REG - T42 IOT Tracking Sol - Full year results
03/03/2022 07:00
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RNS Number : 4597D T42 IOT Tracking Solutions PLC 03 March 2022
The information contained within this announcement is deemed by the Company to
constitute inside information pursuant to Article 7 of EU Regulation 596/2014
as it forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 as amended.
03 March 2022
t42 IoT Tracking Solutions plc
("t42" or the "Company")
Full year results
t42 IoT Tracking Solutions plc (AIM: TRAC) ("t42" or the "Company"), the
real-time tracking, security and monitoring solutions provider for the global
container and freight market, is pleased to announce its results for the 12
months ended 31 December 2021.
Financial Highlights
* Revenues decreased by 16% to $4.2m (FY 2020: $5.04m)
* Recurring SaaS revenues decreased by 3% to $2.1m (FY 2020: $2.2m)
* Adjusted EBITDA* loss of $973,000 (FY 2020: loss of $370,000)
* Gross margin for the period was 30% (FY 2020:33%) or c40% before one-off
reduction of stock
* General expenses reduced by 11% to $2.4m (FY 2020: $2.7m)
* Statutory loss of $2.96m (FY 2020: $2.0m)
* Net cash used in operating activities was approximately $0.38m (FY 2020 $0.4m)
*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation
and share-based payment expense and non-recurring items.
Operational Highlights
* Performance turnaround began at end of period 2021 and continued into 2022
* agreement in Latin America signed in December 2021 to provide freight
protection and monitoring solutions
* agreement in the USA signed in January 2022 for distribution of t42 Tracking
Lock Units
* Sales of new smart padlock launched under the Lokies brand increased to 13% of
total revenues from 5% the previous year.
* Group focused on its strategy to dominate the shipping container tracking
business
* Rebranding of company to reflect focus on the global shipping container market
* Supply chain issues resulting from the impact of the global Covid 19 pandemic
caused delays in deliveries and electronic equipment global shortage in 2021
and into early 2022, but we have secured additional supplies of microchips
which should ensure minimal impact in the remainder of 2022
Avi Hartmann, CEO of t42, commented:
"2021 was a year of transition for t42 with a new strategy, a new defined
target market of the global shipping container market and a new name and brand
to reflect our ambition to provide a comprehensive and unique solution for our
customers.
"2021 was also a demanding year as we dealt with the challenges of the
pandemic and with the task of reorientating the business to focus on the
opportunity in our new target market, itself facing huge challenges as global
supply chains went from near dormancy to frenzied levels of activity.
"We have begun 2022 with positive momentum from client wins, which validate
our new strategic direction, and we are now focused on delivery and converting
customer interest into contract wins. Even with our best ever pipeline of
potential new orders, we will retain our focus on continuous product
improvements and maintaining high standards of customer care.
"We are optimistic about the opportunity ahead and wish to thank our
employees, shareholders and other partners for their support during a
difficult year during which, despite the challenges, we feel we were able to
lay the foundations of future success."
Contacts:
t42 IoT Tracking Solutions PLC
Michael Rosenberg, Chairman 07785 727595
Avi Hartmann, CEO +972 5477 35663
Allenby Capital Limited (AIM Nominated Adviser and Joint Broker) 020 3328 5656
Jeremy Porter/Piers Shimwell
Peterhouse Capital Limited (Joint Broker) 020 7469 0930
Lucy Williams/Charles Goodfellow/Eran Zucker
Yellow Jersey PR (Financial PR) 020 3004 9512
Tom Randell/Henry Wilkinson/Annabelle Wills t42@yellowjerseypr.com (mailto:t42@yellowjerseypr.com)
Notes to Editors
t42 IoT Tracking Solutions plc (AIM: TRAC), formerly Starcom Systems plc,
provides real-time tracking, analysis, monitoring and security IoT solutions
for the global container and freight market and covers 55 countries, over 100
distributors and 50 logistics and support partners.
t42's multi-sensor IoT tracking devices use a wide range of detection
capabilities with cloud-based analytics and alerts, with real-time data
transmission, analysis and actionable insights. Its devices are used by ports,
cargo owners, shipping companies, freight forwarders, insurance companies,
customs authorities and homeland security and police for end-to-end global
container tracking and digital transformation of shipments.
For more information on the Company, please visit: www.t42.co.uk/
(http://www.t42.co.uk/) .
Information required pursuant to rule 26 of the AIM Rules for Companies can be
found at www.starcomsystems.com
(https://eur03.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.starcomsystems.com%2F&data=04%7C01%7C%7C3addcb65a0c94052a6fb08d9cf90c035%7Cfc69750aedcc43bebd5b2cbe6f8d8c37%7C0%7C0%7C637769042874699189%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=F3frAfO0Y2OTgmn9tmomlJpMV5LLmwRpwup7Xb8p1sk%3D&reserved=0)
.
CHAIRMAN'S STATEMENT
The results for 2021 reflect the negative ongoing impact of COVID-19 and the
many supply chain issues caused by this pandemic, but later in the year saw
the very positive move to rebrand the Company and its products and success in
signing two important commercial contracts which are expected to dramatically
improve the revenue prospects of the Company over the next few years.
We had hoped for an improvement in revenues in the second half of the year but
as with many other companies it was not until the end of the year that we
began to see that happening. As a result, the final revenues were $4.2m with
negative EBITDA of $0.97m and an effective gross margin of 40% following
adjustments referred to below. In view of the decision to rebrand products and
focus on those designed to protect freight and container units it was decided
to review the treatment of intangible assets and valuation of stock.
Appropriate adjustments have been made with those items in the accounts and
described below under the financial review.
During the year the supply of microchips and related long lead times and costs
increases continued to hold back our growth despite the clear technological
benefits provided by our products. As reported in our interim statement our
pipeline of new potential deals was at an all time high and it is pleasing to
be able to report that some of these have indeed been secured as previously
reported. In December 2021 we reported the signing of an agreement with a
consortium in Latin America which will provide the Company's solution to
protecting and monitoring freight at various ports, and which could generate
over $40m of revenues if the maximum number of product units indicated by the
customer are deployed over a five-year period. Early in January 2022 the
Company reported another agreement with OpenBox Ventures Inc in the USA which
could result in significant revenues over the next few years. Of course, these
are in addition to the continuing levels of business with existing clients and
the very important ongoing and recurring SaaS revenues that come with the
majority of our products.
During the year under review our HELIOS product range continued to provide the
majority of sales at around 57%, and although this product range tends to be
low margin business, it does create ongoing SaaS revenues. However, we intend
to focus on higher gross margin products in the future such as the Lokies
product and other container tracking devices. We believe that currently our
products for this sector offer a unique solution to the problems faced by the
container and freight sectors, and while there is no doubt others will develop
similar products, we believe we have a first mover advantage to secure a
significant percentage of an enormous market opportunity. In considering the
best way forward to capitalize on this we are examining alternative forms of
finance for that industry sector opportunity, since we believe that the future
lies in our ability to control the data provided by our technology. This could
involve providing a very low up-front cost for our products but with increased
monthly charges for usage. Clearly this will involve the need to fund such a
strategy if we decide to proceed. Our objective is to test the market appetite
for such an approach over the next few months.
Sales of the smart padlock launched under the Lokies brand increased to 13% of
our revenues from only 5% in the previous year. As previously announced, we
were successful in winning the DHL Smart Guard Innovation Challenge in
Singapore earlier in the year for the Lokies product and, after more trials,
we secured our first initial order for this product in January 2022 with the
expectation of further orders to follow.
We have been working closely with our advisers on the rebranding of the
Company and its products, and restructuring our sales team to reflect the new
focus as well as examining opportunities to expand the Company both
organically and where appropriate with suitable alliances.
In November 2021, Mr Avi Engel, one of the non-executive directors, stepped
down from the board. Avi has served as a director since August 2015 and we
thank him for his valuable contribution to the board and wish him every
success in his other activities.
We have successfully raised £1.35m new cash during the second half of 2021
from new investors who recognize the opportunity for more growth and are happy
to support the company at increasing share prices.
FINANCIAL REVIEW
Group revenues for the year were $4.2m, compared with $5.04m for the year
ended 31 December 2020, a decrease of 16%.
The gross margin for the year shown in the accounts was approximately 30% but
this reflected the one-time reduction in stock levels. The ongoing gross
margin would be nearer 40% without this deduction. compared with 33% for 2020.
Total operating expenditure for the year was $3.98m (2020: $3.4m), mainly due
to non-cash expenses such as depreciation, share option provisions and
exceptional impairment made for intangible assets.
Net loss after taxation for the year increased to $2.96m compared with the
2020 net loss of $2.05m. The operating loss in the period was $2.69m, compared
to an operating loss of $1.78m in 2020.
The Group recorded an exchange rate loss of $0.1m resulting from the
strengthening of the Israeli Shekel compared with the US dollar (2020: loss of
$0.14m).
The Group balance sheet showed decrease in trade receivables of $0.68m,
compared with $1.1m as at 31 December 2020.
Group inventories at the period end were $1.8m, compared to $2.1m as at the
end of 2020. An exceptional provision for obsolete stock was made of $0.38m.
As a part of the re-valuation of the intangible assets due to rebranding and
new strategy the company impaired $0.83m of intangible asset value.
Trade payables at the year-end were stable at $1.55m, compared with $1.6m as
at 31 December 2020.
Net cash used in operating activities in the period was approximately $0.38m,
compared with $0.4m for the year ended 31 December 2020.
As detailed in notes 10, 12 and 13 of this financial report, the Company has
loans with a leading Israeli Bank. The financial covenants as detailed in note
12 were breached at the quarter ending 31 December 2021. The Company and the
bank are monitoring the position carefully, remain in close correspondence,
and are working towards a solution.
OUTLOOK
The new contracts in Latin America and the USA recognize the strength of our
technology in the container and freight movement market and are expected to
lead to further contracts over the next few months. While the supply chain
issues continue to create delays in deliveries, we have succeeded in securing
additional supplies of microchips which should enable a very strong
performance in 2022 with an expected return to positive EBITDA and further
growth in succeeding years.
Michael Rosenberg OBE
Non-Executive Chairman
_______________
T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. Dollars in thousands
December 31,
Note 2021 2020
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment, net 6 299 318
Rights-of-use assets, net 22 690 330
Intangible assets, net 7 1,034 1,900
Income tax authorities 57 56
Total Non-Current Assets 2,080 2,604
CURRENT ASSETS
Cash and cash equivalents 1,534 264
Short-term bank deposit 5 154 150
Trade receivables, net 3B 679 1,129
Other accounts receivable 3A 160 81
Inventories 4 1,790 2,127
Total Current Assets 4,317 3,751
TOTAL ASSETS 6,397 6,355
EQUITY AND LIABILITIES
14 193 2,101
EQUITY
NON-CURRENT LIABILITIES
Long-term loans from banks, net of current maturities 10 239 303
Long-term leasehold liabilities 22 558 236
Warrants at fair value 11 115 -
Conversion component of a convertible loan at fair value 11 279 -
Amortized cost of a convertible loan 11 857 -
Total Non-Current Liabilities 2,048 539
CURRENT LIABILITIES
Short-term bank credit 24 25
Short-term bank loan 12 922 739
Current maturities of long-term loans from banks 10 76 12
Trade payables 1,553 1,579
Other accounts payable 9 738 303
Leasehold liabilities 22 148 136
Conversion component of a convertible loan at fair value 11 - 42
Amortized cost of a convertible loan 11 - 254
Warrants at fair value 11 3 10
Related parties 20 692 615
Total Current Liabilities 4,156 3,715
TOTAL EQUITY AND LIABILITIES 6,397 6.,355
The accompanying notes are an integral part of the consolidated financial
statements.
03 March 2022 03 March 2022
Date of Approval Igor Vatenmacher Avi Hartmann CEO
CFO
of the Financial Statements
T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. Dollars in thousands (except shares data)
Year ended December 31,
Note 2021 2020
Revenues 4,214 5,041
Cost of sales 15 (2,545) (3,374)
Inventory write-down (381) -
Gross profit 1,288 1,667
Operating expenses:
Research and development (223) (206)
Selling and marketing (609) (580)
General and administrative expenses 16 (2,388) (2,680)
Other income (expenses) 17 (756) 24
Total operating expenses (3,976) (3,442)
Operating loss (2,688) (1,775)
Finance income 18A - 1
Finance expenses 18B (271) (271)
Net finance expenses (271) (270)
Total comprehensive loss for the year (2,959) (2,045)
Loss per share:
Basic and diluted loss per share 14, 19 (0.064) (0.047)
The accompanying notes are an integral part of the consolidated financial
statements.
T42 IOT TRACKING SOLUTIONS PLC (FORMERLY:
STARCOM PLC)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
U.S. Dollars in thousands
Share Premium on Shares Capital Reserve Capital Reserve in Regard to Share-Based Payment Transactions Total
Capital
Accumulated
Loss
Balance as of January 1, 2020 - 12,254 89 942 (9,394) 3,891
Proceeds from issued share capital, net of expenses - 74 - - - 74
Share based payment - - - 181 - 181
Comprehensive loss for the year - - - - (2,045) (2,045)
Balance as of December 31, 2020 - 12,328 89 1,123 (11,439) 2,101
Issuance of shares to a related party in payment of payable (see Note 14c) - 107 - - 107
-
Conversion of convertible loan (see Note 11b) - 295 - - 295
-
Issued share capital, net of expenses (see Note 14d) - 621 - - - 621
Share based payment (see Note 14f) - - - 28 - 28
Comprehensive loss for the year - - - - (2,959) (2,959)
Balance as of December 31, 2021 - 13,351 89 1,151 (14,398) 193
The accompanying notes are an integral part of the consolidated financial
statements.
T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. Dollars in thousands
Year Ended December 31,
2021 2020
CASH FLOWS FOR OPERATING ACTIVITIES:
Loss for the year (2,959) (2,045)
Adjustments to reconcile loss for the year to net cash used in operating
activities:
Depreciation and amortization 549 725
Interest expenses and exchange rate differences (24) 50
Share-based payment expense 28 181
Inventory write down 381 -
Intangible Assets impairment 801 -
Changes in assets and liabilities:
Decrease (Increase) in inventories (44) 219
Decrease in trade receivables, net 450 857
Decrease (Increase) in other accounts receivable (79) 88
Increase in Income Tax Authorities (1) (2)
Increase (Decrease) in trade payables 81 (502)
Increase in other accounts payable 435 40
Net cash used in operating activities (382) (389)
CASH FLOWS FOR INVESTING ACTIVITIES:
Purchases of property, plant and equipment (49) (18)
Increase in short-term deposits (4) (89)
Cost of intangible assets (283) (281)
Net cash used in investing activities (336) (388)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term bank credit, net (1) (54)
Receipt of short-term bank loan, net 183 739
Receipt of convertible unsecured loans, net 1,251 290
Proceeds from related parties, net 77 57
Payment for leasehold liabilities (137) (162)
Receipt of long-term loans - 312
Repayment of long-term loans (6) (299)
Consideration from issue of shares, net 621 -
Net cash provided by financing activities 1,988 883
Increase in cash and cash equivalents 1,270 106
Cash and cash equivalents at the beginning of the year 264 158
Cash and cash equivalents at the end of the year 1,534 264
Appendix A Ð Additional Information
Interest paid during the year (49) (69)
Appendix B Ð Non-Cash Financing Activities
Issuance of shares to a related party in payment of payable balance and
convertible loans
402 74
Significant non-cash transactions (entering into new lease agreements) are
disclosed in Note 22
The accompanying notes are an integral part of the consolidated financial
statements.
T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1 - GENERAL
a. The Reporting Entity
1. t42 IoT Tracking Solutions PLC (formerly: Starcom PLC) ("the Company")
was incorporated in Jersey on November 28, 2012. The Company and its
subsidiaries ("the Group") specializes in easy-to-use practical wireless
solutions that combine advanced technology, telecommunications and digital
data for the protection and management of people, fleets of vehicles,
containers and assets. The Group engages in production, marketing,
distribution, research and development of G.P.S. systems.
The Company fully owns Starcom G.P.S. Systems Ltd., an Israeli company, and
Starcom Systems Limited, a company incorporated in Jersey.
The Company's shares are admitted for trading on the AIM market of the London
Stock Exchange ("AIM").
The address of the official Company office in Israel of t42 IoT Tracking
Solutions is: 16A Ha'Taas Street, Kfar Saba, Israel.
The address of the Company's registered office in Jersey of Starcom Systems
Limited is: Forum 4, Grenville Street, St. Helier, Jersey, Channel Islands,
JE4 8TQ.
b. Definitions in these financial statements:
1. International Financial Reporting Standards ("IFRS") Ð Standards and
interpretations adopted by the International Accounting Standards Board
("IASB") that include international financial reporting standards (IFRS) and
international accounting standards (IAS), with the addition of interpretations
to these Standards as determined by the International Financial Reporting
Interpretations Committee (IFRIC) or interpretations determined by the
Standards Interpretation Committee (SIC), respectively.
2. The Company - t42 IoT Tracking Solutions PLC (formerly: Starcom PLC).
3. The Subsidiaries - Starcom G.P.S. Systems Ltd. and Starcom Systems Limited.
4. Starcom Jersey Ð Starcom Systems Limited.
5. Starcom Israel Ð Starcom G.P.S. Systems Ltd.
6. The Group Ð t42 IoT Tracking Solutions PLC (formerly: Starcom PLC). and the
Subsidiaries.
7. Related Party - As determined in International Accounting Standard No. 24.
T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1 - GENERAL (cont.)
c. Operating Turnover Period
The ordinary operating period turnover for the Group is a year. As a result,
the current assets and current liabilities include items that are expected and
intended to be realized at the end of the ordinary operating turnover period
for the Group.
d. Functional and Presentation Currency
The consolidated financial statements are presented in U.S. dollars
(hereinafter: "dollars") that is the functional currency of the Group and is
rounded to the nearest thousands, except when otherwise indicated.
The dollar is the currency that represents the economic environment in which
the Group operates.
The Group's transactions and balances denominated in dollars are presented at
their original amounts. Non-dollar transactions and balances have been
remeasured to dollars. All transaction gains and losses from remeasurement of
monetary assets and liabilities denominated in non-dollar currencies are
reflected in the statements of comprehensive income as financial income or
expenses, as appropriate.
NOTE 2A - BASIS OF PREPARATION
a. Declaration in regard to implementation of International Financial Reporting
Standards (IFRS)
The consolidated financial statements of the Company have been prepared in
accordance with IFRS and related clarifications published by the IASB.
The Company's Board of Directors authorized the 2021 Consolidated Financial
Statements on March 3(rd), 2022.
b. Basis of Measurement
The consolidated financial statements have been prepared on the historical
cost basis, except for financial instruments at fair value through profit or
loss that are stated at fair value.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2B - USE OF ESTIMATES AND JUDGMENTS
The preparation of financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these
estimates.
Upon formulation of accounting estimates used in preparation of the Group
financial statements, management is required to make assumptions in regard to
circumstances and events that are significantly uncertain. Management arrives
at these decisions based on prior experiences, various facts, external items
and reasonable assumptions in accordance with the circumstances related to
each assumption.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
Information about critical judgment in applying accounting policies that have
a significant effect on the amounts recognized in the consolidated financial
statements is included in the following Notes:
Note 7 Ð Capitalization of development costs and amortization of these costs.
Note 14 Ð Options issued.
Information about assumptions and estimations that have significant risk of
resulting in a material adjustment is included in the following Notes:
Note 3B Ð Allowance for doubtful accounts.
Note 7 Ð Calculation of amortization and impairments.
Note 8 Ð Utilization of tax losses.
Note 11 Ð Financial liabilities of convertible loans and warrants
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES
a. Basis of consolidation
All intra-Group transactions, balances, income and expenses of the companies
are eliminated on consolidation.
b. Foreign currency and linkage basis
Balances stated in foreign currency or linked to a foreign currency have been
included in the consolidated financial statements according to the prevailing
representative exchange rates at the balance sheet date. Balances linked to
the Consumer Price Index in Israel are included in accordance with the Index
published prior to balance sheet date. Linkage and exchange rate differences
are included in the statement of comprehensive income when incurred.
As of December 31,
2021 2020
CPI (in points) * 127.67 124.19
Exchange Rate of NIS in U.S. $ 0.322 0.311
For the Year Ended December 31,
2021 2020
Change in CPI 2.8% (0.69%)
Change in Exchange Rate of NIS 3.4% 7.6%
* Base Index 2002 = 100.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
c. Financial instruments
(i) Non-derivative financial assets
The Group initially recognizes loans and receivables on the date that they are
originated. All other financial assets (including assets designated as at fair
value through profit or loss) are recognized initially on the trade date,
which is the date that the Group becomes a party to the contractual provisions
of the instrument.
The Group derecognizes a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows in a transaction in which substantially all the risks
and rewards of ownership of the financial asset are transferred. Any interest
in such transferred financial assets that is created or retained by the Group
is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in
the statement of financial position when, and only when, the Group has a legal
right to offset the amounts and intends either to settle on a net basis or to
realize the asset and settle the liability simultaneously.
The Group classified non-derivative financial assets into the following
categories: Financial assets at fair value, through profit or loss,
held-to-maturity financial assets, loans and receivables, and
available-for-sale financial assets.
Financial assets at fair value through profit or loss:
A financial asset is classified as at fair value through profit or loss if it
is classified as held for trading or is designated as such on initial
recognition. Financial assets are designated as at fair value through profit
or loss if the Group manages such investments and makes purchase and sale
decisions based on their fair value in accordance with the Group's documented
risk management or investment strategy. Attributable transaction costs are
recognized in profit or loss as incurred. Financial assets at fair value
through profit or loss are measured at fair value and changes therein, which
take into account any dividend income, are recognized in profit or loss.
Financial assets designated as at fair value through profit or loss comprise
equity securities that otherwise would have been classified as available for
sale.
Loans and receivables:
Loans and receivables are financial assets with fixed or determinable payments
that are not quoted in an active market. Such assets are recognized initially
at fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, loans and receivables are measured at amortized cost
using the effective interest method, less any impairment losses.
Loans and receivables are comprised of trade and other receivables, excluding
short -term trade and other receivables where the interest amount is
immaterial.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
c. Financial instruments (cont.)
(ii) Non-derivative financial liabilities
The Group initially recognizes debt securities issued and subordinated
liabilities on the date that they originated. All other financial liabilities
(including liabilities designated as at fair value through profit or loss) are
recognized initially on the trade date, which is the date that the Group
becomes a party to the contractual provisions of the instrument.
The Group derecognizes a financial liability when its contractual obligations
are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into the other
financial liabilities category. Such financial liabilities are recognized
initially at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at
amortized cost using the effective interest method.
Other financial liabilities comprise loans and borrowings, bank overdrafts,
and trade and other payables.
(iii) Compound financial instruments
Compound financial instruments issued by the Company comprised: an
interest-bearing loan with a conversion option issued to the lender.
The option component was recognized initially at its fair value using a
binomial calculation.
The liability component was recognized initially as the difference between the
loan amount and the option component
Any directly attributable transaction costs are allocated to the liability and
equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound
financial instrument is measured at amortized cost using the effective
interest method. The equity component of a compound financial instrument is
not remeasured subsequent to initial recognition.
Interest related to the financial liability is recognized in profit or loss.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with
maturities of three months or less from the acquisition date that are subject
to an insignificant risk of changes in their fair value and are used by the
Group in the management of its short-term commitments.
e. Share capital
Ordinary shares:
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares are recognized as a deduction
from equity, net of any tax effects.
f. Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated
depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, at the following annual rates:
%
Computers and software 33
Office furniture and equipment 7 - 15
Vehicles 15
Laboratory equipment 15
Leasehold improvements 10
Leasehold improvements are depreciated by the straight-line method over the
term of the lease, ten-year period, (including option terms) or the estimated
useful lives of the improvements, unless it is reasonably certain that the
Group will obtain ownership by the end of the lease term.
At each balance sheet date, the Group examines the residual value, the useful
life and the depreciation method it uses. If the Group identifies material
changes in the expected residual value, the useful life or the future pattern
of consumption of future economic benefits in the asset that may indicate that
a change in the depreciation is required, such changes are treated as changes
in accounting estimates. In the reported periods, no material changes have
taken place with any material effect on the financial statements of the Group.
g. Intangible assets: Research and development
Expenditure on research activities, undertaken with the prospect of gaining
new scientific or technical knowledge and understanding, is recognized in
profit or loss as incurred.
Development activities involve a plan or design for the production of new or
substantially improved products and processes. Development expenditure is
capitalized only if development costs can be measured reliably, the product or
process is technically and commercially feasible, future economic benefits are
probable, and the Group intends and has sufficient resources to complete
development and to use or sell the asset.
The expenditure capitalized includes the cost of materials, direct labor,
overhead costs that are directly attributable to preparing the asset for its
intended use. Other development expenditure is recognized in profit or loss as
incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
g. Intangible assets: Research and development (cont.)
Expenditure on research activities, undertaken with the prospect of gaining
new scientific or technical knowledge and understanding, is recognized in
profit or loss as incurred.
Capitalized development expenditure is measured at cost less accumulated
amortization and accumulated impairment losses. Amortization is calculated
using the straight-line method over the estimated useful lives of the assets:
ten years.
At each balance sheet date, the Group reviews whether any events have occurred
or changes in circumstances have taken place, which might indicate that there
has been an impairment of the intangible assets. When such indicators of
impairment are present, the Group evaluates whether the carrying value of the
intangible asset in the Group's accounts can be recovered from the cash flows
anticipated from that asset, and, if necessary, records an impairment
provision up to the amount needed to adjust the carrying amount to the
recoverable amount.
h. Short-term deposit
Deposits with maturities of more than three months but less than one year are
included in short-term deposits.
i. Leases
The Group assesses at contract inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value assets. The Group
recognizes lease liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
1. Right-of-use assets
The Group recognizes right-of-use assets at the commencement date of the lease
(i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognized,
initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right-of-use assets are
depreciated on a straight-line basis over the shorter of the lease term and
the estimated useful lives of the assets, as follows:
Property - 5 years
Vehicles - 3 years
If ownership of the leased asset transfers to the Group at the end of the
lease term or the cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the
accounting policies in Note 2C(k).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
i. Leases (cont.)
2. Lease liabilities
At the commencement date of the lease, the Group recognizes lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in substance fixed
payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a
purchase option reasonably certain to be exercised by the Group and payments
of penalties for terminating the lease, if the lease term reflects the Group
exercising the option to terminate.
Variable lease payments that do not depend on an index or a rate are
recognized as expenses (unless they are incurred to produce inventories) in
the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses its
incremental borrowing rate at the lease commencement date because the interest
rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, a change
in the lease term, a change in the lease payments (e.g., changes to future
payments resulting from a change in an index or rate used to determine such
lease payments) or a change in the assessment of an option to purchase the
underlying asset.
3. Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term
leases of machinery and equipment (i.e., those leases that have a lease term
of 12 months or less from the commencement date and do not contain a purchase
option). It also applies the lease of low-value assets recognition exemption
to leases of office equipment that are considered to be low value. Lease
payments on short-term leases and leases of low value assets are recognized as
an expense on a straight-line basis over the lease term.
j. Inventories
Inventories are stated at the lower of cost or net market value.
Cost is determined using the "first-in, first -out" method.
Inventory write-downs are provided to cover risks arising from slow-moving
items, technological obsolescence, excess inventories, and discontinued
products and for market prices lower than cost, if any. At the point of loss
recognition, a new lower cost basis for that inventory is established.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
k. Impairment in value of assets
During every financial period, the Group examines the book value of its
tangible and intangible assets to determine any signs of loss from impairment
in value of these assets. In the event that there are signs of impairment, the
Group examines the realization value of the designated asset. In the event
that the realization cannot be measured for an individual asset, the Group
estimates realization value for the unit where the asset belongs. Joint assets
are assigned to the units yielding cash on the same basis. Joint assets are
designated to the smallest groups of yielding assets for which one can
identify a reasonable basis that is consistent with the allocation.
The realization value is the higher of net sale price of the asset as compared
with its useful life that is determined by the present value of projected cash
flows to be realized from this asset and its realization value at the end of
its useful life.
In the event that the book value of the asset or cash-yielding unit is greater
than its realization value, a devaluation of the asset has occurred in the
amount of the difference between its book value and its realization value.
This amount is recognized immediately in the statements of comprehensive
income.
In the event that prior devaluation of an asset is nullified, the book value
of the asset or of the cash-yielding unit is increased to the estimated
current fair value, but not in excess of the asset or cash-yielding unit book
value that would have existed had there not been devaluation. Such
nullification is recognized immediately in the statements of comprehensive
income.
l. Revenue recognition
The Group generates revenues from sales of products, which include hardware
and software, software licensing, professional services and maintenance.
Professional services include mainly installation, project management,
customization, consulting and training. The Group sells its products
indirectly through a global network of distributors, system integrators and
strategic partners, all of whom are considered end-users, and through its
direct sales force.
Revenue from products and software licensing is recognized when persuasive
evidence of an agreement exists, delivery of the product has occurred, the fee
is fixed or determinable and collectability is probable.
Revenues from maintenance and professional services are recognized ratably
over the contractual period or as services are performed, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
m. Allowance for doubtful accounts
The Group evaluates its allowance for doubtful accounts on a regular basis
through periodic reviews of the collectability of the receivables in light of
historical experience, adverse situations that may affect the repayment
abilities of its customers, and prevailing economic conditions. This
evaluation is inherently subjective, as it requires estimates that are
susceptible to significant revision as more information becomes available.
The Group performs ongoing credit evaluations of its customers and generally
does not require collateral because (1) management believes it has certain
collection measures in-place to limit the potential for significant losses,
and (2) because of the nature of its customers that comprise the Group's
customer base. Receivables are written off when the Group abandons its
collection efforts. An allowance for doubtful accounts is provided with
respect to those amounts that the Group has determined to be doubtful of
collection.
n. Concentrations of credit risk
Financial instruments that potentially subject the Group to concentrations of
credit risk consist principally of cash and cash equivalents, short-term
deposits and trade receivables.
o. Provisions
Provisions are recognized when the Group has a current obligation (legal or
derived) as a result of a past occurrence that can be reliably measured, that
will in all probability result in the Group being required to provide
additional benefits in order to settle this obligation. Provisions are
determined by capitalization of projected cash flows at a rate prior to taxes
that reflects the current market preparation for the money duration and the
specific risks for the liability.
p. Employee benefits
The Group has several benefit plans for its employees:
1. Short-term employee benefits -
Short-term employee benefits include salaries, vacation days, recreation and
deposits to the National Insurance Institute that are recognized as expenses
when rendered.
2. Benefits upon retirement -
Benefits upon retirement, generally funded by deposits to insurance companies
and pension funds, are classified as restricted deposit plans or as restricted
benefits.
All Group employees have restricted deposit plans, in accordance with Section
14 of the Severance Pay Law (Israel), whereby the Group pays fixed amounts
without bearing any legal responsibility to pay additional amounts thereto
even if the fund did not accumulate enough amounts to pay the entire benefit
amount to the employee that relates to the services he rendered during the
current and prior periods. Deposits to the restricted plan are classified as
for benefits or for compensation and are recognized as an expense upon deposit
to the plan concurrent with receiving services from the employee and no
additional provision is required in the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
q. Finance income and expenses
Finance income includes interest in regard to invested amounts, changes in the
fair value of financial assets presented at fair value in the statements of
comprehensive income and gains from changes in the exchange rates and interest
income that are recognized upon accrual using the effective interest method.
Finance expenses include interest on loans received, changes in the time
estimate of provisions, changes in the fair value of financial assets
presented at fair value in the statements of comprehensive loss and losses
from changes in value of financial assets.
Gains and losses from exchange rate differences are reported net. Exchange
rate differences in regard to issuance of shares are charged to equity.
r. Taxes
Tax expense comprises current and deferred tax. Current tax and deferred tax
are recognized in profit or loss except to the extent that they relate to a
business combination, or items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous
years. Current tax payable also includes any tax liability arising from the
declaration of dividends.
Deferred tax is recognized in respect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes.
Deferred tax is not recognized for:
● Temporary differences on the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss;
● Temporary differences related to investments in subsidiaries and jointly
controlled entities to the extent that it is probable that they will not
reverse in the foreseeable future; and
● Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, using tax rates enacted or
substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they
relate to taxes levied by the same Tax Authority on the same taxable entity,
or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will
be realized simultaneously.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2C - SIGNIFICANT ACCOUNTING POLICIES (cont.)
r. Taxes (cont.)
Since there is uncertainty in regard to existence of taxable revenues in the
near future, a deferred tax asset was not recognized.
A deferred tax asset is recognized for unused tax losses, tax credits and
deductible temporary differences to the extent that it is probable that future
taxable profits will be available against which they can be utilized. Deferred
tax assets and liabilities are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit
(taxes on income) will be realized.
s. Basic and Diluted Earnings per Share
Basic earnings per share are computed based on the weighted average number of
common shares outstanding during each year.
Diluted earnings per share are computed based on the weighted average number
of common shares outstanding during each year, plus dilutive potential common
shares considered outstanding during the year.
t. Statement of cash flows
The statement of cash flows from current operations is presented using the
indirect method, whereby interest amounts paid and received by the Group are
included in the cash flows in current operations.
u. Dividend distribution
Dividend distribution to the Company's shareholders is recognized as a
liability in the Group's financial statements in the period in which the
dividends are approved by the Group's shareholders.
v. Segment reporting
Segment results that are reported to the CEO include items directly
attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items comprise mainly corporate assets, head
office expenses and tax.
w. Government grants
A government grant is not recognized until there is reasonable assurance that
the Group will comply with the conditions attaching to it, and that the grant
will be received. The Group received government grants, the nature of which is
compensation for a decrease in revenues, the Group decided to record the
grants received by the Government of Israel as revenues.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3A - OTHER ACCOUNTS RECEIVABLE
December 31
2021 2020
Government institutions 130 78
Prepaid expenses 30 3
160 81
NOTE 3B - TRADE RECEIVABLES, NET
December 31
2021 2020
Group receivables 1,176 1,736
Allowance for doubtful accounts (497) (607)
679 1,129
NOTE 4 - INVENTORIES
December 31
2021 2020
Raw materials 1,117 1,284
Finished goods 673 843
1,790 2,127
NOTE 5 - SHORT-TERM BANK DEPOSIT
The bank deposit sums of $154 and $150 as of December 31, 2021 and 2020,
respectively, serve as a security deposit for repayment of bank loans in
accordance with terms of the loans. The deposit bears yearly interest at the
rate of 0.02%.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Office Furniture and Equipment
Computers and Software
Laboratory Equipment Leasehold Improvements
Vehicles* Total
Cost:
c Balance as of January 1, 2021 200 127 285 60 152 824
Additions during the year
18 4 12 11 4 49
Balance as of December 31, 2021
218 131 297 71 156 873
Accumulated Depreciation:
Balance as of January 1, 2021 177 93 123 23 90 506
Depreciation during the year
11 8 26 6 17 68
Balance as of December 31, 2021
188 101 149 29 107 574
Net book value as of December 31, 2021
30 30 148 42 49 299
Office Furniture and Equipment
Computers and Software
Laboratory Equipment Leasehold Improvements
Vehicles* Total
Cost:
c Balance as of January 1, 2020
194 121 279 60 152 806
Additions during the year
6 6 6 - - 18
Balance as of December 31, 2020 200 127 285 60 152 824
Accumulated Depreciation:
Balance as of January 1, 2020
164 85 93 17 69 428
Depreciation during the year
13 8 30 6 21 78
Balance as of December 31, 2020 177 93 123 23 90 506
Net book value as of December 31, 2020 34 162 37 62 318
23
* See also Note 13.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 7 - INTANGIBLE ASSETS, NET
Total
Cost:
Balance as of January 1, 2021 5,036
Additions during the year 283
Impairment * (3,601)
Balance as of December 31, 2021 1,718
Accumulated Amortization:
Balance as of January 1 ,2021 (2,934)
Amortization during the year (348)
Impairment * 2,598
Balance as of December 31, 2021 (684)
Net book value as of December 31, 2021 1,034
Total
Cost:
Balance as of January 1, 2020 4,755
Additions during the year 281
Balance as of December 31, 2020 5,036
Accumulated Amortization:
Balance as of January 1, 2020 (2,434)
Amortization during the year (500)
Balance as of December 31, 2020 (2,934)
Accumulated Impairment of assets (202)
Net book value as of December 31, 2020 1,900
The expenditure capitalized includes the cost of materials and direct labor
that are directly attributable to preparing the assets for their intended use.
Other development expenditure is recognized in profit or loss as incurred.
Capitalized development expenditure is measured at cost less accumulated
amortization and accumulated impairment losses.
Amortization is calculated using the straight-line method over the estimated
useful lives of the assets: ten years.
* The Group is undergoing a significant change in its business model and new
branding. As part of the process management is reviewing its current product
portfolio in order to focus on those products developed in the past that
management believes have the potential for the future. Accordingly, it has
decided to impair some of its products, as of July 1(st) 2021, amounts $801
thousand, net of accumulated amortization.
See also Note 2C g and Note 2C k.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 8 - TAXES ON INCOME
a. Israeli taxation
1. The Israeli corporate tax rate for 2021 and 2020 is 23%.
2. Tax Benefits from the Encouragement of Capital Investments Law, 1959 ("The
Encouragement Law")
Starcom Israel presents its financial statements to the tax authorities as an
Approved Enterprise. In the framework of the Law for Change of Priorities, an
increase in tax rates was approved, commencing with 2014 and thereafter, on
revenues from an approved enterprise, as stated in the Encouragement Law for
an Approved Enterprise. An eligible company in Development Area A was entitled
to a tax rate of 9% during 2015. During 2016 an amendment to the law was
confirmed according to which an eligible company in Development Area A is
entitled to a tax rate of 7.5% as of 2017.
In an area that is not Development Area A, the tax rate will be 16%.
Concurrently, the tax rate on dividend, for distribution from January 1, 2014,
the source of which is preferred income as stated in the Encouragement Law, is
20%.
Starcom Israel is subject to a tax rate of 16% for the years 2021 and 2020.
3. Starcom Israel has carryforward operating tax losses of approximately NIS 39
million as of December 31, 2021 (NIS 30 million as of December 31, 2020). As
for deferred tax assets see Note 2C(r).
Starcom Israel has been assessed by the Income Tax Authorities up to and
including the year 2017.
b. Jersey taxation
Taxable income of the Company and Starcom Jersey is subject to tax at the rate
of zero percent for the years 2021 and 2020.
c. Detail of tax income
Since the recording of a deferred tax asset is limited to the amount of
deferred tax liabilities, no deferred tax income will be recorded in 2021 or
was recorded in 2020.
NOTE 9 - OTHER ACCOUNTS PAYABLE
December 31
2021 2020
Employees and payroll accruals 209 303
Advanced payments from trade receivables 529 -
738 303
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 10 - LONG-TERM LOANS FROM BANKS, NET OF CURRENT MATURITIES
1. Composition: December 31
2021 2020
Long-term liability 315 315
Less: current maturities (76) (12)
239 303
2. Aggregate maturities of long-term loans for years subsequent to December 31,
2021 are as follows:
Amount
First year 76
Second year 78
Third year 81
Fourth onwards 80
315
3. Additional information regarding long-term loans:
Amount Received NIS (U. S. dollars) Annual Interest Rate Interest Payment Terms
Loan Terms and
Date Received Maturity Dates
Dec 9, 2020 1,000 ($310) Prime + 1.5 48 equal monthly installments including principal and interest (once year Monthly commencing 09 Dec 2020
grace for principal) *
See also Note 13.
*The loan is a state-guaranteed loan, received as assistance due to the spread
of the Covid -19 virus, the State pays the interest for the first year. See
also Note 25.
NOTE 11 - FINANCIAL LIABILITIES OF CONVERTIBLE LOANS AND WARRANTS
a. During December 2021, The Company received from third parties loans in the
total amount of $1,251 thousand (£925 thousand) in the form of convertible
loans enabling the lenders to convert the loans at an exercise price of £0.15
per share at any time, under the limitations of the AIM, Takeover Code and MAR
regulations, up to December 31, 2023.
The convertible loans bear interest at the rate of 8% per annum calculated by
reference to the principal amount of the convertible loans. If not converted,
the loans will be repayable on December 31, 2023.
In addition, the lenders received fully vested warrants to subscribe a total
of 1,541,667 further shares at an exercise price of £0.17 per share. Any
unexercised warrants expire at the end of two-years from grant.
In addition, the lenders received fully vested warrants to subscribe a total
of 1,541,667 further shares at an exercise price of £0.19 per share. Any
unexercised warrants expire at the end of three-years from grant.
The loan was evaluated and divided into different components by independent
appraisers as follows:
Conversion component at fair value Ð $279 thousand
Warrants at fair value Ð $115 thousand
Amortized cost of a loan Ð $857 thousand
Transaction costs were allocated according to the component's fair value
ratio.
The part of the expenses that is attributed to the amortized cost of the loan
was reduced from its cost.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 11 - FINANCIAL LIABILITIES OF CONVERTIBLE LOANS AND WARRANTS (cont.)
An effective interest rate was calculated for the liability component of the
loan, based on its amortization table. The effective interest rate is 33% per
annum.
b. During March 2020, The Company received from Directors Michael Rosenberg (via
Montrose Securities Ltd), Avi Engel and Igor Vatenmacher and an employee
(hereinafter: "the lenders") loans in the total amount of $290 thousand (£244
thousand) in the form of convertible loans enabling the lenders to convert the
loans at an exercise price of £0.0125 per share at any time up to September
30, 2021, as detailed below:
Lender Value of Loan provided Number of Warrants granted
Montrose Securities Limited, a company controlled by Michael Rosenberg £100,000 1,600,000
(Non-Executive Chairman)
Avi Engel 429,330 Israeli Shekels 1,600,000
(Non-Executive Director) (approximately £100,000)
Igor Vatenmacher 100,000 Israeli Shekels (approximately £21,800) 400,000
(Chief Financial Officer)
Starcom Employee 100,000 Israeli Shekels (approximately £21,800) 400,000
The convertible loan bears interest at the rate of 8% per annum calculated by
reference to the principal amount of the convertible loan. If not converted,
the loans will be repayable on September 30, 2021.
In addition, the lenders received fully vested warrants to subscribe a total
of 4 million further shares at an exercise price of £0.015 per share. Any
unexercised warrants expire at the end of two-years from grant.
The loan was evaluated and divided into different components by independent
appraisers as follows:
Conversion component at fair value Ð $59 thousand
Warrants at fair value Ð $12 thousand
Amortized cost of a loan Ð $210 thousand
Transaction costs were allocated according to the component's fair value
ratio.
The part of the expenses that is attributed to the amortized cost of the loan
was reduced from its cost.
An effective interest rate was calculated for the liability component of the
loan, based on its amortization table. The effective interest rate is 35.2%
per annum.
During September 2021 the loans were converted to 19,488,000 (2,436,000 after
shares consolidation) new ordinary shares according to the conditions
set-above.
See also Note 20.
Total revaluation expenses regarding these components in the statement of
comprehensive loss for the reported period are as follows:
Loan component Option Warrant
Balance as of January 1, 2021 254 42 10
Additions during the year 857 279 115
Finance (income) expenses 56 (42) (7)
Payments (17) - -
Conversion (293) - -
Balance as of December 31, 2021 857 279 118
The convertible loan bears interest at the rate of 8% per annum calculated by
reference to the principal amount of the convertible loan. If not converted,
the loans will be repayable on September 30, 2021.
In addition, the lenders received fully vested warrants to subscribe a total
of 4 million further shares at an exercise price of £0.015 per share. Any
unexercised warrants expire at the end of two-years from grant.
The loan was evaluated and divided into different components by independent
appraisers as follows:
Conversion component at fair value Ð $59 thousand
Warrants at fair value Ð $12 thousand
Amortized cost of a loan Ð $210 thousand
Transaction costs were allocated according to the component's fair value
ratio.
The part of the expenses that is attributed to the amortized cost of the loan
was reduced from its cost.
An effective interest rate was calculated for the liability component of the
loan, based on its amortization table. The effective interest rate is 35.2%
per annum.
During September 2021 the loans were converted to 19,488,000 (2,436,000 after
shares consolidation) new ordinary shares according to the conditions
set-above.
See also Note 20.
Total revaluation expenses regarding these components in the statement of
comprehensive loss for the reported period are as follows:
Loan component
Option
Warrant
Balance as of January 1, 2021
254
42
10
Additions during the year
857
279
115
Finance (income) expenses
56
(42)
(7)
Payments
(17)
-
-
Conversion
(293)
-
-
Balance as of December 31, 2021
857
279
118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 12 - SHORT-TERM BANK LOAN
During July 2020, Starcom Israel signed a loan agreement with an Israeli bank
in order to receive loans and credits in an aggregate principal amount that
will not exceed NIS 5 million (hereinafter Ð "the Loan").
During November 2021, the company signed an amendment to the loan agreement
which adjust the total loan amount to NIS 3 million and adjust the interest
the loan shall bear to amount of Prime + 4% calculated and payable on a
monthly basis, to be repaid after a year.
In the framework of the financial agreement that was signed, the Company is
obligated to maintain financials covenants in regard to the Groups' EBITDA and
Equity.
As of December 31, 2021, the Company did not meet its financial covenants,
thus the bank has the right to demand the repayment of the loan immediately.
NOTE 13 - CHARGES
In respect of the short-term and long-term bank loans set out in Notes 10 and
12 above-
1. A charge was placed on the Starcom Israel's vehicle.
2. A floating pledge was placed on the assets of Starcom Israel.
3. A cross-Group charge was placed.
4. A Pledge on the bank deposit of Starcom Israel was placed.
NOTE 14 - EQUITY
a. During November 2021 the Company held a general meeting which resulted with a
decision to consolidated shares by a ratio of 1:8 ("shares consolidation").
Composition - common stock of no-par value, issued and outstanding 52,526,822
shares and 43,934,975 (Adjusted to shares consolidation) shares as of December
31, 2021 and December 31, 2020, respectively.
b. A Company share grants to its holder voting rights, rights to receive
dividends and rights to net assets upon dissolution.
c. During May 2021 the Company issued 9,686,775 (1,210,847 after shares
consolidation) new ordinary shares in lieu of 60% of director fees for 14-18
months ending May 31 2021 in a total amount of £77 thousands ($109
thousands). The shares were issued at 0.8p per share, being the most recent
closing offer price for ordinary shares.
d. During October 2021, the Company raised £450 ($621) thousand before expenses
through a placing of 36,000,000 Ordinary Shares (4,500,000 after shares
consolidation).
e. See Note 11b.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 14 - EQUITY (cont.)
f. Share-based payment
The following table lists the number of share options and warrants and the
exercise prices of such during the current and prior years:
2021 2020*
Number of options Weighted average Number of options Weighted average
exercise price exercise
price
£ £
Share options outstanding at beginning of year 6,244,243 0.22 6,161,743 0.22
Warrants granted during the year 4,322,869 0.17 500,000 0.12
Options & Warrants exercised during the year (445,000) - - -
Options & Warrants expired during the year - - (417,500) 0.144
Share options & warrants outstanding at end of year 10,122,112 0.206 6,244,243 0.22
Share options & warrants exercisable at end of year 9,127,829 0.207 5,744,243 0.22
* The 2020 number of options and Weighted average exercise price were revised
in accordance with the share consolidation.
I. During May 2021 the Company Issued 3,000,000 new share options (375,000
after the shares consolidation) to executive management and additional
1,000,000 share options (125,000 after the shares consolidation) to other
employees. The executive management options will be exercisable, subject to
their continued employment with the Company, over three years as to one third
at 1.5p (12p after the shares consolidation) per share from the first
anniversary of the date of grant, one third at 2p (16p after the shares
consolidation) per share from the second anniversary of date of grant and one
third at 2.5p (20p after the shares consolidation) per share from the third
anniversary of date of grant.
The employees' options will become exercisable, subject to their continued
employment with the Company, at 1.25p (10p after the shares consolidation) per
share over three years as to one third for each anniversary of the date of
grant.
II. During May 2021 the Company's CEO and its Board of directors Chairman
exercised 3,560,000 (445,000 after the shares consolidation) options granted
to them under the Company's share option scheme in lieu of salary and fees, as
announced on 17 June 2019. The options were exercisable at nil cost.
III. During July 2021 the Company issued 6,251,162 new share options (781,395
after the shares consolidation) to certain directors ("Fee Options") at a
price of 1.075 pence per share in order to reduce fees by £5,600 per month,
for a twelve-month period until 31 May 2022. The Fee Options vest month by
month and can be exercised from that date at nil cost per share, until 10
years from date of grant.
Due to Mr Engel step down from the board of directors, the number of shares
was updated to 5,916,280 (739,535 after the shares consolidation), according
to the mutual agreement.
IV. See Note 11a.
* The 2020 number of options and Weighted average exercise price were revised
in accordance with the share consolidation.
I. During May 2021 the Company Issued 3,000,000 new share options (375,000
after the shares consolidation) to executive management and additional
1,000,000 share options (125,000 after the shares consolidation) to other
employees. The executive management options will be exercisable, subject to
their continued employment with the Company, over three years as to one third
at 1.5p (12p after the shares consolidation) per share from the first
anniversary of the date of grant, one third at 2p (16p after the shares
consolidation) per share from the second anniversary of date of grant and one
third at 2.5p (20p after the shares consolidation) per share from the third
anniversary of date of grant.
The employees' options will become exercisable, subject to their continued
employment with the Company, at 1.25p (10p after the shares consolidation) per
share over three years as to one third for each anniversary of the date of
grant.
II. During May 2021 the Company's CEO and its Board of directors Chairman
exercised 3,560,000 (445,000 after the shares consolidation) options granted
to them under the Company's share option scheme in lieu of salary and fees, as
announced on 17 June 2019. The options were exercisable at nil cost.
III. During July 2021 the Company issued 6,251,162 new share options (781,395
after the shares consolidation) to certain directors ("Fee Options") at a
price of 1.075 pence per share in order to reduce fees by £5,600 per month,
for a twelve-month period until 31 May 2022. The Fee Options vest month by
month and can be exercised from that date at nil cost per share, until 10
years from date of grant.
Due to Mr Engel step down from the board of directors, the number of shares
was updated to 5,916,280 (739,535 after the shares consolidation), according
to the mutual agreement.
IV. See Note 11a.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 15 - COST OF SALES
Year Ended December 31,
2021 2020
Purchases and other 2,241 2,655
Amortization* 348 500
Decrease (Increase) in inventory (44) 219
2,545 3,374
* See also Note 7 regarding the impairment of some of the intangible assets.
NOTE 16 - GENERAL AND ADMINISTRATIVE EXPENSES
Year Ended December 31,
2021 2020
a.
Salaries and related expenses (see also Note 20) 1,307 1,167
Professional services (1) 548 557
Doubtful accounts and bad debts 154 550
Depreciation 202 225
Office maintenance 104 112
Car maintenance 73 69
2,388 2,680
(1) Including share-based payment to directors and senior management in the
amounts of $28 and $181 thousand for the years ended December 31, 2021 and
2020, respectively. See also Note 14f
b. Average Number of Staff Members by Category:
Year Ended December 31,
2021 2020
Sales and marketing 6 5
Research and development 3 3
General and administrative 12 12
21 20
NOTE 17 - OTHER INCOME (EXPENSES)
Year Ended December 31,
2021 2020
Intangible assets impairment (801) -
Other income 45 24
(756) 24
NOTE 18A - FINANCE INCOME
Year Ended December 31,
2021 2020
Interest from deposits - 1
NOTE 18B - FINANCE EXPENSES
Exchange rate differences (98) (140)
Interest to banks and others (55) (62)
Bank charges (62) (43)
Interest to suppliers (46) (16)
Interest to related parties (10) (10)
(271) (271)
Net finance expenses (271) (270)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 19 - LOSS PER SHARE
Weighted average number of shares used in computing basic and diluted loss per
share: (adjusted to shares consolidation)
Year Ended December 31,
2021 2020
Number of shares 46,294,206 43,650,630
NOTE 20 - RELATED PARTIES
a. The related parties that own shares in the Group are:
Mr. Avraham Hartman (10.25%), Mr. Uri Hartman (5.6ֻ%), Mr. Doron Kedem
(5.6%).
b. Short-term balances: December 31
2021 2020
Credit balances
Avi Hartmann (38) (56)
Uri Hartmann (482) (444)
Doron Kedem (173) (173)
Total Credit Balance (693) (673)
Loans
Avi Hartmann 38 87
Uri Hartmann (236) (236)
Doron Kedem 199 207
Total Loans 1 58
(692) (615)
c. Shareholders' credit balances are related to deferred salaries and are linked
to the New Israel Shekel ("NIS"). Loans from shareholders accrue 4% annual
interest.
d. Transactions: Year Ended December 31,
2021 2020
Key management compensation:
Total salaries and related expenses for shareholders/related parties
543 450
Non-Executive directors' fees 141 90
Total share-based payment 22 80
Interest to related parties 10 10
e. Directors and the shareholders of the Group are each entitled to benefits, in
addition to salaries, that include a vehicle, meals, cellular phones and a
professional enrichment fund. Concurrently, the Group deposits for them
amounts in a restricted benefit plan for implementation upon completion of
their employment.
f. For the purposes of the AIM Rules other transactions with related parties are
disclosed in notes 11a, 11b,14c, 14f(I), 14f(II) and 14f(III)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 21 - FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL RISKS
a. Financial Risk Factors:
The Group's operations expose it to a variety of financial risks, including:
market, currency, credit and liquidity risks. The comprehensive Group plan for
risk management focuses on the fact that it is not possible to predict
financial market behavior and an effort to minimize possible negative effects
on Company financial performance.
In this Note, information is stated in regard to Group exposure to each of the
risks abovementioned and the handling of these risks. Risk management and
capital are handled by the Group management that identifies and evaluates
financial risks.
1) Exchange rate risk
Group operations are exposed to exchange rate risks arising mainly from
exposure of loans that are linked to the NIS from banks, suppliers and others.
2) Credit risk
Credit risks are handled at the Group level. These risks arise from cash and
cash equivalents, bank deposits and unpaid receivable balances. The Group
settled a credit insurance with one of the biggest credit insurance companies
worldwide and manages its credit risk accordingly. Cash and cash equivalent
balances of the Group are deposited in an Israeli bank. Group management is of
the opinion that there is insignificant credit risk regarding these amounts.
3) Liquidity risks
Cautious management of liquidity risks requires that there will be sufficient
amounts of cash to finance operations. Group management currently examines
projections regarding liquidity surpluses deriving from cash and cash
equivalents. This examination is based on projected cash flows, in accordance
with procedures and limitations determined by the Group.
Short term loan covenants compliance is closely monitored by the financial
department.
b. Linkage terms of financial instruments:
Group exposure to Index and foreign currency risks, based on par value, except
for derivative financial instruments is as follows:
December 31, 2021
NIS U.S. Dollar GBP Euro Total
Variable Interest Unlinked
Unlinked
Financial Assets:
Cash and cash equivalents 358 - 805 133 238 1,534
Short-term deposit - 154 - - - 154
Trade receivables, net 128 - 533 - 18 679
Other accounts receivable 211 - - 5 - 216
Financial Liabilities:
Short-term bank credit - (24) - - - (24)
Short term bank loan - (922) - - - (922)
Trade payables - (1,220) (237) (94) (2) (1,553)
Other accounts payable (210) - (120) - (408) (738)
Leasehold liabilities - (706) - - - (706)
Related parties - (692) - - - (692)
Long-term loans from banks - (315) - - - (315)
Financial liabilities of convertible loans - (1,251) - - - (1,251)
487 (4,976) 981 44 (154) (3,618)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 21 - FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL RISKS (cont.)
December 31, 2020
NIS U.S. Dollar GBP Euro Total
Variable
Unlinked Interest Unlinked
Financial Assets:
Cash and cash equivalents 2 - 251 - 11 264
Short-term deposit - 150 - - - 150
Trade receivables, net 233 - 872 5 19 1,129
Other accounts receivable 132 - - 5 - 137
Financial Liabilities:
Short-term bank credit - (25) - - - (25)
Short-term bank loan - (739) - - - (739)
Trade payables - (1,018) (412) (146) (3) (1,579)
Other accounts payable (303) - - - - (303)
Leasehold liabilities - (372) - - - (372)
Related parties - (615) - - - (615)
Long-term loans from banks - (315) - - - (315)
Financial liabilities of convertible loans
- (196) - (110) - (306)
64
(3,130) 711 (246) 27 (2,574)
Analysis of Sensitivity to Changes in the Exchange Rate of the U.S. Dollar
Against the NIS:
5% Increase in 5% Decrease in
Exchange Rate Exchange Rate
For the Year Ended December 31
2021 (224) 224
2020 (153) 153
Analysis of Sensitivity to Changes in the Exchange Rate of the U.S. Dollar
Against the
Euro:
5% Increase in 5% Decrease in
Exchange Rate Exchange Rate
For the Year Ended December 31
2021 (8) 8
2020 1 (1)
Analysis of Sensitivity to Changes in the Exchange Rate of the U.S. Dollar
Against the GBP:
5% Increase in 5% Decrease in
Exchange Rate Exchange Rate
For the Year Ended December 31
2021 2 (2)
2020 (12) 12
c. Fair value
As of December 31, 2021, there was no significant difference between the
carrying amounts and fair values of the Company's financial instruments that
are presented in the financial statements not at fair value.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 22 - Leases
Group as a lessee
The Group has lease contracts for various items of property and vehicles used
in its operations. The leases of property have lease terms of 5 years, while
motor vehicles have lease terms of 3 years. The Group's obligations under its
leases are secured by the lessor's title to the leased assets. Generally, the
Group is restricted from assigning and subleasing.
There are several lease contracts that include extension and termination
options, which are further discussed below.
The Group also has certain leases of machinery with lease terms of 12 months
or less and leases of office equipment with low value. The Group applies the
'short-term lease' and 'lease of low-value assets' recognition exemptions
for these leases.
Below are the carrying amounts of right-of-use assets recognized and the
movements during the period:
Property Vehicles Total
Balance at January 1, 2020 180 48 228
Additions 111 138 249
Depreciation expenses (85) (62) (147)
Balance at December 31, 2020 206 124 330
Additions 629 - 629
Disposals (136) - (136)
Depreciation expenses (70) (63) (133)
Balance at December 31, 2021 629 61 690
Below are the carrying amounts of lease liabilities (included under Leasehold
Liabilities) and the activities during the period:
2021 2020
As at January 1 (372) (250)
Additions (629) (249)
Disposals 162 -
Exchange rate differences and others (9) (22)
Accretion of interest 5 (13)
Payments 137 162
Balance at December 31 (706) (372)
Current (148) (136)
Non-Current (558) (236)
Maturity analysis - contractual undiscounted cash flows
Less than one year 170
One to five years 606
Total undiscounted lease liabilities at December 31, 2021 776
The following are the amounts recognized in profit or loss:
The following are the amounts recognized in profit or loss:
2021 2020
Depreciation expenses of right-of-use assets (133) (147)
Interest income (expenses) on lease liabilities (15) (13)
Accretion of interest 11 (22)
Total amount recognized in profit or loss (137) (182)
Within 5 years More than 5 years Total
Extension options expected not to be exercised - 720 720
Termination options expected to be exercised - - -
December 31, 2021 - 720 720
Extension options expected not to be exercised - - -
Termination options expected to be exercised - - -
December 31, 2020 - - -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 22 - Leases (cont.)
The Group had total cash outflows for leases of $137 in 2021 ($162 in 2020).
The Group also had non-cash additions to right-of-use assets and lease
liabilities of $629 in 2021 ($249 in 2020)
The Group has several lease contracts that include extension and termination
options. These options are negotiated by management to provide flexibility in
managing the leased-asset portfolio and to align with the Group's business
needs. Management performs significant judgment operations in determining
whether these extension and termination options are reasonably certain to be
exercised.
Below are the undiscounted potential future rental payments relating to
periods following the exercise date of extension and termination options that
are not included in the lease term:
NOTE 23 - CUSTOMERS AND GEOGRAPHIC INFORMATION
a. Major customers' data as a percentage of total consolidated sales to
unaffiliated customers:
Year Ended December 31,
2021 2020
Customer A 10% 14%
Customer B 9% 12%
Customer C 6% 5%
b. Breakdown of consolidated sales to unaffiliated customers according to
geographic regions:
Year Ended December 31,
2021 2020
Latin America 17% 15%
Europe 15% 16%
Africa 29% 33%
Asia 7% 9%
Middle East 23% 20%
North America 9% 7%
Total 100% 100%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 24 - SEGMENTATION REPORTING
The Group has two main reportable segments, as detailed below:
Reported operating segments include: Hardware and SaaS.
For each of the strategic divisions, the Group's CEO reviews internal
management reports on at least a quarterly basis.
There are no inter-segment sales. Information regarding the results of each
reportable segment is included below. Performance is measured based on segment
gross profit included in the internal management reports that are reviewed by
the Group's CEO. Segment profit is used to measure performance, as management
believes that such information is the most relevant in evaluating the results
of certain segments.
Segment information regarding the reported segments:
Hardware SaaS
Year Ended 31.12.2021:
Segment revenues 2,069 2,145
Cost of sales (2,291) (254)
Gross profit (loss) (222) 1,891
Year Ended 31.12.2020:
Segment revenues 2,833 2,208
Cost of sales (3,070) (304)
Gross profit (237) 1,904
NOTE 25 - SIGNIFICANT EVENTS DURING THE REPORTED PERIOD (COVID-19)
Due to the pandemic outbreak since March 2020, most of the countries across
the globe have taken extra measures to prevent and reduce COVID-19 exposure.
The unprecedented conditions resulted in a decrease in revenues for the year.
In addition, normal global component's shortage, purchasing processes and
difficult shipping limitations created additional costs and delays which
impacted the Group ability to fully respond to the increased business demand.
To meet this demand, the Groups' management made special arrangements to
obtain sufficient components for the future ongoing business through 2022.
The Group has taken actions to manage its liquidity, including reducing
operating expenses and strict cash flow monitoring. Based on current
operational assumptions, the Group believes it has adequate liquidity beyond
the next twelve months.
In addition, the Group also managed to use the opportunity of COVID-19 impact
on freight movement from the other hand and was able to conclude 2 significant
distribution contracts which are expected to contribute significantly to
revenues during 2022.
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