FORM 6 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a - 16 or 15d -16
of the Securities Exchange Act of 1934
For the Month of February 2005
B.O.S. BETTER ON-LINE SOLUTIONS, LTD.
(Translation of Registrant's Name into English)
100 BOS ROAD, TERADYON 20179, ISRAEL
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): ___________
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): ___________
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): N/A
THIS FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE REGISTRANT'S
REGISTRATION STATEMENTS ON FORM S-8 (NOS. 333-110696, 333-100971 AND 333-11650),
AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS SUBMITTED, TO THE
EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
This Form 6-K consists of the Financial Statements of Quasar Communication
Systems Ltd. as of December 31, 2003, including a revised auditor's report with
respect thereof. These Financial Statements were previously filed on Form 6-K on
January 10, 2005.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
B.O.S. Better On-Line Solutions, Ltd.
(Registrant)
By: /S/ Adiv Baruch
-------------------
Adiv Baruch
President and CEO
Dated: February 28, 2005
QUASAR COMMUNICATION SYSTEMS LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
QUASAR COMMUNICATION SYSTEMS LTD.
FINANCIAL STATEMENTS DECEMBER 31, 2003
--------------------------------------------------------------------------------
CONTENTS
Auditor's report Q-2
FINANCIAL STATEMENTS :
Balance Sheets Q-3 - Q-4
Statements of Operations Q-5
Statements of Changes in Shareholders' Equity Q-6
Statements of Cash Flows Q-7
Notes to the Financial Statements Q-8 - Q-30
Q - 1
CHAIKIN, COHEN, RUBIN & GILBOA.
Atidim Technology Park, Bldg. 4,
P.O.B. 58143 Tel-Aviv 61580, Israel
TEL: 972-3-6489858 FAX: 972-3-6489946
E-MAIL: Accounting@ccrcpa.Co.Il
--------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
QUASAR COMMUNICATION SYSTEMS LTD.
We have audited the Quasar Communication Systems Ltd., ("the Company") balance
sheets as of December 31, 2003 and 2002 and the related statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 2003. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in Israel, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973 and with the standards of the Public Company
Oversight Board (United State). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our examination, the financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of December 31, 2003 and 2002 and the results of its operations,
changes in shareholders equity and its cash flows for each of the two years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the Israel Furthermore, in our opinion, the financial
statements referred to above are prepared in accordance with the Israeli
Securities (Preparation of Annual Financial Statements) Regulations, 1993.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in note 19 to the financial statements.
As explained in note 2, the above mentioned financial statements are presented
in values adjusted to changes in the general purchasing power of the Israeli
currency, in accordance with pronouncements of the Institute of Certified Public
Accountants in Israel.
Without qualifying our opinion, we wish to draw your attention to note 1C in the
financial statements. The Company had suffered a loss of approximately NIS 6.5
millions in the year ended December 31, 2003. The Company's capital and working
capital deficiencies as of December 31, 2003 amounted to approximately NIS 1.4
million and NIS 1.1 millions respectively.
The ability of the Company to continue to operate as a going concern is
dependent upon increasing profitability and/or raising additional financial
support.
The financial statements do not include any adjustments relating to
recoverability and classification of the assets and liabilities that might be
necessary should the company be unable to continue as a going concern.
CHAIKIN, COHEN, RUBIN & GILBOA
Certified Public Accountants (Isr.)
Tel-Aviv, January 4, 2005
Q - 2
QUASAR COMMUNICATION SYSTEMS LTD.
BALANCE SHEETS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
DECEMBER 31, SEPTEMBER 28,
------------------- ------
2002 2003 2004
------ ------ ------
AUDITED AUDITED UNAUDITED
------ ------ ------
ADJUSTED AMOUNTS FOR THE
ISRAELI CPI AS OF REPORTED
NOTE DECEMBER 2003 AMOUNTS (*)
------ ------------------ ------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 722 283 39
Trade receivables 3 4,931 2,800 2,289
Other receivables and prepaid expenses 4 1,241 326 181
Inventories 5 3,481 2,236 2,322
------ ------ ------
10,375 5,645 4,831
------ ------ ------
FUND FOR EMPLOYEE RIGHTS UPON RETIREMENT, NET 11 - 74 -
------ ------ ------
FIXED ASSETS 6
Cost 2,031 2,165 2,056
Less-accumulated depreciation 909 1,202 1,312
------ ------ ------
1,122 963 744
====== ====== ======
11,497 6,682 5,575
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Credit from banks 7 147 1,565 1,864
Loans from related parties - - 2,839
Trade payables 8 4,572 2,941 1,572
Other current liabilities and accruals 9 1,960 2,235 2,175
------ ------ ------
6,679 6,741 8,450
------ ------ ------
LONG TERM LIABILITY
Liability for employee rights upon retirement, net of
amount funded 11 63 - 82
Loans from related parties 10 - 1,354 -
Deferred taxes 11 - -
------ ------ ------
74 1,354 82
------ ------ ------
CONTINGENCIES, COMMITMENTS, GUARANTEES AND LIENS 12
------ ------ ------
TOTAL LIABILITIES 6,753 8,095 8,532
SHAREHOLDERS' EQUITY (DEFICIENCY) 4,744 (1,413) (2,957)
====== ====== ======
11,497 6,682 5,575
====== ====== ======
(*) Discontinuance of the adjustment for the effects of inflation according to
the Israeli CPI as of December 2003 (see note 2b).
Approved by the Board of Directors on January 4, 2005.
---------------------------------- ----------------------------------
AMIRAM GOLDMAN SHIMON MAMO
CHAIRMAN OF THE BOARD OF DIRECTORS DIRECTOR
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
Q - 3
QUASAR COMMUNICATION SYSTEMS LTD.
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
FOR THE NINE MONTHS ENDED
----------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
--------------------- ------- -------
2002 2003 2003 2004
------- ------- ------- -------
AUDITED AUDITED UNAUDITED UNAUDITED
------- ------- ------- -------
ADJUSTED AMOUNTS FOR THE ISRAELI CPI AS OF
----------------------------------- REPORTED
NOTE DECEMBER 2003 AMOUNTS (*)
------- ----------------------------------- -------
Sales 18a 24,790 17,810 13,566 10,432
Cost of sales 18b 13,610 16,641 13,346 8,637
------- ------- ------- -------
GROSS PROFIT 11,180 1,169 220 1,795
------- ------- ------- -------
Marketing and selling expenses 18c 4,404 2,962 2,451 1,168
General and administrative expenses 18d 3,985 3,216 2,561 2,116
------- ------- ------- -------
8,389 6,178 5,012 3,284
======= ======= ======= =======
OPERATING INCOME (LOSS) 2,791 (5,009) (4,792) (1,489)
Financial expenses, net 18e 175 474 262 214
Other expenses, net 2 - - 7
------- ------- ------- -------
INCOME (LOSS) BEFORE TAXES ON INCOME 2,614 (5,483) (5,054) (1,710)
Taxes on income 14b 1,174 1,071 1,133 -
------- ------- ------- -------
NET INCOME (LOSS) 1,440 (6,554) (6,187) (1,710)
======= ======= ======= =======
(*) Discontinuance of the adjustment for the effects of inflation according to
the Israeli CPI as of December 2003 (see note 2b).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
Q - 4
QUASAR COMMUNICATION SYSTEMS LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
SHARE PREMIUM ON RETAINED
CAPITAL SHARES EARNINGS TOTAL
------ ------ ------ ------
ADJUSTED AMOUNTS FOR THE ISRAELI CPI AS OF DECEMBER 2003
BALANCE AT DECEMBER 31, 2001 11 206 6,558 6,775
CHANGES DURING 2002:
Net income 206 (206) 1,440 1,440
Issuance of bonus shares
Dividend paid - - (3,471) (3,471)
------ ------ ------ ------
BALANCE AT DECEMBER 31, 2002 217 - 4,527 4,744
CHANGES DURING 2003:
ADJUSTED AMOUNT FOR THE ISRAELI CPI AS OF DECEMBER 2003
Net loss - - (6,554) (6,554)
Issuance of share capital 397 - - 397
------ ------ ------ ------
BALANCE AT DECEMBER 31, 2003 614 - (2,027) (1,413)
REPORTED AMOUNTS (*)
Net loss for the period (UNAUDITED) - - (1,710) (1,710)
Issuance of shares capital (UNAUDITED) 166 - - 166
------ ------ ------ ------
BALANCE AT SEPTEMBER 28, 2004 (UNAUDITED) 780 - (3,737) (2,957)
====== ====== ====== ======
(*) Discontinuance of the adjustment for the effects of inflation according to
the Israeli CPI as of December 2003 (see note 2b).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
Q - 5
QUASAR COMMUNICATION SYSTEMS LTD.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
FOR THE NINE MONTHS ENDED
--------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
-------------------- ------ ------
2002 2003 2003 2004
------ ------ ------ ------
AUDITED AUDITED UNAUDITED UNAUDITED
------ ------ ------ ------
ADJUSTED AMOUNTS FOR THE ISRAELI CPI AS OF
---------------------------------- REPORTED
DECEMBER 2003 AMOUNTS (*)
---------------------------------- ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period 1,440 (6,554) (6,187) (1,710)
Adjustments required to reflect the cash flows from
operating activities (Appendix A) 10 3,076 3,912 (506)
------ ------ ------ ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,450 (3,478) (2,275) (2,216)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in (proceeds from) loans to employees - 4 - -
Purchase of fixed assets (192) (134) (132) (58)
Proceeds from sale of fixed assets 99 - - 80
------ ------ ------ ------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (93) (130) (132) 22
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital - 397 - 166
Dividend paid (3,882) - - -
Loans received from related parties - 1,354 - 1,485
Increase (decrease) in short term credit from banks, net (114) 1,418 1,860 299
------ ------ ------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,996) 3,169 1,860 1,950
====== ====== ====== ======
DECREASE IN CASH AND CASH EQUIVALENTS (2,639) (439) (547) (244)
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE PERIOD 3,361 722 722 283
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD 722 283 175 39
====== ====== ====== ======
(*) Discontinuance of the adjustment for the effects of inflation according to
the Israeli CPI as of December 2003 (see note 2b).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
Q - 6
QUASAR COMMUNICATION SYSTEMS LTD.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
FOR THE NINE MONTHS ENDED
--------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
-------------------- ------ ------
2002 2003 2003 2004
------ ------ ------ ------
AUDITED AUDITED UNAUDITED UNAUDITED
------ ------ ------ ------
ADJUSTED AMOUNTS FOR THE ISRAELI CPI AS OF
---------------------------------- REPORTED
DECEMBER 2003 AMOUNTS (*)
---------------------------------- ------
APPENDIX A:
ADJUSTMENTS REQUIRED TO REFLECT THE CASH FLOWS FROM
OPERATING ACTIVITIES
INCOME AND EXPENSES NOT INVOLVING CASH FLOWS:
Depreciation 372 293 157 190
Increase (decrease) in liability for employee rights
upon retirement, net (160) (137) 237 156
Decrease (increase) in deferred income taxes, net (74) 367 (12) -
Other items, net (5) - - 7
------ ------ ------ ------
133 523 382 353
------ ------ ------ ------
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease in trade receivables 930 2,131 2,194 511
Decrease (increase) in other receivables and prepaid
expenses (642) 533 389 145
Decrease (increase) in inventories (1,540) 1,245 815 (86)
Increase (decrease) in trade payables 2,379 (1,631) (789) (1,369)
Increase (decrease) in other current liabilities and
accruals (1,250) 275 921 (60)
------ ------ ------ ------
(123) 2,553 3,530 (859)
====== ====== ====== ======
10 3,076 3,912 (506)
====== ====== ====== ======
(*) Discontinuance of the adjustment for the effects of inflation according to
the Israeli CPI as of December 2003 (see note 2b).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
Q - 7
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 1 - GENERAL
A. Quasar Communication Systems Ltd. (the Company) was founded and
commenced its operation on August 1993. The Company engaged in
developing, manufacturing and selling of cellular communication
gateways.
B. DISCONTINUED OPERATION
On September 29, 2004, the company entered into an assets purchase
agreement with B.O.S Better On-Line Solutions Ltd. ("BOS). Under the
agreement BOS will purchase the majority of the company's assets
relating to the company's business, including its fixed assets,
product lines, intellectual property rights and industrial rights. BOS
also committed to purchase the company's inventory.
These financial statements have been prepared as of September 28,
2004, immediately before the above-mentioned transaction, and do not
reflect the impact of the agreement on the financial statements.
C. GOING CONCERN ASSUMPTION
The company had suffered a loss of approximately NIS 6.5 millions and
NIS 1.7 millions for the year ended December 31, 2003 and for the
period of nine months ended September 28, 2004, respectively. The
company had also suffered from negative cash flows from operations
amounting to approximately NIS 3.5 millions and NIS 2.2 millions as
for these periods, respectively. The company's capital deficiencies as
of December 31, 2003 and September 28, 2004 amounted to approximately
NIS 1.4 millions and NIS 3 millions, respectively. The company's
working capital deficiencies as for these days, amounted to
approximately NIS 1.1 millions and NIS 3.6 millions, respectively. The
ability of the Company to continue to operate as a going concern is
dependent upon increasing its profitability and/or raising additional
financial support.
D. THE USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that effect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
E. UNAUDITED INTERIM FINANCIAL STATEMENTS
1) The accompanying balance sheet as of September 28, 2004, the
statements of operations and of cash flows for the nine months
ended September 28, 2004 and September 30, 2003, and the
statements of changes in shareholders' equity for the nine months
ended September 28, 2004 are unaudited.
2) The interim financial statements have been prepared in accordance
with generally accepted accounting principles for the preparation
of financial statements for interim periods, as prescribed in
Accounting Standard No. 14 of the Israeli Accounting Standards
Board.
The significant accounting policies applied in the preparation of
the interim financial statements are identical to those followed
in the preparation of the latest annual financial statements,
except as described below.
3) The results for the nine months ended September 30, 2004 are not
necessarily indicative of the results to be expected for the
whole year ending December 31, 2004.
Q - 8
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies which have been applied consistently with
those of prior year, are as follows:
A. ADJUSTED FINANCIAL STATEMENTS
1) The financial statements have been prepared on the basis of
historical cost adjusted for the changes in the general
purchasing power of Israeli currency, in accordance with
pronouncements of the Institute of Certified Public Accountants
in Israel (hereafter - the Israeli Institute). All figures in the
financial statements are presented in adjusted new Israeli
shekels (NIS), which have a uniform purchasing power (December
2003 adjusted NIS) - based upon the changes in the consumer price
index (hereafter - the CPI). As to the discontinuance of
adjusting financial statements for the effects of inflation, with
effects from January 1, 2004, see note below.
The adjustment of the financial statements is based on the
accounts of the Company maintained in nominal NIS.
The income statement items were, for the most part, adjusted as
follows: the components relating to transactions carried out
during the year - sales, purchases, labor costs, etc. - were
adjusted on the basis of the index for the month in which the
transaction was carried out, while those relating to non-monetary
balance sheet items (mainly -depreciation and changes in
inventories) were adjusted on the same basis as the related
balance sheet item. The financing component represents financial
income and expenses in real terms including the effect of the
erosion of balances of monetary items due to inflation.
2) The adjusted amounts of non-monetary assets do not necessarily
represent realization value or current economic value, but only
the original historical values, adjusted for the changes in the
general purchasing power of Israeli currency. In these financial
statements, the term "cost" signifies cost in adjusted Israeli
currency.
B. DISCONTINUANCE OF THE ADJUSTMENT OF FINANCIAL STATEMENTS FOR THE
EFFECTS OF INFLATION AND FINANCIAL REPORTING IN REPORTED AMOUNTS:
In 2001, the Israel Accounting Standards Board published Accounting
Standard No. 12 with respect to the discontinuance of the adjustment
of financial statements ("Standard No. 12"). According to this
Standard (as amended by Accounting Standard No. 17), the adjustment of
financial statements for the effects of inflation should be
discontinued beginning January 1, 2004. The Company applied the
provisions of the Standard, and accordingly, the adjustment for the
effects of inflation was discontinued as from January 1, 2004.
1. STARTING POINT FOR THE PREPARATION OF FINANCIAL STATEMENTS:
a) In the past, the Company prepared its financial statements
on the basis of the historical cost convention, adjusted for
the changes in the general purchasing power of the Israeli
currency based on the changes in the Israeli Consumer Price
Index ("Israeli CPI"). These adjusted amounts, as included
in the financial statements as of December 31, 2003 (the
transition date), served as a starting point for nominal
financial reporting beginning January 1, 2004. Additions
made after the transition date are included at nominal
values.
Q - 9
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
B. DISCONTINUANCE OF THE ADJUSTMENT OF FINANCIAL STATEMENTS FOR THE
EFFECTS OF INFLATION AND FINANCIAL REPORTING IN REPORTED AMOUNTS
1. STARTING POINT FOR THE PREPARATION OF FINANCIAL STATEMENTS:
(cont.)
b) The amounts for non-monetary assets do not necessarily
represent realizable value or current economic value, but
only the reported amounts for those assets.
c) In the financial statements "cost" represents cost in the
reported amount (see 2 below).
d) All comparative data for previous periods are presented
after adjustment for the Israeli CPI as of the transition
date (the Israeli CPI for December 2003).
2. FINANCIAL STATEMENTS IN REPORTED AMOUNTS:
a) Definitions:
ADJUSTED AMOUNT - historical nominal amount adjusted for the
Israeli CPI as of December 2003, according to the provisions
of Opinions No. 23 and No. 36 of the Institute of Certified
Public Accountants in Israel.
REPORTED AMOUNT - adjusted amount as of the transition date,
plus additions in nominal values after the transition date
and less amounts deducted after the transition date. The
amounts deducted after the transition date are in historical
nominal values, adjusted amounts as of the transition date
or in a combination of historical nominal values and
adjusted amounts as of the transition date, according to the
relevant situation.
b) Balance sheet:
1) Non-monetary items are presented in reported amounts.
2) Monetary items are presented in nominal values as of
the balance sheet date.
c) Statement of operations:
1) Income and expenses relating to non-monetary items are
derived from the change in the reported amount between
the opening balance and the closing balance.
2) Other items in the statement of operations are
presented in nominal values.
Q - 10
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
C. EXCHANGE RATES AND BASIS OF LINKAGE
Balances in, or linked to, foreign currency are stated in the
financial statements at the representative rates of exchange in effect
at balance sheet date, as published by The Bank of Israel. Balances
linked to the CPI are included in the balance sheets according to the
latest index published prior to balance sheet date. Changes in
monetary balances caused by changes in foreign currency exchange rate
or from changes in the CPI are changed to the statement of operation
as incurred. Hereunder are details of the CPI and dollar exchange
rates:
EXCHANGE RATE
OF ONE U.S.
DOLLAR CPI*
------ ------
NIS POINTS
------ ------
At December 31, 2003 4.379 106.16
At December 31, 2002 4.737 108.20
At September 28, 2004 4.480 100.6
At September 30, 2003 4.441 99.8
RATES OF INCREASE (DECREASE) IN PERCENTAGE %
---------------------------- ---------------
Year ended December 31, 2003 (7.6) (1.9)
Year ended December 31, 2002 7.3 6.5
Nine months ended September 28, 2004 2.4 1.2
Nine months ended September 30, 2003 (6.2) (1.48)
* Based on the CPI of the month which ended in the balance date, on
the average basis 2000=100.
D. CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments, which include
short-term bank deposits (up to 3 months from date of deposit), that
are not restricted as to withdrawal or use to be cash equivalents.
E. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is determined with respect to
specific debts of doubtful collecttibility.
F. INVENTORIES
Inventories are valued at the lower of cost or market value. Cost is
determined on "first-in first-out" basis. Labor and production
overheads component - on the basis of actual manufacturing costs.
Q - 11
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
G. FIXED ASSETS
Fixed assets are stated at cost.
Depreciation is calculated according to the straight-line method at
the following rates, which are considered to be adequate to the
depreciation of the assets over the course of their estimated useful
lives. Leasehold improvements are amortized over the related lease
period.
%
--------
Machinery and equipment 7-20
Furniture and office equipment 20
Computers and computerized equipment 25-33
Vehicles 15
Leasehold improvements 6-20
H. DEFERRED TAXES
1) Deferred taxes are computed in respect of differences between the
amounts presented in the financial statements and those taken
into account for tax purposes.
Deferred taxes are measured at the tax rates, which will be in
effect at time of release to income from the deferred tax
accounts. Changes in deferred taxes during the reported year are
reflected in the statement of income.
2) The Company recognizes tax benefits receivable where the
expectation of realization according to management estimate, is
more likely than not.
3) The Company may incur additional tax liability in the event of a
dividend distribution by the company. No account was taken of the
additional tax, since it is the Company's policy not to cause
distribution of dividend, which would involve additional tax
liability to the Company in the foreseeable future.
I. REVENUE RECOGNITION
Revenues from sale of products are generally recognized upon delivery
to the customer, provided that payment is fixed or determinable,
collectibility is probable and there is no significant obligation
remaining.
Revenues from services are recognized ratably over the contractual
period.
Q - 12
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
J. IMPAIRMENT OF ASSETS
In February 2003, Accounting Standard No. 15 of the Israeli Accounting
Standards Board ("the IASB") - "Impairment of Assets", became
effective. Requires a periodic assessment - at each balance sheet date
- to evaluate the need for a provision for the impairment of the
company's non-monetary assets - fixed assets and identifiable
intangibles, including goodwill, as well as investments in associated
companies. As promulgated by the standard, its provisions are applied
as of January 1, 2003. Pursuant to the provisions of the standard if
any events have occurred or changed in circumstances have taken place,
which might indicate that there has been an impairment of one or more
of the above assets, the company is required to evaluate whether the
carrying value of the investment in the asset is recoverable from the
cash flows anticipated from that asset, and, if necessary, to record
an impairment provision up to the amount needed to adjust its carrying
amount to its recoverable amount. The impairment loss is carried
directly to income.
The adoption of this standard has not had any effect on the company's
financial statements.
K. DISCLOSURE OF EFFECT OF NEW ACCOUNTING STANDARDS IN THE PERIOD PRIOR
TO THEIR APPLICATION
On July 2004, the Israeli Accounting Standards Board published
Accounting Standard No. 19, "Taxes on Income". The Standard provides
that a liability for deferred taxes is to be recorded for all
temporary differences subject to tax, except for a limited number of
exceptions. In addition, a deferred tax asset is to be recorded for
all temporary differences that may be deducted, losses for tax
purposes and tax benefits not yet utilized, if it is anticipated that
there will be taxable income against which they can be offset, except
for a limited number of exceptions. The new Standard applies to
financial statements for periods beginning on January 1, 2005. The
Standard provides that it is to be implemented by means of a
cumulative effect of a change in accounting method. The Company
estimates that the implementation of the Standard will not have a
significant effect on the Company's statements
Q - 13
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 3 - TRADE RECEIVABLES
DECEMBER 31,
--------------------
2002 2003
------ ------
Open accounts - domestic 3,012 1,880
Open accounts - foreign 1,503 1,624
Checks for collection 1,327 178
------ ------
5,842 3,682
Less - allowance for doubtful debts (911) (882)
------ ------
4,931 2,800
====== ======
NOTE 4 - OTHER RECEIVABLES AND PREPAID EXPENSES
DECEMBER 31,
-----------------
2002 2003
----- -----
Government institutions 623 149
Prepaid expenses 205 41
Deferred taxes 378 -
Advances to suppliers 15 96
Employees * 10 6
Other 10 34
----- -----
1,241 326
===== =====
* Loans given to employees linked to the CPI and bore interest of
4% per annum.
NOTE 5 - INVENTORIES
DECEMBER 31,
-----------------
2002 2003
----- -----
Raw Materials 2,074 1,625
Work in process 344 439
Finished products 1,063 172
----- -----
3,481 2,236
===== =====
Q - 14
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 6 - FIXED ASSETS
COMPUTERS
FURNITURE & AND
MACHINERY & MOTOR OFFICE LEASEHOLD COMPUTERIZED
EQUIPMENT VEHICLES EQUIPMENT IMPROVEMENTS EQUIPMENT TOTAL
----- ----- ----- ----- ----- -----
COST
Balance at January 1, 2003 615 168 535 152 561 2,031
Additions during the year 46 - 21 19 48 134
----- ----- ----- ----- ----- -----
Balance as December 31, 2003 661 168 556 171 609 2,165
----- ----- ----- ----- ----- -----
ACCUMULATED DEPRECIATION
Balance at January 1, 2003 339 37 86 35 412 909
Additions during the year 117 25 19 25 107 293
----- ----- ----- ----- ----- -----
Balance as December 31, 2003 456 62 105 60 519 1,202
===== ===== ===== ===== ===== =====
DEPRECIATED COST
Depreciated cost at December 31, 2003 205 106 451 111 90 963
===== ===== ===== ===== ===== =====
Depreciated cost at December 31, 2002 276 131 449 117 149 1,122
===== ===== ===== ===== ===== =====
NOTE 7 - CREDIT FROM BANKS
ANNUAL
INTEREST RATE DECEMBER 31,
AS OF ----------------
31.12.2003 2002 2003
---------- ----- -----
Short-term overdrafts 10 - 163
Short-term loans from bank 8 147 1,402
----- -----
147 1,565
===== =====
Q - 15
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 8 - TRADE PAYABLES
DECEMBER 31,
-----------------
2002 2003
----- -----
Open accounts - domestic 3,672 1,376
Open accounts - foreign 5 -
Checks for collection 895 1,565
----- -----
4,572 2,941
===== =====
NOTE 9 - OTHER CURRENT LIABILITIES
DECEMBER 31,
-----------------
2002 2003
----- -----
Payroll and related expenses 1,038 564
Customers advances 251 239
Deferred income 117 175
Government institutions 334 401
Accrued expenses 37 316
Related party - 327
Provision for warranty 183 190
Other - 23
----- -----
1,960 2,235
===== =====
NOTE 10 - LOANS FROM RELATED PARTIES
The loans were given as part of an investment agreement from November
23, 2003 (see Note 13b).
The loans are linked to the CPI and bear interest on a rate of 4% per
annum. The lenders were committed not to demand the repayment of the
loans before the repayment of the loans received from banks and in any
case not before January 1, 2005.
Q - 16
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 11 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
a. Labor laws and agreements require the company to pay severance pay to
employees dismissed or reliving from their employ in certain other
circumstances. The Company's liability for the payment of severance
pay to its employees is covered mainly by purchase of insurance
policies. The amounts so funded are not included in the balance sheets
since they are not under the control or management of the Company.
b. Monthly employees (for whom the company makes regular deposits in
severance pay funds) dismissed before attaining retirement age are
entitled to severance pay computed on the basis of the latest pay
rate. In respect of' these employees, the company has undertaken to
supplement the difference between severance pay computed as above and
the amounts accumulated in the above-mentioned funds. An appropriate
provision has been made for this liability.
c. The liability to employees whose salary is partly based on commissions
is computed on the basis of the average salary for the preceding 12
months.
d. The amount of the liability for severance pay presented in the balance
sheets reflects that portion of the liability which is not funded as
described above. Part of this liability is covered by deposits, in the
Company name, with recognized severance pay funds.
The liability for employee rights upon retirement, and the amount
funded are composed as follows: DECEMBER 31,
DECEMBER 31,
-----------------
2002 2003
---- ----
For severance pay 649 347
Less - amount funded (586) (421)
---- ----
63 (74)
==== ====
The Company may only make withdrawals from the severance pay funds for
the purpose of paying severance pay.
Q - 17
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 12 - CONTINGENCIES, COMMITMENTS, GUARANTEES AND LIENS
CONTINGENCY
A former employee who is a related party of the company filed a claim
against the company for payment of vacations days in the amount of 186,000
NIS.
At this stage of the legal proceedings, the company is unable to estimate
the prospects of this legal claim, therefore the company has not made a
provision in its financial statements.
COMMITMENTS
1) The facilities of the company are rented under a lease agreement, for
period of 4 years (with extension option for 3 years) started July 1,
1999.
The annual rental payments are at the amount of $77,000 per annum (the
rented payments will increase in 2.5% for each year in the next
becoming 3 years).
On June 2003, the company entered into an agreement with the renter of
which the annual rental payments will be decreasing in 2.5% from the
above mentioned mounts (NIS 77,000).
2) As of December 31, 2003 the company's vehicle are rented under lease
agreements. The company committed for minimum payments of 394,000 NIS
for the year of 2004, and 21,000 NIS for the year 2005.
GUARANTEES
On December 31, 2003 the company has given a guarantee of 86,000 NIS for
the renter of the company's facilities.
LIENS
There are fixed and floating liens, unlimited in amounts on all of the
company's assets, including a first degree fixed lien on the company's
checks for collection, unpaid share capital and goodwill, in favor of bank
Leumi. In addition, the company pledged, in a first degree fixed lien one
of its customers account on favor of Bank, according to an agreement from
April 29, 2003.
Q - 18
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 13 - SHARE CAPITAL
A. Balance as of December 31, 2003 and 2002 -
DECEMBER 31,
----------------------
2002 2003
------ ------
NUMBER OF NUMBER OF
SHARES SHARES
------ ------
AUTHORIZED:
Ordinary shares of NIS 1 par value 222,920 1,000,000
ISSUED AND FULLY PAID UP
Ordinary shares of NIS 1 par value 204,040 613,729
B. INVESTMENT IN THE COMPANY
On November 23, 2003 the company entered into investment agreement
with some of its shareholders and another investor for investing of
398,000 NIS, in consideration to issuance of 398,000 ordinary shares
and for lending 1,357,000 NIS.
After the above-mentioned issuance, the new investor holds 50.85% of
the issued share capital.
In addition the company granted the new investor warrants in case the
company will issue additional shares.
After December 31, 2003, the investors lended additional amount of
500,000 NIS.
NOTE 14 - TAXES ON INCOME
a. TAXATION UNDER INFLATIONARY CONDITIONS
The Company reports on its income for tax purposes according to the
provisions of the Israeli Income Tax Law (Inflationary Adjustments),
1985, whereby taxable income is measured in NIS adjusted for the
changes in the Israeli CPI.
In November 2001, an amendment to the Income Tax (Inflationary
Adjustments) Law (Amendment No. 14), 2001 was passed by the "Knesset"
(Israeli parliament), pursuant to which until February 28 of the year
following the reported tax year, the Minister of Finance, with the
approval of the finance committee of the Knesset, is entitled to
determine by an order that the provisions of the aforesaid law, in
whole or in part, will not apply with respect to a certain tax year if
the Israeli CPI in that year did not increase by more than 3%. On
January 2004, the Minister of Finance and the finance committee
decided that the Inflationary Adjustments Law will be implemented with
respect to 2003.
Q - 19
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 14 - TAXES ON INCOME (CONT.)
b. COMPOSITION OF TAX EXPENSES
YEAR ENDED DECEMBER 31,
--------------------
2002 2003
------ ------
Current taxes 903 -
Previous year taxes 345 704
Deferred taxes (74) 367
------ ------
1,174 1,071
====== ======
c. DEFERRED TAXES ARE RECORDED IN THE BALANCE SHEETS AS FOLLOWS:
DECEMBER 31,
--------------
2002 2003
---- ----
In current assets 378 -
In long-term liabilities (11) -
---- ----
367 -
==== ====
d. CHANGES IN DEFERRED TAXES
Balance at December 31, 2002 367
Changes in 2003 (367)
----
Balance at December 31, 2003 -
====
e. FOLLOWING IS A RECONCILIATION OF THE THEORETICAL TAX EXPENSE (THE
REGULAR TAX RATES APPLIED TO THE REPORTED INCOME BEFORE TAX) AND THE
ACTUAL TAX EXPENSE:
YEAR ENDED DECEMBER 31,
---------------------
2002 2003
------ ------
Income (loss) before taxes on income, as reported in the
income statements 2,614 (5,483)
====== ======
Statutory tax rate 36% 36%
====== ======
Theoretical tax 941 (1,974)
Increase (decrease) in tax due to tax benefit on account of
previous years from an "approved enterprise" (211) -
Taxes for previous year 346 704
Increase in taxes in respect of tax losses for which deferred
taxes were not created - 2,274
Other, net 98 67
------ ------
Taxes on income for the reported year 1,174 1,071
====== ======
Q - 20
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 14 - TAXES ON INCOME (CONT.)
f. TAXES ON INCOME
On June 29, 2004 the Israeli parliament adopted an income tax
ordinance amendment. The amendment determines a gradual reduction in
the rate of corporate tax commencing from January 1, 2004. In
accordance with the amendment the Company's nominal tax rate from 2004
has been reduced from 36% to 35%. In addition future reduction will
come into effect at the beginning of 2005 (34%), 2006 (32%) and 2007
until a final tax rate of 30% is achieved.
The adoption of the amendment did not have significant effect on the
Company's statements.
g. BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS
The Company's plan for investment of NIS 630,000 in fixed assets have
been granted on December 6, 2000, an "approved enterprise" status
subject to the law for Encouragement of Capital Investments,
5709-1959.
The Company chose the alternative income course, accordingly income
from the "approved enterprise" will be exempt from taxes for two years
after which a reduced tax rate of 25% will be enacted for the
remaining benefit period. The benefit period is a 7 years period
beginning the year in which the company first generates taxable income
and contingent to a time period limitation as stated in the law.
According to management opinion the benefit period commenced on 2000.
Dividends distributed from the "approved enterprise" income will be
liable to a 15% tax rate.
If the Company distributes a cash dividend to its shareholders out of
income attributable to revenues from approved enterprises which
received a tax exemption, the Company would be liable for taxes at the
rate of the corporate tax (up to 25%) saved from the amount of the
earnings distributed.
The above mentioned benefits are contingent on the company meeting the
terms of the law and its regulations and an authorization letter
according to which the company invested in an "approved enterprise".
Non-fulfillment of these terms may lead to the cancellation of some or
all of the above mentioned befits and a demand for the repayment of
certain amounts including interest.
The Company applied the "Investment Center" for confirmation of the
year 2000 as the year of commencing the benefit period.
On December 2, 2001 the Company applied for additional approved plan
under the said law. This application was not approved, yet.
h. FINAL TAX ASSESSMENTS
The company has final tax assessments under the law up to and
including the tax year ended at December 31, 1998.
Q - 21
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 15 - LINKAGE OF MONETARY BALANCES
DECEMBER 31, 2003
-----------------------------------------------
IN, OR LINKED
TO, FOREIGN LINKED TO
CURRENCY * THE CPI UNLINKED TOTAL
------ ------ ------ ------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 244 - 39 283
Trade receivables 1,009 - 1,791 2,800
Other receivables - 6 183 189
Fund for employee rights upon
retirement, net - - 74 74
------ ------ ------ ------
1,253 6 2,087 3,346
------ ------ ------ ------
LIABILITIES
CURRENT LIABILITIES
Short-term credit from banks - - 1,565 1,565
Trade payables 904 - 2,037 2,941
Other current liabilities - 401 1,420 1,821
Loans from related parties - 1,354 - 1,354
------ ------ ------ ------
904 1,755 5,022 7,681
====== ====== ====== ======
NET. MONETARY ASSETS (LIABILITIES) 349 (1,749) (2,935) (4,335)
====== ====== ====== ======
* Mainly in US dollars
Q - 22
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 15 - LINKAGE OF MONETARY BALANCES (CONT.)
DECEMBER 31, 2002
----------------------------------------------
IN, OR LINKED
TO, FOREIGN LINKED TO
CURRENCY * THE CPI UNLINKED TOTAL
------ ------ ------ ------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 448 108 166 722
Trade receivables 920 - 4,010 4,931
Other receivables 4 633 226 862
Fund for employee rights upon
retirement, net - - - -
------ ------ ------ ------
1,372 741 4,402 6,515
------ ------ ------ ------
LIABILITIES
CURRENT LIABILITIES
Short-term credit from banks - 147 - 147
Trade payables 5 - 4,567 4,572
Other current liabilities 251 - 1,709 1,960
------ ------ ------ ------
256 147 6,276 6,679
====== ====== ====== ======
NET. MONETARY ASSETS (LIABILITIES) 1,116 594 (1,874) (164)
====== ====== ====== ======
* Mainly in US dollars.
Q - 23
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 16 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES
A. AGREEMENT WITH A RELATED PARTY
An agreement with a related party was signed on April 28, 2003, under
which the related party will receive from the Company a monthly
remuneration of NIS 13,000 until January 31, 2004 ("End of
employment"). In addition the Company will pay 5% of the monthly
remuneration to a "Management Insurance Policy" and 7.5% for an
Education Fund. On the end of employment period the Company will grant
the related party all funds accrued in the "Management Insurance
Policy" and in the "Education Fund" and will pay him increased
severance pay of NIS 300,000 not later than 30 days after the end of
employment. The Company accounted in its financial statement a
provision for the said amounts.
B. TRANSACTIONS WITH RELATED PARTIES
FOR THE NINE MONTHS ENDED
----------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
--------------------- ------- -------
2002 2003 2003 2004
------- ------- ------- -------
AUDITED AUDITED UNAUDITED UNAUDITED
------- ------- ------- -------
ADJUSTED AMOUNTS FOR THE ISRAELI CPI AS OF
----------------------------- REPORTED
DECEMBER 200 AMOUNTS (*)
----------------------------- ---------
Payroll and related expenses to related party employed by
the company 725 210 158 55
=== === === ===
Purchase from related party - 24 24 3
=== === === ===
Financing expenses - 3 - 80
=== === === ===
Directors remuneration - 81 61 -
=== === === ===
C. BALANCES WITH RELATED PARTIES
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
--------------------- ------- -------
2002 2003 2003 2004
------- ------- ------- -------
AUDITED AUDITED UNAUDITED UNAUDITED
------- ------- ------- -------
ADJUSTED AMOUNTS FOR THE ISRAELI CPI AS OF
----------------------------- REPORTED
DECEMBER 200 AMOUNTS (*)
----------------------------- ---------
1) Include in current liabilities
Other current liabilities 110 327 97 -
=== ===== == =====
Acruded interest - 6 - -
=== ===== == =====
2) Loans from related parties - 1,354 - 2,839
=== ===== == =====
(*) Discontinuance of the adjustment for the effects of inflation according to
the Israeli CPI as of December 2003 (see note 2b).
Q - 24
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 17 - CREDIT RISKS AND CURRENCY RISKS
A. CONCENTRATION OF CREDIT RISKS
Most of Accounts receivables are not secured. The company allowances
for specific doubtful accounts, which their collection is in doubt.
In addition the company is exposed to losses from differences between
the changes in CPI and foreign exchange rates.
B. CURRENCY RISKS
As of December 31, 2003, excess of monetary assets over liabilities in
foreign currency or linked to it amounted to NIS 349,000.
Excess of unlinked monetary liabilities over unlinked monetary assets
amounted to NIS 2,935,000.
C. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, receivables and
debit balances, short-term credit from banks, payables and other
current liabilities approximate fair values due to the short-term
maturities of these instruments.
Q - 25
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 18 - STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------
2002 2003
------- -------
A. THE SALES INCLUDE SALES TO PRINCIPAL CUSTOMERS (ABOVE 10% FROM
SALES):
Principal customer a 5,699 4,257
Principal customer b - 2,621
Principal customer c - 2,326
B. COST OF SALES
1) Composition:
Materials consumed 8,476 9,800
Payroll and related expenses 4,036 3,780
Sub-contractors 1,115 1,229
Changes in inventories of work in process (146) (95)
Changes in inventories of finished products (933) 891
Other 1,062 1,036
------- -------
13,610 16,641
======= =======
2) The purchases include purchases from principal suppliers
(above 10%) from purchases):
Principal supplier a 1,494 3,750
Principal supplier b 1,151 1,010
Principal supplier c - 571
C. SELLING AND MARKETING EXPENSES
Payroll and related expenses 3,177 2,202
Marketing expenses 341 136
Traveling 593 338
Exhibitions 144 102
Others 291 337
------- -------
4,546 3,115
Less - grants from the government of Israel (142) (153)
------- -------
4,404 2,962
======= =======
D. GENERAL AND ADMINISTRATIVE EXPENSES
Payroll and related expenses 1,428 1,154
Office rent and maintenance 967 955
Professional fees 230 349
Depreciation and amortization 372 293
provision for doubtful accounts and bad debts, net 235 (9)
other 753 474
------- -------
3,985 3,216
======= =======
E. FINANCING EXPENSES, NET
Commissions (70) (79)
Financial income (expenses) (net of inflationary erosion) (105) (395)
------- -------
(175) (474)
======= =======
Q - 26
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 19 - EFFECT OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN ISRAEL AND IN THE U.S.A.
The company prepares its financial statements in accordance with
Israeli GAAP. As applicable to these financial statements, Israeli
GAAP and U.S. of America GAAP vary in certain significant respects, as
described below:
1) EFFECT OF INFLATION
In accordance with Israeli GAAP, through December 31, 2003, the
company comprehensively includes the effect of the changes in the
general purchasing power of Israeli currency in these financial
statements, as described in note 2a above. In view of the
inflation in Israel, this is considered a more meaningful
presentation than financial reporting based on historical cost.
2) LIABILITIES FOR EMPLOYEE RIGHTS UPON RETIREMENT
Under Israeli GAAP, amounts funded in respect of severance pay
liability by purchase of insurance policies are deducted from the
related liability. Under U.S. GAAP, the amounts funded should be
presented as a long-term investment among the Company's assets.
Correspondingly, the entire change in the liability will be
classified as part of wages expenses and the income from the
funding arrangements will be classified as financing income.
3) IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Israeli GAAP, the review of an asset for
impairment is performed in relation to its recoverable value. The
recoverable value of an asset is determined according to the
higher of the net selling price of the asset or its value in use
to the company. The value in use is determined according to the
present value of anticipated cash flow from the continued use of
the asset, including those expected at the time of its future
retirement and disposal.
For U.S. GAAP purposes the company adopted in 2002 FAS 144
"Accounting for the Impairment or Disposal of Long-Lived Assets"
("FAS 144"). Under FAS 144, if the sum of the expected future
cash flows (undiscounted and without interest charges) of the
tong-lived assets is less than the carrying amount of such
assets, an impairment loss would be recognized, and the assets
are written down to their estimated fair values.
Since the company did not record an impairment loss in any of the
reported periods, this GAAP difference results with no effect of
the Company's financial statements.
Q - 27
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 19 - EFFECT OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN ISRAEL AND IN THE U.S.A. (CONT.)
4) FINANCIAL STATEMENTS RECONCILED TO U.S. GAAP AS STATED ABOVE:
a. BALANCE SHEET DATA:
DECEMBER 31, SEPTEMBER 28,
---------------------- ------
2002 2003 2004
------ ------ ------
AUDITED AUDITED UNAUDITED
------ ------ ------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 736 283 39
Trade receivables 5,026 2,800 2,289
Other receivables and prepaid expenses 1,264 326 181
Inventories 3,548 2,236 2,322
------ ------ ------
10,574 5,645 4,831
------ ------ ------
FUND FOR EMPLOYEE RIGHTS UPON RETIREMENT 597 421 181
------ ------ ------
FIXED ASSETS
Cost 1,913 2,049 1,940
Less-accumulated depreciation 835 1,114 1,219
------ ------ ------
1,078 935 721
====== ====== ======
12,249 7,001 5,733
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Credit from banks 150 1,565 1,864
Loans from related parties - - 2,839
Trade payables 4,660 2,941 1,572
Other current liabilities and accruals 1,998 2,227 2,167
------ ------ ------
Total current liabilities 6,808 6,733 8,442
------ ------ ------
LONG TERM LIABILITY
Liability for employee rights upon retirement 661 347 263
Deferred taxes 11 - -
Loans from related parties - 1,354 -
------ ------ ------
672 1,701 263
====== ====== ======
Total liabilities 7,480 8,434 8,705
SHAREHOLDERS' EQUITY (DEFICIENCY) 4,769 (1,433) (2,972)
====== ====== ======
12,249 7,001 5,733
====== ====== ======
Q - 28
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 19 - EFFECT OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN ISRAEL AND IN THE U.S.A. (CONT.)
4) FINANCIAL STATEMENTS RECONCILED TO U.S. GAAP AS STATED ABOVE:
(cont.)
b. STATEMENTS OF OPERATION:
FOR THE NINE MONTHS ENDED
----------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
---------------------- ------- -------
2002 2003 2003 2004
------- ------- ------- -------
AUDITED AUDITED UNAUDITED UNAUDITED
------- ------- ------- -------
Sales 24,902 18,061 13,812 10,432
Cost of sales 13,579 16,974 13,629 8,637
------- ------- ------- -------
GROSS PROFIT 11,323 1,087 183 1,795
------- ------- ------- -------
Marketing and Selling expenses 4,431 2,973 2,495 1,168
General and administrative expenses 3,986 3,245 2,597 2,111
------- ------- ------- -------
8,417 6,218 5,092 3,279
======= ======= ======= =======
OPERATING INCOME (LOSS) 2,906 (5,131) (4,909) (1,484)
Financial income (expenses), net 12 (391) (202) (214)
Other expenses, net (2) - - (7)
------- ------- ------- -------
INCOME (LOSS) BEFORE TAXES ON INCOME 2,916 (5,522) (5,111) (1,705)
Taxes on income 1,179 1,078 1,146 -
------- ------- ------- -------
NET INCOME (LOSS) FOR THE YEAR 1,737 (6,600) (6,257) (1,705)
======= ======= ======= =======
Q - 29
QUASAR COMMUNICATION SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
IN THOUSANDS IN NEW ISRAELI SHEKELS
NOTE 19 - EFFECT OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN ISRAEL AND IN THE U.S.A. (CONT.)
4) FINANCIAL STATEMENTS RECONCILED TO U.S. GAAP AS STATED ABOVE:
(cont.)
c. STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY:
RETAINED
SHARE CAPITAL EARNINGS TOTAL
------ ------ ------
BALANCE AT DECEMBER 31, 2001 204 6,258 6,462
CHANGES DURING 2002:
Net income - 1,737 1,737
Dividend paid - (3,430) (3,430)
------ ------ ------
BALANCE AT DECEMBER 31, 2002 204 4,565 4,769
CHANGES DURING 2003:
Net loss - (6,600) (6,600)
Issuance of share capital 398 - 398
------ ------ ------
BALANCE AT DECEMBER 31, 2003 602 (2,035) (1,433)
Net loss for the period (UNAUDITED) - (1,705) (1,705)
Issuance of shares capital (UNAUDITED) 166 - 166
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BALANCE AT SEPTEMBER 28, 2004 (UNAUDITED) 768 (3,740) (2,972)
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Q - 30