accordance with IAS 23
whereby it is possible to capitalize credit costs which are directly attributed
to the acquisition or construction of a qualifying asset. A qualifying asset is
an asset, in respect of which the period of time required for preparation for
its intended use or sale is significant. The capitalization period will start
when expenses were incurred in respect of the asset, credit costs were incurred
in respect of the asset and the steps necessary for preparation of the asset for
its intended use or for sale were taken.
Upon the transition to IFRS, credit costs that could not previously be
capitalized were capitalized. Accordingly, the Company recorded an increase to
the inventory of buildings under construction as at 1 January 2007 and 31
December 2007 in an amount of NIS 1,204 thousand and NIS 3,119 thousand,
respectively, against an increase in retained earnings and a decrease in
financing expenses in the statement of operations for 2007 in an amount of NIS
2,162 thousand.
E. Functional currency of the Company and its investees
The accounting treatment for the effects of changes in foreign currency exchange
rates under IFRS is pursuant to IAS 21, whereby the Company has to assess the
functional currency of every component of the Company (on the basis of the
Company and each component separately - subsidiary, branch, or other activity
that constitutes part of any unit of the consolidated entity). The Company
should measure the results of its operations and financial position or the
results of its component on the basis of this currency. The functional currency
is the currency of the major economic environment in which the Company or its
component operates (the major economic environment from which the Company is
influenced) and it constitutes the major currency in which the Company (or the
component) generates and expends its cash flows.
After assessing the criteria, it was determined that the functional currency of
the Company is the New Israeli shekel and the functional currency of the
subsidiaries is the currency of the local environment in which those companies
operate. Therefore, the transition to international standards is not expected
to have an impact.
The Company elected to adopt the leniency in IFRS 1, Initial Adoption of IFRS,
whereby translation differences in respect of autonomous investee units in
respect of periods that preceded the date of implementation will be carried at
the date of initial implementation of IFRS to retained earnings.
F. Recognition of revenues from the sale of apartments
Under IFRS, recognition of revenues from the sale of constructed buildings is
pursuant to IAS 18, whereby the revenue will be recognized only when the work
has been completed (the finished work method) and the rest of the conditions for
revenue recognition have been met (all of the risks have been transferred to the
buyer). According to accounting principles generally accepted in Israel,
recognition of revenues from the sale of buildings is done pursuant to the
percentage of completion method, but not before the proceeds from the sale of
the project constitute at least 50% of the total expected revenues from the
project and the percentage completed has reached at least 25%.
As mentioned in Note 2 above, the construction of the Verge subsidiary's
construction project has not yet commenced and, therefore, no revenues have been
recognized in respect thereof in the statements of operations that were
presented in accordance with accounting principles generally accepted in Israel.
Accordingly, there was no impact of the transition to IFRS.
G. Presentation of financing income and expenses
In accordance with accounting principles generally accepted in Israel, financing
income and expense are presented in one net amount in the statement of
operations. According to international standards, financing income and
financing expenses have to be presented separately in statement of operations.
NOTE 22 -ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (cont.)
Notes to the adjustments to the balance sheets as at 1 January 1, 2007 and 31
December 2007 and to the statement of operations for the year ended 31 December
2007 (cont.):
H. Business combinations and investments in investee companies
The Group intends in adopting the leniency in IFRS 1 whereby it will apply the
provisions of IFRS 3 only in respect of business combinations that occurred
subsequent to 1 January 2007 (the transition date) and also in respect of the
purchase transactions of affiliated companies and rights in joint ventures.
NOTE 23 -CONDENSED DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES
A. Condensed balance sheet
31 December
2007
NIS' 000
A S S E T S
Current Assets
Cash and cash equivalents 1,002
Accounts receivable and debit balances 153
_______
Total current assets 1,155
-----------
Investments in investee companies 58,115
-----------
_______
59,270
_______
_______
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Suppliers and service providers 202
Accounts payable and credit balances 648
_______
Total current liabilities 850
-----------
Shareholders' Equity 58,420
-----------
_______
59,270
_______
_______
B. Condensed statement of net assets in liquidation
31 December
2006
NIS' 000
A S S E T S
Assets attributed of discontinued operations 37,710
_______
_______
LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities attributed of discontinued operations 80,231
----------
Shareholders' Deficit (42,521)
----------
_______
37,710
_______
_______
NOTE 23 -CONDENSED DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES (cont.)
C. Condensed profit and loss accounts
Year ended
31 December
2007 2006 2005
NIS' 000 NIS' 000 NIS' 000
General and administrative expenses 1,520 - -
______ ______ ______
Operating loss before financing (1,520) - -
Financing expenses, net (69) - -
______ ______ ______
Operating loss after financing (1,589) - -
Share of Company in income of investee companies, net(*) 13,312 - -
______ ______ ______
Income from continuing operations 11,723 - -
Income (loss) from discontinued operations and creditors 31,521 (14,926) (14,862)
arrangement
______ ______ ______
Net income (loss) for the year 43,244 (14,926) (14,862)
______ ______ ______
______ ______ ______
(*) See Note 2C regarding the accounting method used in respect of the
investment in the Sitnica subsidiary.
NOTE 23 -CONDENSED DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES (cont.)
D. Condensed statement of changes in shareholders' equity (deficit)
Share Share Capital Capital reserve Adjustments Accumulated Total
capital premium reserve from transactions deriving from deficit
with controlling the translation
shareholders of the
financial
statements of
investee
companies
operating in
foreign
currency
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS'
000
Balance as at 33,584 57,284 309 - - (103,910) (12,733)
1 January 2005
Changes in 2005:
Loss for the year - - - - - (14,862) (14,862)
______ ______ ____ _______ _______ _______ _______
Balance as at 33,584 57,284 309 - - (118,772) (27,595)
31 December 2005
Changes in 2006:
Loss for the year - - - - - (14,926) (14,926)
______ ______ ____ _______ _______ _______ _______
Balance as at 33,584 57,284 309 - - (133,698) (42,521)
31 December 2006
Changes in 2007:
Adjustments deriving from - - - - (1,165) - (1,165)
the translation of the
financial statements of
investee companies
operating in foreign
currency
Issuance of shares against - 11,000 - - - - 11,000
conversion of liabilities
(1)
Issuance of shares against - 8,556(*) - - - - 8,556
cash (1)
Issuance of shares against - 38,910 - - - - 38,910
investment in shares of
subsidiaries (2)
Capital reserve from - - - 396(**) - - 396
transactions with
controlling shareholders
Net income for the year - - - - - 43,244 43,244
______ ______ ____ _______ _______ _______ _______
Balance as of 33,584 115,750 309 396 (1,165) (90,454) 58,420
31 December 2007
______ ______ ____ _______ _______ _______ _______
______ ______ ____ _______ _______ _______ _______
(*) Net of issuance costs of NIS 14 thousand.
(**) See Note 1B(5)7.
(1) See Note 1C.
(2) See Notes 1D and 2C.
Appendix
List of Group Companies as at 31 December 2007
Voting rights Ownership rights
% %
Subsidiaries
Verge Living Corporation 100 100
Sitnica d.o.o. 100 100
===========================
This information is provided by RNS
The company news service from the London Stock Exchange
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