Opportunities

Transcription

Opportunities

n
Seizing
Opportunities
2011 AVT Annual Report
Table (US dollars in thousands, except per share amounts)
Year ended December 31,
2011
2010
2009
Revenues
45,967
39,681
37,231
*URVVSURÀW
Gross margin in %
49.8%
49.5%
42.8%
Research and development expenses, net
6,369
6,356
7,600
Selling and marketing expenses
8,174
8,217
9,043
General and administration expenses
4,961
4,707
5,891
371
611
739
Impairment of goodwill
-
-
2,045
Operating income (loss)
3,377
356
(8,916)
Operating margin in %
7.3%
0.9%
(24.0%)
Net income (loss)
3,874
561
(10,706)
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Revenues and Income
Amortization of deferred stock-based compensation
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Balance sheet as of December 31,
Cash and equivalents
13,946
10,816
11,114
Total assets
35,888
30,728
30,829
Total liabilities
14,096
13,192
14,465
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Share
Basic earnings (loss) per share in US dollars
Share price as of December 31,
0.73
0.11
(2.02)
3.10 Euro
3.13 Euro
2.84 Euro
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2. AVT Annual Report 2011
Contents
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am pleased to report that 2011 has been a prosperous
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Quarter over quarter during 2011, AVT recorded consecutive increases in revenues. In Q4 2011 our
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goals and vision.
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crisis in Europe, contributed 41.2% of total order bookings, whereas the North & South American
markets accounted for 39.5%. In direct response to our efforts through direct sales and other marketing
channels, South America and South East Asia both recorded visible progress reaching a share of 10.1%
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for $1.6 million.
In terms of market segments, we continue to see growth and larger volumes in the labels and packaging
markets, while the commercial printing segment remains somewhat slower.
Taking advantage of the revitalization of the packaging and label industries and our leadership
position in the market, we continued to create revenue-generating opportunities for our products and
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introduced SpectraLab, our new groundbreaking ISO-compliant in-line spectrophotometer for on-press
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included in the HP Partner Program for the Indigo Division, providing HP customers with inspection
solutions for the giant’s digital presses. Leveraging AVT’s large installed base in the labels and packaging
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recognition of AVT’s market position.
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opportunities for AVT in the horizon and intend to pursue them with strength. Alongside introducing
new products, increasing market penetration, forging new partnerships around the world, and
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to showcase our complete product lines, present and new, addressing all print market segments.
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Shlomo Amir, President & CEO
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managing director of SATLYNX GmbH. Prior to that, he was the Vice President, Operations,
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from the Israeli government (1991,1994).
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in AVT, Inc. in the US. Prior to AVT, Amir held various positions in the communications and
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companies).
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always
one step ahead
We engage partners, customers and the industry at large. We engineer solutions that improve print quality and processes. We embark in new projects that ensure more automation, shorter production
cycles, less waste and outstanding process and quality control. With a track record of years in the industry and thousands of installations worldwide, we look into the future through windows of
opportunities and push forward fostering new partnerships, growing AVT’s market share, investing in R&D of new and innovative products, and generating more profits for our shareholders.
Ideas are our main
The spirit of innovation is in everything AVT does. From automatic inspection for printing on metals, through the latest technology in color measurement embodied in
SpectraLab, to a revolutionary Braille automatic inline inspection system that can spot every fault in Braille dots on pharmaceutical labels, we are always at the edge of technology
and market trends. AVT’s innovative products and technologies are constantly being showcased in key forums and are acquired by leading customers around the world.
Strength
The
possibilities are
We see an opportunity in each of our endeavors – and these opportunities lead us to success. We take the pulse of the industry and are always ready to address market needs.
This is what drives us to grow our market share in regions like South America and South East Asia, how we continually invest in R&D to introduce new products into
a demanding market, how we keep our finances in check to make sure AVT remains profitable. There are many opportunities knocking at our door – more solutions for
automatic inspection, more addons like SpectraLab, printing on metals, commercial printing, to name just a few – and we at AVT intend to seize many of them.
endless
goes
hand
success
in hand with
innovation
Hand and hand with customers and partners, we stir the imagination to create innovative
solutions that push the industry forward. An excellent example is our inclusion into the HP
Partner Program for the Indigo Division, providing HP customers with high-end inspection
solutions for HP Indigo WS6000 and WS4500 digital presses.
Leveraging on these close collaborations, AVT extends its geographical reach, brings exciting
new products to the market, and creates new revenue-generating opportunities for its products.
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facts.
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uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize,
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selling prices despite the aggressive marketing and pricing strategies of our competitors.
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information included elsewhere in this annual report.
Our Solutions
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incorporate additional functions and capabilities as their business or operation require.
pRegister & iReg
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to the register process and does not
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Web and sheetfed
offset presses, all
market segments
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and L*a*b* information and then
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and controls print-to-cut and print-tofold position of web offset presses.
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report spectral L*a*b* values utilizing
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sheets for metal boxes market.
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web offset press, integrated into
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worldwide. No distributor or end-user accounted for more than 10% of revenues in 2011 and 2010.
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Overview
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the PrintVision/ 9000, in 1996. Commercial sales of PrintVision/ 9000 commenced in the second
quarter of 1997.
We established AVT Inc. in October 1996 to serve as our direct distribution channels in the Americas.
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allocated to the assets acquired based on their respective fair values.
Off-Balance Sheet Transactions
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support operations.
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commercial printing and newspapers products as well as our Closed Loop Color Control solutions are
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standard infrastructure and are PC compatible. The hardware elements in our packaging and labels
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Some of the components we use have a single approved manufacturer while others have two or more
options for purchasing. In addition, for some of the components and subassemblies we maintain
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subassemblies, we use in our existing products, are purchased from a limited number of suppliers, we
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manufacturers worldwide.
Via this acquisition AVT entered the commercial and newspaper printing markets.
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of market segments addressed and process and color control solutions offered to the traditional
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positioning value.
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Manufacturing
Service and Support
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in Rockwall Texas that offer support to our customers and distributors. These service engineers, as
well as additional service engineers located in our subsidiaries in Europe and in the Americas, provide
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maintenance and application.
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period. Software, whether contained in optional features or forming an integral part of the functioning
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Research & Development
We believe that the development of new products and the enhancement of existing products are
essential to our future success. Therefore, we intend to continue to devote substantial resources to
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through our internal funds and certain programs sponsored through the Government of Israel.
We believe our research and development effort has been an important factor in establishing and
maintaining our competitive position.
Selling and Marketing
We market our products for automatic inspection of printed materials and press control, Closed
Loop Color control (CLC), color management and reporting software and provide customer support
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which include participation in various trade shows and conventions, publications and trade press,
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Critical Accounting Policies
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alternative estimates or assumptions which are also reasonable. We believe that, given the facts and
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- Revenues Recognition
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the installation of the product, the revenue recognition of the conditioned amount will be deferred,
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Installation and training are not considered essential to the automatic inspection product capabilities
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value of installation and training and recognize those deferred revenues once installation and training
has been completed.
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writing that the product or service has been accepted.
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or as services are performed.
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forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash
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for each reporting unit. We allocate goodwill to reporting units based on the reporting unit expected
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reassign goodwill using a relative fair value allocation approach.
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our results of operations and other pertinent information. We will record an asset impairment charge
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Based on our evaluation conducted during the fourth quarter of 2009 we recorded goodwill and other
intangible assets impairment charges related to our long-lived assets. No impairment charge has arisen
as a result of the impairment evaluation performed in the fourth quarter of 2010 and 2011.
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value of the respective assets. If these estimates or their related assumptions change in the future, we
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During the fourth quarter of 2009 we performed our annual impairment test of acquired intangible
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exceeded the fair value in 2009, the second step of the impairment evaluation was undertaken to
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asset in the fourth quarter of 2009, a non-cash impairment charge of $871 thousand against Customer
Relationships and Trademarks/Trade names intangible assets in the fourth quarter of 2009 and a
non-cash impairment charge of $2,045 thousand against goodwill in the fourth quarter of 2009. The
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economic recession.
ASC 350 requires that goodwill be tested for impairment at the reporting unit level on an annual basis
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assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units,
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of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the
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no indicators for such impairment existed.
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We are required to assess the impairment of long-lived assets, tangible and intangible, other than
goodwill, ASC 360 on a periodic basis, when events or changes in circumstances indicate that the
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Taxes on Income. Taxes on income are calculated based on our assumptions as to our
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conditional upon its compliance with the terms and conditions prescribed in this law.
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valuation allowance recorded against our net deferred tax assets. We have considered future taxable
income, prudent and feasible tax planning strategies and other available evidence in determining the
need for a valuation allowance.
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all of the deferred income tax assets will not be realized. If the realization of deferred tax assets in the
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income in the period such determination was made.
.25
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or loss, changes in the valuation allowance, changes in state or foreign tax laws, future expansion into
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Stock-Based Compensation. We account for stock-based compensation in accordance with
the provisions of ASC 718. Under the fair value recognition provisions of ASC 718, stock-based
compensation cost is estimated at the grant date based on the fair value of the award and is recognized
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value model and calculating the fair value of stock-based awards, which includes estimates of stock
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operating results.
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RI RSHUDWLRQVDVÀQDQFLDOLQFRPHRUH[SHQVHVDVDSSURSULDWH
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Devaluation (revaluation)
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2010
2009
7.7%
(6.0%)
(0.7%)
Although a material portion of our costs relate to the operations in Israel, part of these Israeli costs are
denominated in US Dollars or linked thereto. Costs not denominated in, or linked to, US Dollars are
converted to US Dollars, when recorded, at the then prevailing exchange rates. To the extent such costs
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exceeds the rate of devaluation on the NIS against the US Dollar, or if the timing of such devaluations
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Organizational Structure
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Name of Subsidiary
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2011
Country of Incorporation
Precentage of Ownership Interest
*HUPDQ\
86$
%HOJLXP
86$
.27
’L ’L Operating Results
The following table sets forth selected consolidated statements of income data for each of the three
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HQGHG'HFHPEHUDQGLQWKRXVDQGV86'ROODUV
U.S. dollars in thousands
2011
2010
2009
Revenues
45,967
39,681
37,231
Cost of revenues
23,086
20,045
21,280
*URVVSURÀW
Gross margin in %
49.8%
49.5%
42.8%
2SHUDWLQJH[SHQVHV
Research and development, net
6,369
6,356
7,600
Selling and marketing
8,174
8,217
9,043
General and administrative
4,961
4,707
5,891
Restructuring
-
-
288
Impairment of Goodwill
-
-
2,045
2011
2010
2009
100%
100%
100%
Products
78.7
79.6
75.5
Services
21.3
20.4
24.5
Cost of revenues
50.2
50.5
57.2
*URVVSURÀW
Research and development, gross
15.2
17.9
22.7
Less - grants
(1.4)
(1.9)
(2.3)
17.8
20.7
24.3
10.8
11.9
15.8
Restructuring
-
-
0.8
Impairment of Goodwill
-
-
5.5
Revenues
2SHUDWLQJH[SHQVHV
Total operating expenses
19,504
19,280
24,867
3,377
356
(8,916)
)LQDQFLDOH[SHQVHQHW
42.4
48.6
66.8
Income (loss) before taxes on income
3,156
(195)
(8,979)
7.4
0.9
(24.0)
7D[HVRQLQFRPHWD[EHQHÀW
)LQDQFLDOH[SHQVHQHW
Net income (loss)
3,874
561
(10,706)
6.9
(0.5)
(24.2)
8.4
1.4
(28.8)
Net income (loss)
.29
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impairment charge of $871 thousand against Customer Relationships and Trademarks/Trade Names.
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In addition, the annual schedule of amortization of acquired intangible assets is comprised of
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LQDQGWKH&XVWRPHU5HODWLRQVKLSDQG7UDGH0DUNVDPRUWL]DWLRQDPRXQWVZHUH
WKRXVDQGWKRXVDQGDQGWKRXVDQGUHVSHFWLYHO\
’L 2011
GAAP
2010
$GMXVWPHQWV
Non GAAP
2009
Non GAAP
Non GAAP
Revenues
45,967
45,967
39,681
37,231
Cost of revenues
23,086
(340)
22,746
19,671
18,965
*URVVSURÀW
Gross margin in %
49.8%
50.5%
50.4%
49.1%
2SHUDWLQJH[SHQVHV
7HFKQRORJ\DQG7UDGH0DUNVDUHDPRUWL]HGUDWDEO\RYHUDQG\HDUVUHVSHFWLYHO\DQG&XVWRPHU
5HODWLRQVKLSLVDPRUWL]HGXVLQJWKHDFFUHWLRQPHWKRGRYHU\HDUVFRPPHQFLQJIURPWKHGDWHRI closing on October 1, 2007.
7KHIROORZLQJWDEOHVHWVIRUWKVHOHFWHGSURIRUPDFRQVROLGDWHGVWDWHPHQWVRI LQFRPHGDWDDGMXVWHG
to exclude the impact of non-cash impairment of goodwill and acquired intangible assets of $4,536
thousand in 2009, annual amortization of acquired intangible assets of $374 thousand in 2011,
$297 thousand in 2010 and $919 thousand in 2009. In addition, proforma consolidated statements
of income excludes non cash stock-based compensation expenses of $371 thousand in 2011, $611
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Research and development, net
6,369
(94)
6,275
6,242
7,231
8,174
(226)
7,948
8,025
7,602
4,961
(85)
4,876
4,479
5,219
19,504
(405)
19,099
18,746
20,052
3,377
745
4,122
1,264
(1,786)
)LQDQFLDOH[SHQVHQHW
3,156
745
3,901
713
(1,849)
Net income (loss)
3,874
4,619
1,469
(3,576)
Year ended December 31, 2011,
compared with year ended December 31, 2010
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operating leverage we have built into our business model and drive bottom-line growth.
.31
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the sale of support services, training and software updates to customers.
Revenues in 2011 totaled $46.0 million 15.8% higher than the $39.7 million generated in 2010.
Revenues in the fourth quarter of 2011 were $12.5 million 23.9% higher than in Q4 2010.
The increase in total revenues in 2011 is due to growth in all markets – Packaging & Labels convertors
and Commercial printing.
5HYHQXHVIURPVHUYLFHVDUHJHQHUDWHGIURPPDLQWHQDQFHFRQWUDFWVWLPHDQGPDWHULDOFKDUJHV
consulting and training fees, installation and sales of spare parts. We recognize revenues over the
contractual period or as services are performed. Service revenues in 2011 totaled $9.8 million (out of
the total revenues of $46.0 million) an increase of 20.8% compared with the $8.1 million generated in
7KHLQFUHDVHLQVHUYLFHUHYHQXHVLVDWWULEXWDEOHSULPDULO\WRWKHLQFUHDVHLQRXUSURGXFWV·LQVWDOOHG
EDVHDQGWRWKHKLJKHUOHYHORI EXVLQHVVDFWLYLW\
Service new orders received during 2011 were $11.6 million, 9.9% higher than in 2010. The service
RUGHUVQRW\HWUHFRJQL]HGDVUHYHQXHVZLOOEHUHFRJQL]HGUDWDEO\RYHUWKHFRQWUDFWXDOSHULRG
During 2011 new order booking totaled $47.5 million representing an increase of 10.0% over 2010
DWWULEXWDEOHPDLQO\WRLQFUHDVHVLQWKH3DFNDJLQJDQG/DEHOVPDUNHWV7KHUDWLRRI WRWDOQHZRUGHU
booking to revenues in 2011 was 103.3% compared with a ratio of 108.8% in 2010.
As of December 31, 2011 order backlog totaled $16.0 million, an increase of 10.4% compared with the
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part of the remainder will become revenue in the succeeding three quarters.
2011
2010
43%
44%
45%
(0($
40%
Americas
12%
16%
AsPac
In 2011 the American market contributed 40% of total revenues compared with 45% in 2010 while
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5HYHQXHVJHQHUDWHGLQ$VLD3DFLÀFFRQWULEXWHGRI WRWDOUHYHQXHVFRPSDUHGZLWKLQ
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Cost of revenues includes materials, labor, manufacturing overhead and an estimation of costs
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end- user. A provision, based on our experience and engineering estimates, is recorded to cover
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Gross margin in 2011 was 49.8% compared with 49.5%, in 2010. Proforma gross margin in 2011
(excluding the impact of non-cash amortization of acquired intangible assets and stock-based
compensation expense) was 50.5% compared with proforma gross margin of 50.4% in 2010.
7KHLQFUHDVHLQJURVVPDUJLQLQLVGXHSULPDULO\WRKLJKHUWRWDOUHYHQXHVFRXSOHGZLWKIDYRUDEOH
LPSDFWRI WKH(XURH[FKDQJHUDWHUHODWLYHWRWKH86'ROODUSDUWO\RIIVHWE\WKHLPSDFWRI XQIDYRUDEOH
product mix of sales and the unfavorable impact of the Israeli Shekel exchange rate relative to the US
Dollar.
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increasing the platform’s selling price while keeping the same bill of material cost, and thus improving
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ended 31.12.2011, 30.9.2011, 30.6.2011, 31.3.2011 and 31.12.2010 expressed as a percentage of total
TXDUWHUO\UHYHQXHV
Research and Development
Cost of Revenues
51.5%
50.9%
50.8%
48.6%
',2(d
Net R&D
16.0%
14.3%
14.3%
13.5%
#%2&d
Selling &
0DUNHWLQJ
25.9%
18.9%
18.0%
17.7%
General &
Administrative
#(2)d
13.3%
12.0%
10.6%
10.4%
Q4 / 2010
Q1 / 2011
Q2 / 2011
Q3 / 2011
Q4 / 2011
Research and development costs are charged to the statement of operations as incurred. Government
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related costs are incurred.
,QQHWUHVHDUFKDQGGHYHORSPHQWH[SHQVHVZHUHWKRXVDQGHVVHQWLDOO\XQFKDQJHGIURP
2010 ($6,356 thousand).
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government grants and participation recorded were $638 thousand compared with $752 thousand
recorded in 2010.
Proforma net research and development expenses in 2011 (excluding the impact of non-cash stockEDVHGFRPSHQVDWLRQH[SHQVHLQFUHDVHGE\WRWKRXVDQGFRPSDUHGWRWKRXVDQGLQ
2010.
1HWUHVHDUFKDQGGHYHORSPHQWH[SHQVHVLQZHUHIDLUO\VLPLODUWRGHVSLWHORZHUJRYHUQPHQW
JUDQWVDQGWKHXQIDYRUDEOHLPSDFWRI ,VUDHOL6KHNHOH[FKDQJHUDWHUHODWLYHWRWKH86'ROODUSULPDULO\
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control and rationalization of development programs.
Selling and Marketing
In 2011, selling and marketing expenses decreased to $8,174 thousand, 0.5% less than in 2010 ($8,217
thousand).
Proforma selling and marketing expenses in 2011 (excluding the impact of non-cash amortization
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General and Administrative
In 2011, general and administrative expenses increased to $4,961 thousand, 5.4% higher than 2010
($4,707 thousand).
Proforma expenses in 2011 (excluding the impact of non-cash stock-based compensation expense)
LQFUHDVHGE\WRWKRXVDQGFRPSDUHGWRWKRXVDQGLQSULPDULO\GXHWRKLJKHU
personnel costs, professional services and the unfavorable impact of Israeli Shekel exchange rate
relative to the US Dollar.
Stock-Based Compensation
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based on their fair value at the grant date. The compensation is recorded over the requisite service
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compensation expense recorded during 2011 was $371 thousand compared with $611 thousand in
2010.
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Taxes
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amortization of intangibles and stock-based compensation expense totaled $745 thousand in 2011
compared with a total of $908 thousand in 2010.
Liquidity and Capital Resources
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VKDUHGLOXWHGFRPSDUHGZLWKQHWLQFRPHRI WKRXVDQGRUDSURÀWRI SHUVKDUHGLOXWHGLQ
2010.
Consolidated proforma net income for 2011 (excluding the impact of non-cash amortization of
acquired intangible assets and stock-based compensation expense), was $4,618 thousand compared with
proforma net income of $1,469 thousand in 2010.
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assets, compared with a reversal of provision for income tax of $815 thousand recorded in 2010.
Consolidated proforma operating income (excluding all expense items cited above) improved from a
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(%,7LQLVGXHSULPDULO\WRKLJKHUUHYHQXHVFRXSOHGZLWKKLJKHUJURVVPDUJLQSDUWO\RIIVHWE\
higher operating expenses.
Consolidated operating expenses were 42.4% of revenues in 2011 compared with
48.6% in 2010.
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)LQDQFLDOH[SHQVHLVFRPSULVHGRI LQWHUHVWLQFRPHLQFXUUHGRQWLPHGHSRVLWVOHVVLQWHUHVWH[SHQVHVRQ
lines of credit and exchange rate differences.
1HWÀQDQFLDOH[SHQVHVIRUZHUHWKRXVDQGFRPSDUHGZLWKQHWH[SHQVHV
of $551 thousand for 2010.
7KHGHFUHDVHLQÀQDQFLDOH[SHQVHVIURPSUHYLRXV\HDULVDWWULEXWDEOHSULPDULO\WRORZHUH[FKDQJHUDWH
differences and higher interest income coupled with
lower bank fees.
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additional net expense of $347 thousand was generated from exchange rate differences plus interest
and bank charges.
:HRSHUDWHZLWKLQPXOWLSOHWD[LQJMXULVGLFWLRQVDQGDUHVXEMHFWWRDXGLWLQWKRVHMXULVGLFWLRQV)RU
$97SURGXFWOLQHZHFRQGXFWHGD7UDQVIHU3ULFLQJVWXG\GXULQJLQWKH8QLWHG6WDWHV)RU
$97DQG*0,SURGXFWOLQHVZHFRQGXFWHG7UDQVIHU3ULFLQJVWXG\GXULQJLQ*HUPDQ\7KH
recommendations of those studies were incorporated in our tax estimates. In our opinion, an adequate
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The conclusion of that assessment resulted in reversal of provision for income tax in the amount of
$815 thousand.
As of December 31, 2011 our total current assets were $30.3 million, including a total cash balance and
VKRUWWHUPGHSRVLWVRI PLOOLRQFRPSDUHGZLWKFDVKDQGÀQDQFLDOLQYHVWPHQWEDODQFHRI million on December 31, 2010.
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LQRSHUDWLQJDFWLYLWLHVLQ2XUQHWFDSLWDOH[SHQGLWXUHVRQÀ[HGDVVHWVZHUHWKRXVDQG
compared with $295 thousand used during 2010.
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EUROPE
ASPAC
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Support
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Financial Table Contents
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
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To the board of directors and shareholders of
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
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based on our audits.
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Those standards require that we plan and perform the audit to obtain reasonable assurance about
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in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
&RPSDQ\·VLQWHUQDOFRQWURORYHUÀQDQFLDOUHSRUWLQJ$FFRUGLQJO\ZHH[SUHVVQRVXFKRSLQLRQ$Q
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
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PDQDJHPHQWDQGHYDOXDWLQJWKHRYHUDOOÀQDQFLDOVWDWHPHQWSUHVHQWDWLRQ:HEHOLHYHWKDWRXUDXGLWV
provide a reasonable basis for our opinion.
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FRQVROLGDWHGÀQDQFLDOSRVLWLRQRI WKH&RPSDQ\DQGLWVVXEVLGLDULHVDVRI 'HFHPEHUDQG
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Tel-Aviv,Israel
April 22, 2012
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December 31,
2011
2010
$6,422
7,524
$7,816
3,000
Trade receivables (net of allowance for doubtful accounts of $459
DQGDVRI 'HFHPEHUDQGUHVSHFWLYHO\
Inventories (Note 3)
6,424
5,928
Other accounts receivable and prepaid expenses (Note 4)
3,071
3,051
30,791
25,491
Total current assets
6HYHUDQFHSD\IXQG
7UDGHSD\DEOHV
Customer advances and deferred revenues
3,156
2,717
Accrued expenses and other liabilities (Note 7)
3,334
3,402
10,620
9,897
3,476
3,295
62,655
62,337
(PSOR\HHVDQGSD\UROODFFUXDOV
Total current liabilities
ACCRUED SEVERANCE PAY
6+$5(+2/'(56·(48,7<1RWH
/21*7(50$66(76
Deferred income taxes
2010
&855(17/,$%,/,7,(6
&855(17$66(76
Short term deposits
2011
LIABILITIES AND SHAREHOLDERS’ EQUITY
ASSETS
Cash and cash equivalents
U.S. dollars in thousands (except share and per share amounts)
December 31,
276
Share capital 2UGLQDU\VKDUHVRI 1,6SDUYDOXHVKDUHV
DXWKRUL]HGDW'HFHPEHU
Total long-term assets
2,759
2,358
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and 5,327,366 shares outstanding at December 31, 2011
3523(57<$1'(48,30(171(71RWH
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Additional paid-in capital
INTANGIBLE ASSETS, NET (Note 6)
1,069
1,443
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Total assets
$35,888
$30,728
$FFXPXODWHGGHÀFLW
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.43
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U.S. dollars in thousands (except per share amounts)
2011
5HYHQXHV
Products
Services
Total Revenues
2010
2009
$36,175
9,792
$31,575
8,106
$28,121
9,110
45,967
39,681
37,231
Share
capital
Additional
paid-in
capital
7UHDVXU\
shares
-
(22)
114
WRRSWLRQVJUDQWHGWRHPSOR\HHV
Net loss
-
-
-
(10,706)
(10,706)
$3,402
$61,771
$(8,229)
$(40,580)
$16,364
-
(45)
59
(14)
-
Net loss
-
-
-
561
561
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-DQXDU\
14,032
9,054
12,341
7,704
12,543
8,737
Total cost of revenues
23,086
20,045
21,280
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Total
Shareholders'
HTXLW\
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upon exercise of options
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Products
Services
Accumulated
GHÀFLW
(92)
-
Stock-based compensation related
Balance as of December 31, 2009
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2SHUDWLQJH[SHQVHV
Research and development
Less - grants
Restructuring
Impairment of goodwill
exercise of options
7,007
(638)
8,174
4,961
-
7,108
(752)
8,217
4,707
-
8,448
(848)
9,043
5,891
288
2,045
19,504
19,280
24,867
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3,377
356
(8,916)
7D[HVRQLQFRPHWD[EHQHÀW1RWH
3,156
(195)
(8,979)
$3,874
$561
$(10,706)
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Net income (loss)
$3,402
$62,337
$(8,170)
$(40,033)
$17,536
-
(53)
101
(37)
11
Net income
-
-
-
3,874
3,874
$3,402
$62,655
$(8,069)
$(36,196)
$21,792
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exercise of options
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Net income (loss)
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Amortization of intangible assets
Impairment of goodwill and other intangible assets
Decrease (increase) in trade receivables, net
Decrease (increase) in inventories
Decrease (increase) in other accounts receivable and prepaid expenses
Decrease (increase) in deferred income taxes, net
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Decrease in accrued expenses and other liabilities
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2011
2010
2009
$3,874
$561
$(10,706)
374
(1,654)
(496)
489
(785)
439
(68)
297
(142)
89
(413)
(955)
(1,053)
919
4,537
3,134
1,116
604
1,660
(2,271)
(326)
General
(7,524)
(3,000)
(5,000)
Increase (decrease) in cash and cash equivalents
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(1,394)
1,702
(6,991)
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worldwide.
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amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
b. Financial statements in U.S. dollars:
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Expenses - at the exchange rates in effect as of the date of recognition of the transaction.
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Leasehold improvements
d. Cash equivalents:
h. Intangible assets:
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maturities of three months or less at the date of acquisition.
The intangible assets are stated at cost, net of accumulated amortization. The intangible assets are
amortized over their estimated useful life using the straight-line method or the accelerated method.
Intangible assets are assessed for impairment whenever there is an indication that the intangible asset
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amortization period or method, as appropriate, and treated as changes in accounting estimates.
e. Short-term deposits:
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\HDU$VRI 'HFHPEHUWKHGHSRVLWEHDUVLQWHUHVWDWDQDQQXDOUDWHRI $VRI 'HFHPEHU
31, 2010, the deposits bear interest at an annual rate of 1.8%.
f. Inventories:
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on hand relative to current selling prices and historical and forecasted sales volumes. Based on these
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and allocable indirect manufacturing costs.
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g. Property and equipment:
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i. Impairment of long-lived assets and intangible assets subject to amortization:
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present.
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to, among other things, technological change, economic conditions, changes to its business models
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weighted average cost of capital.
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j. Goodwill:
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,QWKHÀUVWSKDVHRI LPSDLUPHQWWHVWLQJJRRGZLOODWWULEXWDEOHWRHDFKRI WKHUHSRUWLQJXQLWVLV
WHVWHGIRULPSDLUPHQWE\FRPSDULQJWKHIDLUYDOXHRI HDFKUHSRUWLQJXQLWZLWKLWVFDUU\LQJYDOXH,I WKH
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second phase of the goodwill impairment test compares the implied fair value of the reporting unit’s
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goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount
equal to that excess.
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perform an annual goodwill impairment test. The fair value of a reporting unit was determined using
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of capital for each of the reporting units.
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RI WKHLPSDLUPHQWWHVWWKH&RPSDQ\UHFRUGHGGXULQJDQLPSDLUPHQWLQWKHDPRXQWRI RI WKHHQWLUHJRRGZLOOUHODWHGWRWKHDFTXLVLWLRQRI DFRPSDQ\DFTXLUHGLQ
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k. Research and development costs:
Research and development costs, net of grants received, are charged to the statements of operations as
incurred.
l. Revenue recognition:
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include a customer acceptance provision with respect to products, revenue is not recognized before the
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or that the acceptance provision has lapsed.
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IRUWKLQ$6&´5HYHQXH$UUDQJHPHQWVZLWK0XOWLSOH'HOLYHUDEOHVµUHODWLQJWRWKHVHSDUDWLRQRI multiple deliverables into individual accounting units. Revenue from such deliverables is recognized in
accordance with SAB 104.
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5HYHQXH$UUDQJHPHQWVDPHQGPHQWVWR)$6%$6&7RSLF5HYHQXH5HFRJQLWLRQ´$68
µ$68UHTXLUHVHQWLWLHVWRDOORFDWHUHYHQXHLQDQDUUDQJHPHQWXVLQJHVWLPDWHGVHOOLQJ
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eliminates the residual method of revenue allocation and requires revenue to be allocated using the
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impact of the adoption of these standards was immaterial.
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and its installation to be two separate units of accounting in the arrangement, since the installation
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of the installation service (but not less than the amount contingent upon completion of installation, if
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Deferred revenues include amounts received from customers for which revenue has not been
recognized.
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PDQXIDFWXUHUVWKURXJK2ULJLQDO(TXLSPHQW0DQXIDFWXUHU´2(0µSDUWQHUV7KH&RPSDQ\DOVR
generates revenues from maintenance, support and repair services related to these sales.
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m. Warranty costs:
statement of operations.
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FRVWVWKDWPD\EHLQFXUUHGGXULQJWKHZDUUDQW\SHULRGDQGUHFRUGVDOLDELOLW\IRUWKHDPRXQWRI VXFK
FRVWVDWWKHWLPHUHYHQXHIURPWKHSURGXFWVDOHLVUHFRJQL]HG&KDQJHVLQWKH&RPSDQ\·VSURYLVLRQIRU
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the straight line method over the requisite service period of each of the awards, net of estimated
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in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based
on actual historical pre-vesting forfeitures.
2011
2010
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n. Concentrations of credit risk:
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XQGHUO\LQJVKDUHVRQWKHGDWHRI JUDQW7KHRSWLRQSULFLQJPRGHOUHTXLUHVDQXPEHURI DVVXPSWLRQVRI ZKLFKWKHPRVWVLJQLÀFDQWDUHWKHH[SHFWHGVWRFNSULFHYRODWLOLW\DQGWKHH[SHFWHGWHUPRI WKHHTXLW\
EDVHGDZDUG([SHFWHGYRODWLOLW\LVFDOFXODWHGEDVHGXSRQDFWXDOKLVWRULFDOVWRFNSULFHPRYHPHQWV
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price of the option which, if achieved, results in exercise of the option. The risk-free interest rate is
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SDLGGLYLGHQGVDQGKDVQRIRUHVHHDEOHSODQVWRSD\GLYLGHQGV
)LQDQFLDOLQVWUXPHQWVWKDWSRWHQWLDOO\VXEMHFWWKH&RPSDQ\DQGLWVVXEVLGLDULHVWRFRQFHQWUDWLRQVRI FUHGLWULVNFRQVLVWSULQFLSDOO\RI FDVKDQGFDVKHTXLYDOHQWVVKRUWWHUPGHSRVLWVDQGWUDGHUHFHLYDEOHV
&DVKDQGFDVKHTXLYDOHQWVDQGVKRUWWHUPGHSRVLWVDUHGHSRVLWHGZLWKPDMRUEDQNVLQ,VUDHODQGLQWKH
8QLWHG6WDWHV6XFKGHSRVLWVLQWKH8QLWHG6WDWHVPD\EHLQH[FHVVRI LQVXUHGOLPLWVDQGDUHQRWLQVXUHG
LQRWKHUMXULVGLFWLRQV0DQDJHPHQWEHOLHYHVWKDWWKHÀQDQFLDOLQVWLWXWLRQVWKDWKROGWKH&RPSDQ\·V
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to these investments.
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RI FUHGLWRURWKHUFROODWHUDO7KH&RPSDQ\PDLQWDLQVDQDOORZDQFHIRUGRXEWIXODFFRXQWVEDVHGXSRQ
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debts that are doubtful of collection.
As of December 31, 2011 and 2010, the allowance for doubtful accounts amounted to $ 459 and $ 550,
UHVSHFWLYHO\%DGGHEWH[SHQVHDPRXQWHGWRDQGLQDQGUHVSHFWLYHO\
7KHULVNRI FROOHFWLRQDVVRFLDWHGZLWKDFFRXQWVUHFHLYDEOHLVPLWLJDWHGE\WKHGLYHUVLW\DQGQXPEHURI customers.
o. Accounting for stock-based compensation:
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6WRFN&RPSHQVDWLRQµ$6&UHTXLUHVFRPSDQLHVWRHVWLPDWHWKHIDLUYDOXHRI HTXLW\EDVHGSD\PHQW
awards on the date of grant using an option-pricing model. The value of the portion of the award
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7KHIDLUYDOXHIRUWKHVHRSWLRQVZDVHVWLPDWHGDWWKHGDWHRI JUDQWXVLQJWKH0RQWH
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2011
Risk-free interest rate
Suboptimal exercise multiple
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'LYLGHQG\LHOG
([SHFWHGYRODWLOLW\
1.40%
2.22/2.48
2010
2009
1.58%
2.22/2.48
1.49%
2.22/2.48
p. Comprehensive income
7KH&RPSDQ\DFFRXQWVIRUFRPSUHKHQVLYHLQFRPHLQDFFRUGDQFHZLWK$6&´&RPSUHKHQVLYH
,QFRPHµ$6&HVWDEOLVKHVVWDQGDUGVIRUWKHUHSRUWLQJDQGGLVSOD\RI FRPSUHKHQVLYHLQFRPHDQG
LWVFRPSRQHQWVLQDIXOOVHWRI JHQHUDOSXUSRVHÀQDQFLDOVWDWHPHQWV&RPSUHKHQVLYHLQFRPHJHQHUDOO\
UHSUHVHQWVDOOFKDQJHVLQVWRFNKROGHUV·HTXLW\GXULQJWKHSHULRGH[FHSWWKRVHUHVXOWLQJIURPLQYHVWPHQWV
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identical for all periods presented.
q. Treasury stock
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values due to the short-term maturities of such instruments.
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disclosures about fair value measurements.
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measured at fair value on a non-recurring basis.
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Level 3 - inputs that are unobservable
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t. Severance pay:
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VKDUHVDUHUHLVVXHGWKH&RPSDQ\FKDUJHVWRUHWDLQHGHDUQLQJVWKHH[FHVVRI WKHSXUFKDVHFRVWRYHUWKH
exercise price and the accumulated stock based compensation. The purchase cost is calculated based
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credits the difference to additional paid-in capital.
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VHYHUDQFHSD\ODZEDVHGRQWKHPRVWUHFHQWVDODU\RI WKHHPSOR\HHVPXOWLSOLHGE\WKHQXPEHURI \HDUV
RI HPSOR\PHQWDVRI WKHEDODQFHVKHHWGDWH(PSOR\HHVDUHHQWLWOHGWRRQHPRQWK·VVDODU\IRUHDFK\HDU
RI HPSOR\PHQWRUDSRUWLRQWKHUHRI7KH&RPSDQ\·VOLDELOLW\IRUDOORI WKRVHHPSOR\HHVLVFRYHUHGE\
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r. Royalty-bearing grants:
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,VUDHOLVHYHUDQFHSD\ODZRUODERUDJUHHPHQWV7KHYDOXHRI WKHLQVXUDQFHSROLFLHVLVEDVHGRQWKHFDVK
VXUUHQGHUHGYDOXHZKLFKLQFOXGHVSURÀWVRUORVVHVDFFXPXODWHGXSWRWKHEDODQFHVKHHWGDWH7KHIXQGV
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5R\DOW\EHDULQJJUDQWVIURPWKH&KLHI 6FLHQWLVWRI WKH0LQLVWU\RI ,QGXVWU\DQG7UDGHLQ,VUDHOIRU
IXQGLQJFHUWDLQDSSURYHGUHVHDUFKDQGGHYHORSPHQWSURMHFWVDUHUHFRJQL]HGDWWKHWLPHWKH&RPSDQ\LV
entitled to such grants on the basis of the related costs incurred and are included as a deduction from
research and development costs.
Research and development grants recognized amounted to $ 638, $ 752 and $ 848 in 2011, 2010 and
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u. Basic and diluted net earnings per share:
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IRUÀVFDO\HDUVDQGLQWHULPSHULRGVZLWKLQWKRVH\HDUVEHJLQQLQJDIWHU'HFHPEHUZLWKHDUO\
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Basic net earnings (loss) per share are computed based on the weighted average number of
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VKDUHVRXWVWDQGLQJGXULQJWKH\HDUSOXVGLOXWLYHSRWHQWLDOHTXLYDOHQW2UGLQDU\VKDUHVFRQVLGHUHG
RXWVWDQGLQJGXULQJWKH\HDULQDFFRUGDQFHZLWK$6&´(DUQLQJV3HU6KDUHµ)RUWKH\HDUHQGHG
December 31, 2009, all outstanding options to purchase shares were excluded from the calculation of
diluted loss per share because their effect on the loss per share is anti-dilutive.
v. Income taxes:
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SUHVFULEHVWKHXVHRI WKHOLDELOLW\PHWKRGZKHUHE\GHIHUUHGWD[DVVHWDQGOLDELOLW\DFFRXQWEDODQFHV
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and are measured using the enacted tax rates and laws that will be in effect when the differences are
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9DOXH0HDVXUHPHQWµ7KHJXLGDQFHUHTXLUHVDQHQWLW\WRSURYLGHDFRQVLVWHQWGHÀQLWLRQRI IDLUYDOXH
to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP
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Inventories
December 31,
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7KH&RPSDQ\DFFRXQWVIRULWVXQFHUWDLQWD[SRVLWLRQVLQDFFRUGDQFHZLWK$6&ZKLFKFRQWDLQVD
two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance
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evaluation of the technical merits, the tax position will be sustained on audit, including resolution of
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DPRXQWWKDWLVPRUHWKDQOLNHO\WREHUHDOL]HGXSRQXOWLPDWHVHWWOHPHQW7KH&RPSDQ\UHHYDOXDWHV
its income tax positions to consider factors such as changes in facts or circumstances, changes in or
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UHFRJQLWLRQRUPHDVXUHPHQWZRXOGUHVXOWLQUHFRJQLWLRQRI DWD[EHQHÀWRUDQDGGLWLRQDOFKDUJHWRWKH
WD[SURYLVLRQ7KH&RPSDQ\DFFUXHVLQWHUHVWDQGSHQDOWLHVUHODWHGWRXQUHFRJQL]HGWD[EHQHÀWVLQWD[
expense.
2011
Raw materials
2010
$ 2,260
$ 2,139
Work in progress
1,220
1,253
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Spare parts for customer support
1,421
1,420
$ 6,424
$ 5,928
w. Impact of recently issued accounting pronouncements:
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´&RPSUHKHQVLYH,QFRPHµ7KHJXLGDQFHUHTXLUHVDQHQWLW\WRSUHVHQWWKHWRWDORI FRPSUHKHQVLYH
income, the components of net income, and the components of other comprehensive income either in
a single continuous statement of comprehensive income or in two separate but consecutive statements.
The guidance also eliminates the option to present the components of other comprehensive income
.57
1RWH
1RWH
2WKHU$FFRXQWV5HFHLYDEOH$QG3UHSDLG([SHQVHV
Intangible Assets, Net
December 31,
2011
December 31,
2010
2011
Government grants
$ 118
$ 244
&RVW
Government authorities
1,580
1,839
7HFKQRORJ\
Prepaid expenses
894
465
Other accounts receivable
479
503
$ 3,071
$ 3,051
1RWH
December 31,
Computers and peripheral equipment
3URSHUW\DQGHTXLSPHQWQHW
$ 2,844
458
452
5,469
5,475
670
Trademarks (3)
298
298
4,735
4,735
Customer relationships
455
364
Trademarks
149
124
3,666
3,292
$ 1,069
$ 1,443
(1) Net of accumulated impairment of $ 6,205 as of December 31, 2011 and 2010 (see Note 2i).
(2) Net of accumulated impairment of $ 735 as of December 31, 2011 and 2010 (see Note 2i).
(3) Net of accumulated impairment of $ 136 as of December 31, 2011 and 2010 (see Note 2i).
2,544
2,544
195
163
4,200
4,039
'HSUHFLDWLRQH[SHQVHIRUWKH\HDUVHQGHG'HFHPEHUDQGZDVDQG
UHVSHFWLYHO\
'XULQJWKH&RPSDQ\UHFRUGHGDUHGXFWLRQRI DSSUR[LPDWHO\WRERWKWKHFRVWDQG
DFFXPXODWHGGHSUHFLDWLRQRI HTXLSPHQWQRORQJHULQXVHIROORZLQJDQDVVHVVPHQWPDGHE\WKH
&RPSDQ\For liens, see Note 8d.
670
Intangible assets, net
$ 2,871
$FFXPXODWHGGHSUHFLDWLRQ
Customer Relationships (2)
2010
&RVW
7HFKQRORJ\
2011
$FFXPXODWHGDPRUWL]DWLRQ
3URSHUW\$QG(TXLSPHQW
Computers and peripheral equipment
2010
$PRUWL]DWLRQH[SHQVHDPRXQWHGWRDQGIRUWKH\HDUVHQGHG'HFHPEHU
DQGUHVSHFWLYHO\
Year
December 31,
2012
$ 363
2013
339
2014
254
2015
47
2016
66
$ 1,069
.59
1RWH
b. Royalty commitments:
$FFUXHG([SHQVHV$QG2WKHU/LDELOLWLHV
7KH&RPSDQ\LVFRPPLWWHGWRSD\UR\DOWLHVWRWKH&KLHI 6FLHQWLVWRI ,VUDHO·V0LQLVWU\RI ,QGXVWU\DQG
Trade at a rate of 3.5% of all revenues from the sales of products and services that are developed with
WKHDVVLVWDQFHRI WKH&KLHI 6FLHQWLVWE\ZD\RI JUDQWV
December 31,
2011
3URYLVLRQIRUZDUUDQW\FRVWV
Government authorities and tax provision
Accrued expenses and other liabilities
2010
482
736
2,212
2,090
$ 3,334
$ 3,402
7KHWRWDOUR\DOWLHVWKDWWKH&RPSDQ\ZLOOEHREOLJDWHGWRSD\ZLOOQRWH[FHHGRI WKHDPRXQWRI the grant plus interest at the applicable LIBOR rate at the time the grants were received.
$VRI 'HFHPEHUWKH&RPSDQ\KDVDFRQWLQJHQWREOLJDWLRQWRSD\UR\DOWLHVLQUHVSHFWRI WKH
aforementioned grants in the approximate amount of $ 2,030.
c. Legal proceedings:
1RWH
Commitments And Contingent Liabilities
)URPWLPHWRWLPHWKH&RPSDQ\LVDSDUW\WRYDULRXVOLWLJDWLRQPDWWHUVLQFLGHQWDOWRWKHFRQGXFWRI LWV
EXVLQHVV7KHUHLVQRSHQGLQJRUWKUHDWHQHGOHJDOSURFHHGLQJWRZKLFKWKH&RPSDQ\LVDSDUW\WKDWLQ
LWVRSLQLRQLVOLNHO\WRKDYHDPDWHULDODGYHUVHHIIHFWRQLWVIXWXUHÀQDQFLDOUHVXOWV
a. Lease commitments:
d. Liens:
7KH&RPSDQ\DQGLWVVXEVLGLDULHVOHDVHRIÀFHIDFLOLWLHVDQGPRWRUYHKLFOHVXQGHURSHUDWLQJOHDVHVIRU
periods ending in 2016.
7RVHFXUHLWVOLQHRI FUHGLWIURPEDQNVWKH&RPSDQ\KDVUHFRUGHGDÀ[HGOLHQRQLWVVKDUHFDSLWDOQRWHV
DQGRWKHUGRFXPHQWVSURSHUW\DQGHTXLSPHQW$VRI 'HFHPEHUQRFUHGLWZDVXWLOL]HG
)XWXUHPLQLPXPOHDVHFRPPLWPHQWVXQGHUQRQFDQFHODEOHRSHUDWLQJOHDVHVDVRI 'HFHPEHU
DUHDVIROORZV
1RWH
Year
Lease commitment
Income Taxes
a. General
2012
$ 1,983
2013
1,313
2014
404
2015
368
2016
306
$ 4,374
7RWDOUHQWH[SHQVHIRUWKH\HDUVHQGHG'HFHPEHUDQGDPRXQWHGWR
DQGUHVSHFWLYHO\
7KH&RPSDQ\OHDVHVPRWRUYHKLFOHVXQGHUFDQFHODEOHRSHUDWLQJOHDVHDJUHHPHQWV7KH&RPSDQ\KDVDQ
RSWLRQWREHUHOHDVHGIURPWKLVDJUHHPHQWZKLFKPD\UHVXOWLQSHQDOWLHVLQDPD[LPXPDPRXQWRI as of December 31, 2011.
7KH&RPSDQ\RSHUDWHVZLWKLQPXOWLSOHWD[LQJMXULVGLFWLRQVSULPDULO\LQ,VUDHODQGLQWKH86DQGLV
VXEMHFWWRDQDXGLWLQWKRVHMXULVGLFWLRQV7KHVHDXGLWVFDQLQYROYHFRPSOH[LVVXHVZKLFKPD\UHTXLUH
an extended period of time to resolve. In management’s opinion, adequate provisions for income taxes
have been made.
b. Israel taxation
1. Corporate tax structure:
7D[DEOHLQFRPHRI ,VUDHOLFRPSDQLHVLVVXEMHFWWRWD[DWWKHUDWHRI LQLQDQG
in 2011.
On December 5, 2011, the Israeli Parliament (the Knesset) passed the Law for Tax Burden Reform
/HJLVODWLYH$PHQGPHQWV´WKH/DZµZKLFKDPRQJRWKHUVFDQFHOVHIIHFWLYHIURPWKH
scheduled progressive reduction in the corporate tax rate. The Law also increases the corporate tax rate
.61
to 25% in 2012. In view of this increase in the corporate tax rate to 25% in 2012, the real capital gains
WD[UDWHDQGWKHUHDOEHWWHUPHQWWD[UDWHZHUHDOVRLQFUHDVHGDFFRUGLQJO\
and Privileged Enterprise’s income.
7D[EHQHÀWVXQGHUWKH/DZIRUWKH(QFRXUDJHPHQWRI &DSLWDO,QYHVWPHQWV
1959 (the “Law”):
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´$SSURYHG(QWHUSULVHµRUD´3ULYLOHJHG(QWHUSULVHµXQGHUWKH/DZLQIRXULQYHVWPHQWSURJUDPV
,QDFFRUGDQFHZLWKWKH/DZWKH&RPSDQ\KDVHOHFWHGWKH´$OWHUQDWLYHWD[EHQHÀWVµ2Q$SULO
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WKHSURYLVLRQVRI WKH/DZ7KH$PHQGPHQWOLPLWVWKHVFRSHRI HQWHUSULVHVZKLFKPD\EHDSSURYHG
E\WKH,QYHVWPHQW&HQWHUE\VHWWLQJFULWHULDIRUWKHDSSURYDORI DIDFLOLW\DVD´3ULYLOHJHG(QWHUSULVHµ
UDWKHUWKDQWKHSUHYLRXVWHUPLQRORJ\RI ´$SSURYHG(QWHUSULVHµVXFKDVE\UHTXLULQJWKDWDWOHDVW
RI WKH´3ULYLOHJHG(QWHUSULVH·VµLQFRPHZLOOEHGHULYHGIURPH[SRUW$GGLWLRQDOO\WKH$PHQGPHQW
HQDFWHGPDMRUFKDQJHVLQWKHPDQQHULQZKLFKWD[EHQHÀWVDUHDZDUGHGXQGHUWKH/DZVRWKDW
FRPSDQLHVQRORQJHUUHTXLUH,QYHVWPHQW&HQWHUDSSURYDOLQRUGHUWRTXDOLI\IRUWD[EHQHÀWV+RZHYHU
WKH/DZSURYLGHVWKDWWHUPVDQGEHQHÀWVLQFOXGHGLQDQ\FHUWLÀFDWHRI DSSURYDODOUHDG\JUDQWHGZLOO
UHPDLQVXEMHFWWRWKHSURYLVLRQVRI WKH/DZDVWKH\ZHUHRQWKHGDWHRI VXFKDSSURYDO7KHUHIRUH
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Amendment. As a result of the amendment, tax-exempt income generated under the provisions of
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DPDQQHURWKHUWKDQXSRQWKHFRPSOHWHOLTXLGDWLRQRI WKH&RPSDQ\LWZRXOGEHWD[HGDWWKHFRUSRUDWH
WD[UDWHDSSOLFDEOHWRVXFKSURÀWVDQGDQLQFRPHWD[OLDELOLW\RI XSWRDSSUR[LPDWHO\ZRXOGEH
LQFXUUHGDVRI 'HFHPEHU7KHWD[H[HPSWLQFRPHDWWULEXWDEOHWRWKH´$SSURYHG(QWHUSULVHµ
FDQEHGLVWULEXWHGWRVKDUHKROGHUVZLWKRXWLPSRVLQJWD[OLDELOLW\RQWKH&RPSDQ\RQO\XSRQWKH
FRPSOHWHOLTXLGDWLRQRI WKH&RPSDQ\
7KH&RPSDQ\KDVGHWHUPLQHGWKDWLWZLOOQRWGLVWULEXWHDQ\DPRXQWVRI LWVXQGLVWULEXWHGWD[H[HPSW
LQFRPHDVGLYLGHQG7KH&RPSDQ\LQWHQGVWRUHLQYHVWLWVWD[H[HPSWLQFRPHDQGQRWWRGLVWULEXWH
VXFKLQFRPHDVDGLYLGHQG$FFRUGLQJO\QRGHIHUUHGLQFRPHWD[HVKDYHEHHQSURYLGHGRQLQFRPH
DWWULEXWDEOHWRWKH&RPSDQ\·V$SSURYHG(QWHUSULVHSURJUDPVDVWKHXQGLVWULEXWHGWD[H[HPSWLQFRPH
LVHVVHQWLDOO\SHUPDQHQWLQGXUDWLRQ
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at the regular tax rate, its effective tax rate is the result of a weighted combination of the various
applicable rates and tax exemptions, and the computation is made for income derived from each
SURJUDPRQWKHEDVLVRI IRUPXODVVSHFLÀHGLQWKH/DZDQGLQWKHDSSURYDOV
$FFRUGLQJO\&RPSDQ\·VLQFRPHDWWULEXWHGWRLWV´$SSURYHG(QWHUSULVHµDQG´3ULYLOHJHG(QWHUSULVHµ
SURJUDPVLVWD[H[HPSWIRUDSHULRGRI WZR\HDUVDQGLVVXEMHFWWRDUHGXFHGFRUSRUDWHWD[UDWHRI IRUDQDGGLWLRQDOSHULRGRI ÀYHWRHLJKW\HDUVGHSHQGLQJRQWKHSHUFHQWDJHRI IRUHLJQ
LQYHVWPHQWLQWKH&RPSDQ\
'XULQJ'HFHPEHUWKH/DZIRU(FRQRPLF3ROLF\IRUDQG$PHQGHG/HJLVODWLRQZDV
SDVVHGDQGDPRQJRWKHUWKLQJVDPHQGHGWKH/DZHIIHFWLYH-DQXDU\8QGHUWKLVQHZOHJLVODWLRQ
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opposed to the current Law’s incentives, which are limited to income from Approved Enterprise and
3ULYLOHJHG(QWHUSULVHVGXULQJWKHLUEHQHÀWVSHULRG8QGHUWKHQHZODZWKHXQLIRUPWD[UDWHZLOOEH
LQWKHDUHDLQ,VUDHOZKHUHWKH&RPSDQ\RSHUDWHVGXULQJLQDQG
WKHUHDIWHU7KHSURÀWVRI WKHVH,QGXVWULDO&RPSDQLHVZLOOEHIUHHO\GLVWULEXWDEOHDVGLYLGHQGVVXEMHFWWR
DZLWKKROGLQJWD[RUORZHUXQGHUDQDSSOLFDEOHWD[WUHDW\
7KHGXUDWLRQRI WD[EHQHÀWVIRUWKHSURJUDPLVVXEMHFWWROLPLWDWLRQVRI WKHHDUOLHURI \HDUVIURP
FRPPHQFHPHQWRI LQYHVWPHQWRU\HDUVIURPUHFHLSWRI DSSURYDODVDQ´$SSURYHG(QWHUSULVHµ
under the Law.
8QGHUWKHWUDQVLWLRQSURYLVLRQVRI WKHQHZOHJLVODWLRQWKH&RPSDQ\PD\HOHFWWRLUUHYRFDEO\
LPSOHPHQWWKHQHZODZZKLOHZDLYLQJEHQHÀWVSURYLGHGXQGHUWKHFXUUHQWODZRUWRUHPDLQVXEMHFWWR
WKHFXUUHQWODZ&KDQJLQJIURPWKHFXUUHQWODZWRWKHQHZODZLVSHUPLWWHGDWDQ\WLPH
7KHHQWLWOHPHQWWRWKHDERYHEHQHÀWVLVFRQGLWLRQDOXSRQ&RPSDQ\·VIXOÀOOLQJWKHFRQGLWLRQV
VWLSXODWHGE\WKH/DZUHJXODWLRQVSXEOLVKHGWKHUHXQGHUDQGWKHFHUWLÀFDWHVRI DSSURYDOIRUWKHVSHFLÀF
LQYHVWPHQWVLQ´$SSURYHG(QWHUSULVHVµ
6KRXOGWKH&RPSDQ\IDLOWRPHHWVXFKUHTXLUHPHQWVLQWKHIXWXUHLQFRPHDWWULEXWDEOHWRLWV´$SSURYHG
(QWHUSULVHµRU´3ULYLOHJHG(QWHUSULVHµSURJUDPVFRXOGEHVXEMHFWWRWKHVWDWXWRU\,VUDHOLFRUSRUDWHWD[
UDWHDQGWKH&RPSDQ\FRXOGEHUHTXLUHGWRUHIXQGWKHWD[EHQHÀWVDOUHDG\UHFHLYHGZLWKUHVSHFWWRVXFK
program, in whole or in part, including interest.
c. Carryforward tax losses:
In the event of distribution of dividend from the above mentioned tax-exempt income, the amount
GLVWULEXWHGZLOOEHVXEMHFWWRFRUSRUDWHWD[DWWKHUDWHRUGLQDULO\DSSOLFDEOHWRWKH$SSURYHG(QWHUSULVH·V
$VRI 'HFHPEHUWKH&RPSDQ\KDGDSSUR[LPDWHO\RI ,VUDHOLFDUU\IRUZDUGWD[ORVVHV
ZKLFKPD\EHFDUULHGIRUZDUGDQGRIIVHWDJDLQVWWD[DEOHLQFRPHLQWKHIXWXUHIRUDQLQGHÀQLWHSHULRG
$VRI 'HFHPEHUWKH86VXEVLGLDU\KDG86IHGHUDOFDUU\IRUZDUGWD[ORVVHVRI DSSUR[LPDWHO\
WKDWFDQEHFDUULHGIRUZDUGDQGRIIVHWDJDLQVWWD[DEOHLQFRPHIRU\HDUVDQGH[SLUHIURP
7KH7D[5HWXUQ$FWRI OLPLWVWKHXVHRI QHWRSHUDWLQJORVVDQGWD[FUHGLWFDUU\
IRUZDUGVLQFHUWDLQVLWXDWLRQVZKHUHFKDQJHVRFFXULQWKHVWRFNRZQHUVKLSRI DFRPSDQ\'XHWRWKH
FKDQJHLQRZQHUVKLSWKDWRFFXUUHGDWWKHHQGRI WKHXWLOL]DWLRQRI WKHDERYHPHQWLRQHGFDUU\
.63
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e. Deferred income taxes:
$VRI 'HFHPEHUWKH*HUPDQVXEVLGLDU\KDGFDUU\IRUZDUGWD[ORVVHVRI DSSUR[LPDWHO\
ZKLFKPD\EHFDUULHGIRUZDUGDQGRIIVHWDJDLQVWWD[DEOHLQFRPHLQWKHIXWXUHIRUDQLQGHÀQLWHSHULRG
'HIHUUHGWD[HVUHÁHFWWKHQHWWD[HIIHFWVRI WHPSRUDU\GLIIHUHQFHVEHWZHHQWKHFDUU\LQJDPRXQWVRI DVVHWVDQGOLDELOLWLHVIRUÀQDQFLDOUHSRUWLQJSXUSRVHVDQGWKHDPRXQWVXVHGIRULQFRPHWD[SXUSRVHV$V
RI 'HFHPEHUDQGWKH&RPSDQ\·VGHIHUUHGWD[HVZHUHLQUHVSHFWRI WKHIROORZLQJ
d. Final tax assessments
December 31,
$97/WGKDVUHFHLYHGÀQDOWD[DVVHVVPHQWVLQ,VUDHOWKURXJK$VDUHVXOWRI QHWRSHUDWLQJORVV
FDUU\IRUZDUGVWKH86VXEVLGLDU\LVVXEMHFWWRDXGLWIRUWD[\HDUVDQGIRUZDUGIRUIHGHUDOSXUSRVHV
DQGIRUWD[\HDUVDQGIRUZDUGIRUVWDWHSXUSRVHV7KHUHDUHWD[\HDUVZKLFKUHPDLQVXEMHFWWR
H[DPLQDWLRQLQYDULRXVRWKHUMXULVGLFWLRQVWKDWDUHQRWPDWHULDOWRWKH&RPSDQ\·VÀQDQFLDOVWDWHPHQWV
2011
2010
2009
Different amortization rates of intangible assets
2,007
2,092
2,204
Reserves and allowances
1,712
1,814
2,025
6,835
7,146
6,809
6,809
7,086
6,716
(6,024)
(7,086)
(6,716)
$ 785
$-
$-
'HIHUUHGWD[DVVHWV
1HWRSHUDWLQJORVVFDUU\IRUZDUGV
Total deferred tax assets
'HIHUUHGWD[OLDELOLW\
'LIIHUHQWGHSUHFLDWLRQUDWHVRI SURSHUW\DQGHTXLSPHQW
7RWDOGHIHUUHGWD[OLDELOLW\
Net deferred tax asset before valuation allowance
Valuation allowance
Net deferred tax asset
December 31,
2011
2010
2009
$ 509
$ 302
$ 773
276
1,003
719
-
(1,305)
(1,492)
785
-
-
996
1,103
963
5,054
4,738
4,354
'RPHVWLF
Current deferred tax asset
Non-current deferred tax asset
Valuation allowance
)RUHLJQ
Current deferred tax asset
Non-current deferred tax asset
1RQFXUUHQWGHIHUUHGWD[OLDELOLW\
Valuation allowance
(6,024)
(5,781)
(5,224)
-
-
-
$ 785
$-
$-
.65
f. Income (loss) before taxes on income consists of the following:
h. Reconciliation of the theoretical tax expense:
Domestic
)RUHLJQ
2011
2010
2009
$ 2,320
$ 1,250
$ (3,030)
$ 3,156
$ (195)
$ (8,979)
6WDWXWRU\WD[UDWH
7KHRUHWLFDOWD[H[SHQVHVEHQHÀWDWVWDWXWRU\WD[UDWH
J 7D[HVRQLQFRPHWD[EHQHÀWDUHFRPSULVHGDVIROORZV
2011
2010
2009
$ 3,156
$ (195)
$ (8,979)
260
433
1,101
,QFUHDVHGHFUHDVHLQUHVSHFWRI
2011
2010
2009
Losses, reserves and allowances for which valuation
allowance was provided
8WLOL]DWLRQRI FDUU\IRUZDUGORVVHVIRUZKLFKYDOXDWLRQ
Current
$ 67
$ (756)
$ 67
Deferred
(785)
-
1,660
$ (718)
$ (756)
$ 1,727
DOORZDQFHZDVSURYLGHGLQSULRU\HDU
Removal of valuation allowance for losses, reserves and allowances
(1,369)
7D[DGMXVWPHQWLQUHVSHFWRI ´$SSURYHG(QWHUSULVHµVWDWXV
7D[DGMXVWPHQWLQUHVSHFWRI IRUHLJQVXEVLGLDULHVGLIIHUHQWWD[UDWHV
Stock-based compensation expense
'RPHVWLF
Current
Deferred
$-
$ (814)
$-
(785)
-
1,660
$ (785)
$ (814)
$ 1,660
-
-
105
164
205
89
114
162
Impairment of goodwill and intangible assets
-
-
1,769
9DOXDWLRQDOORZDQFHIRUSUHYLRXVO\UHFRJQL]HGGHIHUUHGWD[DVVHW
-
(814)
-
54
49
(31)
Non-deductible expenses
Reductions of uncertain tax positions relating to a
settlement with the tax authorities
)RUHLJQ
Current
Deferred
$ 67
$ 58
$ 67
-
-
-
$ 67
$ 58
$ 67
Other
$FWXDOWD[H[SHQVHEHQHÀW
.67
i. 7KHEDODQFHVDW'HFHPEHUDQGLQFOXGHDOLDELOLW\IRUXQUHFRJQL]HGWD[EHQHÀWV
RI ZLWKUHVSHFWWRWD[DWLRQRI FHUWDLQRI WKH&RPSDQ\·VLQFRPHXQGHUIRUHLJQMXULVGLFWLRQVDV
ZHOODVFHUWDLQOLPLWDWLRQVRI WKHXWLOL]DWLRQRI FDUU\IRUZDUGORVVHV7KH&RPSDQ\UHFRJQL]HVLQWHUHVW
DFFUXHGDQGUDWHGLIIHUHQFHVUHODWHGWRXQUHFRJQL]HGWD[EHQHÀWVDVWD[H[SHQVH$UHFRQFLOLDWLRQRI WKH
EHJLQQLQJDQGHQGLQJDPRXQWRI XQUHFRJQL]HGWD[EHQHÀWVLVDVIROORZV
Share Capital
a. General
2UGLQDU\VKDUHVFRQIHUXSRQWKHLUKROGHUVWKHULJKWWRUHFHLYHQRWLFHWRSDUWLFLSDWHDQGYRWHLQJHQHUDO
PHHWLQJVRI WKH&RPSDQ\DQGWKHULJKWWRUHFHLYHGLYLGHQGVLI GHFODUHG
2011
Balance at beginning of period
2010
$ 747
$ 1,895
$GGLWLRQVIRUWD[SRVLWLRQVRI SULRU\HDUV
Reductions relating to settlements with the tax authorities
-
(1,263)
5HGXFWLRQVIRUWD[SRVLWLRQVRI SULRU\HDUV
$ 747
$ 747
Balance at end of period
7KH&RPSDQ\DQGLWVVXEVLGLDULHVDUHURXWLQHO\H[DPLQHGE\YDULRXVWD[LQJDXWKRULWLHV7KH&RPSDQ\·V
WD[\HDUWKURXJKUHPDLQVVXEMHFWWRH[DPLQDWLRQE\WKH,VUDHOL7D[$XWKRULWLHV7KH86
VXEVLGLDULHVWD[\HDUVWKURXJKUHPDLQVXEMHFWWRH[DPLQDWLRQE\WKH,56IRU86IHGHUDOWD[
SXUSRVHV$OVRGXULQJWKH,VUDHOLWD[DXWKRULWLHVFRPSOHWHGLWVH[DPLQDWLRQIRUWKH\HDUV
WKURXJKUHVXOWLQJLQDVHWWOHPHQWIRUWKRVH\HDUV$VDUHVXOWRI WKHVHWWOHPHQWWKH&RPSDQ\
SDLGDQGUHOHDVHGFHUWDLQWD[UHVHUYHVGXULQJWKH\HDUHQGHG'HFHPEHU7KHUHDUHWD[
\HDUVZKLFKUHPDLQVXEMHFWWRH[DPLQDWLRQLQYDULRXVRWKHUMXULVGLFWLRQVWKDWDUHQRWPDWHULDOWRWKH
&RPSDQ\·VÀQDQFLDOVWDWHPHQWV
7KH&RPSDQ\·VERDUGRI GLUHFWRUVKDVGHWHUPLQHGWKDWLWZLOOQRWGLVWULEXWHDQ\DPRXQWVRI LWV
undistributed tax exempt income as dividend.
b. 2Q0DUFKWKH&RPSDQ\DQQRXQFHGWKDWLWV%RDUGRI 'LUHFWRUVKDVGHFLGHGWRPDNH
a tender offer to all shareholders and holders of vested options to acquire up to one third of all
shares, pro rata to the respective share of the shareholders and option holders, at a price of $ 8.5 per
VKDUH$VDUHVXOWRI WKHWHQGHURIIHUWKH&RPSDQ\SXUFKDVHGVKDUHVDWDFRVWRI 7KURXJK'HFHPEHUDWRWDORI WUHDVXU\VKDUHVZHUHLVVXHGWRFHUWDLQLQYHVWRUVDQG
WUHDVXU\VKDUHVZHUHLVVXHGWRHPSOR\HHVDVUHVXOWRI H[HUFLVHRI RSWLRQVPDGHE\WKHP
$VRI 'HFHPEHUDQGWKH&RPSDQ\LVKROGLQJDQGWUHDVXU\VKDUHV
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c. Stock option plans:
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VKDUHVWRLWV,VUDHOLHPSOR\HHVQRQHPSOR\HHVGLUHFWRUVDQGQRQHPSOR\HHVFRQVXOWDQWV8QGHUWKH
862SWLRQ3ODQDQGWKH*OREDO3ODQWKH&RPSDQ\LVDXWKRUL]HGWRJUDQWVWRFNRSWLRQVWRQRQ
,VUDHOLHPSOR\HHVRIÀFHUVDQGQRQHPSOR\HHVFRQVXOWDQWV7KHSODQVDXWKRUL]HWKHJUDQWRI RSWLRQVWR
SXUFKDVHXSWR2UGLQDU\VKDUHV
2SWLRQVJUDQWHGXQGHUWKHIRXUSODQVH[SLUHEHWZHHQVL[WRWHQ\HDUVIURPWKHGDWHRI JUDQWRUXSRQ
WHUPLQDWLRQRI WKHRSWLRQ·VHPSOR\PHQWRURWKHUUHODWLRQVKLSZLWKWKH&RPSDQ\7KHRSWLRQVJHQHUDOO\
YHVWRYHUWKUHHWRIRXU\HDUV$Q\RSWLRQVWKDWDUHFDQFHOOHGRUIRUIHLWHGEHIRUHH[SLUDWLRQEHFRPH
available for future grants.
As of December 31, 2011, 20,712 options are available for future grants.
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Amount
2XWVWDQGLQJDW-DQXDU\
Weighted
average
exercise
price
Weighted
average
remaining
contractual life
Aggregate
Intrinsic
value
Exercise price $
Number
outstanding
Weighted
average
remaining
FRQWUDFWXDOOLIH\HDUV
Weighted
average
exercise
price $
Number
exercisable
Weighted
average
remaining
FRQWUDFWXDOOLIH\HDUV
0
60,425
4.92
-
54,797
4.81
-
2.12-3.00
262,275
3.40
2.72
179,518
3.24
2.76
Weighted
average
exercise
price $
Granted
156,116
5.22
3.05-4.78
233,891
3.51
4.03
77,775
2.04
4.23
Exercised
(11,950)
1.07
5.65-8.00
194,500
3.91
7.22
79,500
2.50
7.22
)RUIHLWHG
12.58-15.45
42,000
5.65
14.30
35,375
5.58
14.38
793,091
3.79
4.39
426,965
3.28
4.47
Outstanding at December 31, 2011
793,091
4.39
3.79
*) 605
Vested and expected to vest at December 31, 2011
714,562
4.38
3.71
**) 605
The following table sets forth the total stock-based compensation expense resulting from stock
RSWLRQV
Exercisable at December 31, 2011
426,965
4.47
3.28
***) 462
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7KHUHPDLQLQJRXWVWDQGLQJRSWLRQVDUHRXWRI WKHPRQH\DVRI 'HFHPEHU
and their intrinsic value was considered as zero.
5HSUHVHQWVLQWULQVLFYDOXHRI YHVWHGDQGH[SHFWHGWRYHVWRSWLRQVWKDWDUHLQWKHPRQH\
as of December 31, 2011. The remaining 275,605 vested and expected to vest options are out of the
PRQH\DVRI 'HFHPEHUDQGWKHLULQWULQVLFYDOXHDZDVFRQVLGHUHGDV]HUR
5HSUHVHQWVLQWULQVLFYDOXHRI H[HUFLVDEOHRSWLRQVWKDWDUHLQWKHPRQH\DVRI 'HFHPEHU
7KHUHPDLQLQJH[HUFLVDEOHRSWLRQVDUHRXWRI WKHPRQH\DVRI 'HFHPEHU
and their intrinsic value was considered as zero.
Cost of revenues
Research and development
Total stock-based compensation expense
2011
2010
2009
$ 84
$ 118
$ 98
91
114
124
109
151
218
87
228
299
$ 371
$ 611
$ 739
1RWH
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7KHIROORZLQJWDEOHVHWVIRUWKWKHFRPSXWDWLRQRI EDVLFDQGGLOXWHG(DUQLQJV/RVV3HU6KDUH´(36µ
As of December 31, 2011, $ 463 of total unrecognized compensation cost related to stock options is
H[SHFWHGWREHUHFRJQL]HGRYHUDZHLJKWHGDYHUDJHSHULRGRI \HDUV
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HQGHG'HFHPEHUDQGZDVDQGUHVSHFWLYHO\
2011
2010
2009
$ 3,874
$ 561
$ (10,706)
Basic earnings (loss) per share
0.73
0.11
(2.02)
Diluted earnings (loss) per share
0.70
0.10
(2.02)
Net income (loss)
:HLJKWHGDYHUDJH2UGLQDU\VKDUHVRXWVWDQGLQJ%DVLF(36
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Segment Information
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Interest
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business.
)RUHLJQFXUUHQF\WUDQVODWLRQGLIIHUHQFHVQHW
2011
2010
2009
$ 18,386
$ 18,040
$ 17,686
*HUPDQ\
Other
7,356
4,636
5,625
$ 45,967
$ 39,681
$ 37,231
2010
2009
$ 126
$ 50
$ 17
126
50
121
136
148
184
347
601
184
$ (221)
$ (551)
$ (63)
)LQDQFLDOH[SHQVHV
Bank charges
Operations in Israel include research and development, marketing and sales. Operations in the U.S.
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2011
5HYHQXHVEDVHGRQWKHFXVWRPHU·VORFDWLRQ
United States
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December 31,
2011
2010
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Israel
Europe
United States
$ 815
$ 870
50
16
404
550
$ 1,269
$ 1,436
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Dear Shareholders,
Yehoshua Agassi Chairman of the Board of Directors
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at the Board of Directors’ meetings, of business developments and material corporate issues related to
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As of December 31, 2011, the Board of Directors consisted of 6 members, including 2 external
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products, opening up of new markets’ selling opportunities and on business development in emerging
markets which have growth potential.
In compliance with the Israel Companies Law, the Board of Directors has an Audit Committee, which
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$XGLWRUWKHGHWHUPLQDWLRQRI KLVDQQXDODXGLWSODQUHYLHZRI KLVÀQDOUHSRUWVDQGWKHVXSHUYLVLRQRI his recommendations’ implementation. During 2011, we held 8 Board of Directors meetings, 5 Audit
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and Investments Ltd. one of Israels largest investment and holding companies in Israel.
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Nurit Nahum Director
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and a board member of Elran Holdings Ltd. Previous to that, Nurit Nahum was
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held several positions at Price Waterhouse Coopers, Israel, also serving as the CEO
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GABBAY & KASIERER, a member of Ernst & Young Global.
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States.
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growth and success.
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Telecommunication Corp., Limited and Leumi Partners Underwriters Ltd. Prior to
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became c-owner together with founder Jacob Burak. In 2005 management of Evergreen was handed over
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