Full year results

RNS Number : 4597D

T42 IOT Tracking Solutions PLC

03 March 2022

 

The information contained within this announcement is deemed by the Company to constitute inside information pursuant to Article 7 of EU Regulation 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 as amended.

03 March 2022

t42 IoT Tracking Solutions plc

("t42" or the "Company")

Full year results

t42 IoT Tracking Solutions plc (AIM: TRAC) ("t42" or the "Company"), the real-time tracking, security and monitoring solutions provider for the global container and freight market, is pleased to announce its results for the 12 months ended 31 December 2021.

Financial Highlights

• Revenues decreased by 16% to $4.2m (FY 2020: $5.04m)
• Recurring SaaS revenues decreased by 3% to $2.1m (FY 2020: $2.2m)
• Adjusted EBITDA* loss of $973,000 (FY 2020: loss of $370,000)
• Gross margin for the period was 30% (FY 2020:33%) or c40% before one-off reduction of stock
• General expenses reduced by 11% to $2.4m (FY 2020: $2.7m)
• Statutory loss of $2.96m (FY 2020: $2.0m)
• Net cash used in operating activities was approximately $0.38m (FY 2020 $0.4m)

*Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and share-based payment expense and non-recurring items.

Operational Highlights

• Performance turnaround began at end of period 2021 and continued into 2022
  • agreement in Latin America signed in December 2021 to provide freight protection and monitoring solutions
  • agreement in the USA signed in January 2022 for distribution of t42 Tracking Lock Units
• Sales of new smart padlock launched under the Lokies brand increased to 13% of total revenues from 5% the previous year.
• Group focused on its strategy to dominate the shipping container tracking business
• Rebranding of company to reflect focus on the global shipping container market
• Supply chain issues resulting from the impact of the global Covid 19 pandemic caused delays in deliveries and electronic equipment global shortage in 2021 and into early 2022, but we have secured additional supplies of microchips which should ensure minimal impact in the remainder of 2022

Avi Hartmann, CEO of t42, commented:

"2021 was a year of transition for t42 with a new strategy, a new defined target market of the global shipping container market and a new name and brand to reflect our ambition to provide a comprehensive and unique solution for our customers.

"2021 was also a demanding year as we dealt with the challenges of the pandemic and with the task of reorientating the business to focus on the opportunity in our new target market, itself facing huge challenges as global supply chains went from near dormancy to frenzied levels of activity.

"We have begun 2022 with positive momentum from client wins, which validate our new strategic direction, and we are now focused on delivery and converting customer interest into contract wins. Even with our best ever pipeline of potential new orders, we will retain our focus on continuous product improvements and maintaining high standards of customer care.

"We are optimistic about the opportunity ahead and wish to thank our employees, shareholders and other partners for their support during a difficult year during which, despite the challenges, we feel we were able to lay the foundations of future success."

Contacts:

t42 IoT Tracking Solutions PLC Michael Rosenberg, Chairman Avi Hartmann, CEO	07785 727595 [phone]
Allenby Capital Limited (AIM Nominated Adviser and Joint Broker) Jeremy Porter/Piers Shimwell	020 3328 5656
Peterhouse Capital Limited (Joint Broker) Lucy Williams/Charles Goodfellow/Eran Zucker	020 7469 0930
Yellow Jersey PR (Financial PR) Tom Randell/Henry Wilkinson/Annabelle Wills	020 3004 9512 [e-mail]

Notes to Editors

t42 IoT Tracking Solutions plc  (AIM: TRAC), formerly Starcom Systems plc, provides real-time tracking, analysis, monitoring and security IoT solutions for the global container and freight market and covers 55 countries, over 100 distributors and 50 logistics and support partners.

t42's multi-sensor IoT tracking devices use a wide range of detection capabilities with cloud-based analytics and alerts, with real-time data transmission, analysis and actionable insights. Its devices are used by ports, cargo owners, shipping companies, freight forwarders, insurance companies, customs authorities and homeland security and police for end-to-end global container tracking and digital transformation of shipments.

For more information on the Company, please visit:  www.t42.co.uk/ . 

Information required pursuant to rule 26 of the AIM Rules for Companies can be found at  www.starcomsystems.com .

CHAIRMAN'S STATEMENT

The results for 2021 reflect the negative ongoing impact of COVID-19 and the many supply chain issues caused by this pandemic, but later in the year saw the very positive move to rebrand the Company and its products and success in signing two important commercial contracts which are expected to dramatically improve the revenue prospects of the Company over the next few years.

We had hoped for an improvement in revenues in the second half of the year but as with many other companies it was not until the end of the year that we began to see that happening. As a result, the final revenues were $4.2m with negative EBITDA of $0.97m and an effective gross margin of 40% following adjustments referred to below. In view of the decision to rebrand products and focus on those designed to protect freight and container units it was decided to review the treatment of intangible assets and valuation of stock. Appropriate adjustments have been made with those items in the accounts and described below under the financial review.

During the year the supply of microchips and related long lead times and costs increases continued to hold back our growth despite the clear technological benefits provided by our products. As reported in our interim statement our pipeline of new potential deals was at an all time high and it is pleasing to be able to report that some of these have indeed been secured as previously reported. In December 2021 we reported the signing of an agreement with a consortium in Latin America which will provide the Company's solution to protecting and monitoring freight at various ports, and which could generate over $40m of revenues if the maximum number of product units indicated by the customer are deployed over a five-year period. Early in January 2022 the Company reported another agreement with OpenBox Ventures Inc in the USA which could result in significant revenues over the next few years. Of course, these are in addition to the continuing levels of business with existing clients and the very important ongoing and recurring SaaS revenues that come with the majority of our products.

During the year under review our HELIOS product range continued to provide the majority of sales at around 57%, and although this product range tends to be low margin business, it does create ongoing SaaS revenues. However, we intend to focus on higher gross margin products in the future such as the Lokies product and other container tracking devices. We believe that currently our products for this sector offer a unique solution to the problems faced by the container and freight sectors, and while there is no doubt others will develop similar products, we believe we have a first mover advantage to secure a significant percentage of an enormous market opportunity. In considering the best way forward to capitalize on this we are examining alternative forms of finance for that industry sector opportunity, since we believe that the future lies in our ability to control the data provided by our technology. This could involve providing a very low up-front cost for our products but with increased monthly charges for usage. Clearly this will involve the need to fund such a strategy if we decide to proceed. Our objective is to test the market appetite for such an approach over the next few months.

Sales of the smart padlock launched under the Lokies brand increased to 13% of our revenues from only 5% in the previous year. As previously announced, we were successful in winning the DHL Smart Guard Innovation Challenge in Singapore earlier in the year for the Lokies product and, after more trials, we  secured our first initial order for this product in January 2022 with the expectation of further orders to follow.

We have been working closely with our advisers on the rebranding of the Company and its products, and restructuring our sales team to reflect the new focus as well as examining opportunities to expand the Company both organically and where appropriate with suitable alliances.

In November 2021, Mr Avi Engel, one of the non-executive directors, stepped down from the board. Avi has served as a director since August 2015 and we thank him for his valuable contribution to the board and wish him every success in his other activities.

We have successfully raised £1.35m new cash during the second half of 2021 from new investors who recognize the opportunity for more growth and are happy to support the company at increasing share prices.

FINANCIAL REVIEW

Group revenues for the year were $4.2m, compared with $5.04m for the year ended 31 December 2020, a decrease of 16%.

The gross margin for the year shown in the accounts was approximately 30% but this reflected the one-time reduction in stock levels. The ongoing gross margin would be nearer 40% without this deduction. compared with 33% for 2020.

Total operating expenditure for the year was $3.98m (2020: $3.4m), mainly due to non-cash expenses such as depreciation, share option provisions and exceptional impairment made for intangible assets.

Net loss after taxation for the year increased to $2.96m compared with the 2020 net loss of $2.05m. The operating loss in the period was $2.69m, compared to an operating loss of $1.78m in 2020.

The Group recorded an exchange rate loss of $0.1m resulting from the strengthening of the Israeli Shekel compared with the US dollar (2020: loss of $0.14m).

The Group balance sheet showed decrease in trade receivables of $0.68m, compared with $1.1m as at 31 December 2020.

Group inventories at the period end were $1.8m, compared to $2.1m as at the end of 2020. An exceptional provision for obsolete stock was made of $0.38m.

As a part of the re-valuation of the intangible assets due to rebranding and new strategy the company impaired $0.83m of intangible asset value.

Trade payables at the year-end were stable at $1.55m, compared with $1.6m as at 31 December 2020.

Net cash used in operating activities in the period was approximately $0.38m, compared with $0.4m for the year ended 31 December 2020.

As detailed in notes 10, 12 and 13 of this financial report, t he Company has loans with a leading Israeli Bank. The financial covenants as detailed in note 12 were breached at the quarter ending 31 December 202 1. The Company and the bank are monitoring the position carefully, remain in close correspondence, and are working towards a   solution. 

OUTLOOK

The new contracts in Latin America and the USA recognize the strength of our technology in the container and freight movement market and are expected to lead to further contracts over the next few months. While the supply chain issues continue to create delays in deliveries, we have succeeded in securing additional supplies of microchips which should enable a very strong performance in 2022 with an expected return to positive EBITDA and further growth in succeeding years.

Michael Rosenberg OBE

Non-Executive Chairman

_______________

 T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

U.S. Dollars in thousands

		December 31,
	Note	2021		2020
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment, net	6	299		318
Rights-of-use assets, net	22	690		330
Intangible assets, net	7	1,034		1,900
Income tax authorities		57		56
Total Non-Current Assets		2,080		2,604
CURRENT ASSETS
Cash and cash equivalents		1,534		264
Short-term bank deposit	5	154		150
Trade receivables, net	3B	679		1,129
Other accounts receivable	3A	160		81
Inventories	4	1,790		2,127
Total Current Assets		4,317		3,751
TOTAL ASSETS		6,397		6,355

EQUITY AND LIABILITIES
EQUITY	14	193		2,101
NON-CURRENT LIABILITIES
Long-term loans from banks, net of current maturities	10	239		303
Long-term leasehold liabilities	22	558		236
Warrants at fair value	11	115		-
Conversion component of a convertible loan at fair value	11	279		-
Amortized cost of a convertible loan	11	857		-
Total Non-Current Liabilities		2,048		539
CURRENT LIABILITIES
Short-term bank credit		24		25
Short-term bank loan	12	922		739
Current maturities of long-term loans from banks	10	76		12
Trade payables		1,553		1,579
Other accounts payable	9	738		303
Leasehold liabilities	22	148		136
Conversion component of a convertible loan at fair value	11	-		42
Amortized cost of a convertible loan	11	-		254
Warrants at fair value	11	3		10
Related parties	20	692		615
Total Current Liabilities		4,156		3,715
TOTAL EQUITY AND LIABILITIES		6,397		6.,355

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

		03 March 2022		03 March 2022
Date of Approval of the Financial Statements		Igor Vatenmacher CFO		Avi Hartmann CEO

 

 T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

U.S. Dollars in thousands (except shares data)

  Year ended December 31,

	Note		2021		2020
Revenues			4,214		5,041
Cost of sales	15		(2,545)		(3,374)
Inventory write-down			(381)		-
Gross profit			1,288		1,667
Operating expenses:
Research and development			(223)		(206)
Selling and marketing			(609)		(580)
General and administrative expenses	16		(2,388)		(2,680)
Other income (expenses)	17		(756)		24
Total operating expenses			(3,976)		(3,442)
Operating loss			(2,688)		(1,775)
Finance income	18A		-		1
Finance expenses	18B		(271)		(271)
Net finance expenses			(271)		(270)
Total comprehensive loss for the year			(2,959)		(2,045)
Loss per share:
Basic and diluted loss per share	14, 19		(0.064)		(0.047)

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

   T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

  U.S. Dollars in thousands

		Share   Capital			Premium on Shares			Capital Reserve				Capital Reserve in Regard to Share-Based Payment Transactions				Accumulated Loss		Total
Balance as of January 1, 2020		-		12,254			89				942				(9,394)				3,891
Proceeds from issued share capital, net of expenses		-		74			-				-				-				74
Share based payment		-		-			-				181				-				181
Comprehensive loss for the year		-		-			-				-				(2,045)				(2,045)
Balance as of December 31, 2020		-		12 ,328			89				1,123				(11,439)				2,101
Issuance of shares to a related party in payment of payable (see Note 1 4c )		-		107			-				-				-				107
Conversion of convertible loan (see Note 11 b )		-		295			-				-				-				295
Issued share capital, net of expenses (see Note 1 4d )		-		621			-				-				-				621
Share based payment (see Note 14f)		-		-			-				28				-				28
Comprehensive loss for the year		-		-			-				-				(2,959)				(2,959)
Balance as of December 31, 2021		-		13,351			89				1,151				(14,398)				193

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

 T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. Dollars in thousands

				Year Ended December 31,
				2021		2020
CASH FLOWS FOR OPERATING ACTIVITIES:
Loss for the year				(2,959)		(2,045)
Adjustments to reconcile loss for the year to net cash used in operating activities:
Depreciation and amortization				549		725
Interest expenses and exchange rate differences				(24)		50
Share-based payment expense				28		181
Inventory write down				381		-
Intangible Assets impairment				801		-
Changes in assets and liabilities:
Decrease (Increase) in inventories				(44)		219
Decrease in trade receivables, net				450		857
Decrease (Increase) in other accounts receivable				(79)		88
Increase in Income Tax Authorities				(1)		(2)
Increase (Decrease) in trade payables				8 1		(502)
Increase in other accounts payable				43 5		40
Net cash used in operating activities				(382)		(389)
CASH FLOWS FOR INVESTING ACTIVITIES:
Purchases of property, plant and equipment				( 49 )		(18)
Increase in short-term deposits				(4)		(89)
Cost of intangible assets				(283)		(281)
Net cash used in investing activities				(33 6 )		(388)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term bank credit, net				(1)		(54)
Receipt of short-term bank loan, net				183		739
Receipt of convertible unsecured loans, net				1,251		290
Proceeds from related parties, net				77		57
Payment for leasehold liabilities				(137)		(162)
Receipt of long-term loans				-		312
Repayment of long-term loans				(6)		(299)
Consideration from issue of shares, net				621		-
Net cash provided by financing activities				1,988		883
Increase in cash and cash equivalents				1,270		106
Cash and cash equivalents at the beginning of the year				264		158
Cash and cash equivalents at the end of the year				1,534		264
Appendix A Ð Additional Information
Interest paid during the year				(49)		(69)
Appendix B Ð Non-Cash Financing Activities
Issuance of shares to a related party in payment of payable balance and convertible loans				402		74
Significant non-cash transactions (entering into new lease agreements) are disclosed in Note 2 2

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

 

 T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 1 -	GENERAL
	a.	The Reporting Entity
		1.  t42 IoT Tracking Solutions PLC (formerly: Starcom PLC) ("the Company") was incorporated in Jersey on November 28, 2012. The Company and its subsidiaries ("the Group") specializes in easy-to-use practical wireless solutions that combine advanced technology, telecommunications and digital data for the protection and management of people, fleets of vehicles, containers and assets. The Group engages in production, marketing, distribution, research and development of G.P.S. systems.
		The Company fully owns Starcom G.P.S. Systems Ltd., an Israeli company, and Starcom Systems Limited, a company incorporated in Jersey. The Company's shares are admitted for trading on the AIM market of the London Stock Exchange ("AIM"). The address of the official Company office in Israel of t42 IoT Tracking Solutions is: 16A Ha'Taas Street, Kfar Saba, Israel. The address of the Company's registered office in Jersey of Starcom Systems Limited is: Forum 4, Grenville Street, St. Helier, Jersey, Channel Islands, JE4 8TQ.
	b.		Definitions in these financial statements:
1.				International Financial Reporting Standards ("IFRS") Ð Standards and interpretations adopted by the International Accounting Standards Board ("IASB") that include international financial reporting standards (IFRS) and international accounting standards (IAS), with the addition of interpretations to these Standards as determined by the International Financial Reporting Interpretations Committee (IFRIC) or interpretations determined by the Standards Interpretation Committee (SIC), respectively.
2.				The Company - t42 IoT Tracking Solutions PLC (formerly: Starcom PLC).
3.				The Subsidiaries - Starcom G.P.S. Systems Ltd. and Starcom Systems Limited.
4.				Starcom Jersey Ð Starcom Systems Limited.
5.				Starcom Israel Ð Starcom G.P.S. Systems Ltd.
6.				The Group Ð t42 IoT Tracking Solutions PLC (formerly: Starcom PLC). and the Subsidiaries.
7.				Related Party - As determined in International Accounting Standard No. 24.

 

 T42 IOT TRACKING SOLUTIONS PLC (FORMERLY: STARCOM PLC)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 1 -	GENERAL (cont.)
	c.	Operating Turnover Period
		The ordinary operating period turnover for the Group is a year. As a result, the current assets and current liabilities include items that are expected and intended to be realized at the end of the ordinary operating turnover period for the Group.
	d.	Functional and Presentation Currency
		The consolidated financial statements are presented in U.S. dollars (hereinafter: "dollars") that is the functional currency of the Group and is rounded to the nearest thousands, except when otherwise indicated.
		The dollar is the currency that represents the economic environment in which the Group operates.
		The Group's transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars. All transaction gains and losses from remeasurement of monetary assets and liabilities denominated in non-dollar currencies are reflected in the statements of comprehensive income as financial income or expenses, as appropriate.

NOTE 2A -	BASIS OF PREPARATION
		a.	Declaration in regard to implementation of International Financial Reporting Standards (IFRS)
			The consolidated financial statements of the Company have been prepared in accordance with IFRS and related clarifications published by the IASB. The Company's Board of Directors authorized the 2021 Consolidated Financial Statements on March 3rd, 2022.
		b.	Basis of Measurement
			The consolidated financial statements have been prepared on the historical cost basis, except for financial instruments at fair value through profit or loss that are stated at fair value.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

	NOTE 2B -	USE OF ESTIMATES AND JUDGMENTS
		The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
		Upon formulation of accounting estimates used in preparation of the Group financial statements, management is required to make assumptions in regard to circumstances and events that are significantly uncertain. Management arrives at these decisions based on prior experiences, various facts, external items and reasonable assumptions in accordance with the circumstances related to each assumption.
		Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
		Information about critical judgment in applying accounting policies that have a significant effect on the amounts recognized in the consolidated financial statements is included in the following Notes:
		Note 7 Ð Capitalization of development costs and amortization of these costs.
		Note 14 Ð Options issued.
		Information about assumptions and estimations that have significant risk of resulting in a material adjustment is included in the following Notes:
		Note 3B Ð Allowance for doubtful accounts.
		Note 7 Ð Calculation of amortization and impairments.
		Note 8 Ð Utilization of tax losses.
		Note 11 Ð Financial liabilities of convertible loans and warrants
	NOTE 2C -	SIGNIFICANT ACCOUNTING POLICIES
		a.	Basis of consolidation
			All intra-Group transactions, balances, income and expenses of the companies are eliminated on consolidation.

	b.	Foreign currency and linkage basis
		Balances stated in foreign currency or linked to a foreign currency have been included in the consolidated financial statements according to the prevailing representative exchange rates at the balance sheet date. Balances linked to the Consumer Price Index in Israel are included in accordance with the Index published prior to balance sheet date. Linkage and exchange rate differences are included in the statement of comprehensive income when incurred.
					As of December 31,
						2021	2020
		CPI (in points) *				127.67	124.19
		Exchange Rate of NIS in U.S. $				0.322	0.311
						For the Year Ended December 31,
						2021	2020
		Change in CPI				2.8%	(0.69%)
		Change in Exchange Rate of NIS				3.4%	7.6%
		* Base Index 2002 = 100.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 2C -		SIGNIFICANT ACCOUNTING POLICIES (cont.)
	c.	Financial instruments
		(i) Non-derivative financial assets
		The Group initially recognizes loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognized initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
		The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.
		Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
		The Group classified non-derivative financial assets into the following categories: Financial assets at fair value, through profit or loss, held-to-maturity financial assets, loans and receivables, and available-for-sale financial assets.
		Financial assets at fair value through profit or loss:
		A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as such on initial recognition. Financial assets are designated as at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group's documented risk management or investment strategy. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which take into account any dividend income, are recognized in profit or loss.
		Financial assets designated as at fair value through profit or loss comprise equity securities that otherwise would have been classified as available for sale.
		Loans and receivables:
		Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.
		Loans and receivables are comprised of trade and other receivables, excluding short -term trade and other receivables where the interest amount is immaterial.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 2C -	SIGNIFICANT ACCOUNTING POLICIES (cont.)
	c.	Financial instruments (cont.)
		(ii) Non-derivative financial liabilities
		The Group initially recognizes debt securities issued and subordinated liabilities on the date that they originated. All other financial liabilities (including liabilities designated as at fair value through profit or loss) are recognized initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
		The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
		The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
		Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.
		(iii) Compound financial instruments
		Compound financial instruments issued by the Company comprised: an interest-bearing loan with a conversion option issued to the lender.
		The option component was recognized initially at its fair value using a binomial calculation.
		The liability component was recognized initially as the difference between the loan amount and the option component
		Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
		Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition.
		Interest related to the financial liability is recognized in profit or loss.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 2C -	SIGNIFICANT ACCOUNTING POLICIES (cont.)
	d.	Cash and cash equivalents
		Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Group in the management of its short-term commitments.
	e.	Share capital
		Ordinary shares:
		Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.
	f.	Property, plant and equipment
		Property, plant and equipment are measured at cost less accumulated depreciation.
		Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:
			%
		Computers and software	33
		Office furniture and equipment	7 - 15
		Vehicles	15
		Laboratory equipment	15
		Leasehold improvements	10
		Leasehold improvements are depreciated by the straight-line method over the term of the lease, ten-year period, (including option terms) or the estimated useful lives of the improvements, unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.
		At each balance sheet date, the Group examines the residual value, the useful life and the depreciation method it uses. If the Group identifies material changes in the expected residual value, the useful life or the future pattern of consumption of future economic benefits in the asset that may indicate that a change in the depreciation is required, such changes are treated as changes in accounting estimates.  In the reported periods, no material changes have taken place with any material effect on the financial statements of the Group.
	g.	Intangible assets: Research and development
		Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.
		Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends and has sufficient resources to complete development and to use or sell the asset.
		The expenditure capitalized includes the cost of materials, direct labor, overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognized in profit or loss as incurred.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 2C -	SIGNIFICANT ACCOUNTING POLICIES (cont.)
	g.	Intangible assets: Research and development (cont.)
		Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.
		Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses. Amortization is calculated using the straight-line method over the estimated useful lives of the assets: ten years.
		At each balance sheet date, the Group reviews whether any events have occurred or changes in circumstances have taken place, which might indicate that there has been an impairment of the intangible assets. When such indicators of impairment are present, the Group evaluates whether the carrying value of the intangible asset in the Group's accounts can be recovered from the cash flows anticipated from that asset, and, if necessary, records an impairment provision up to the amount needed to adjust the carrying amount to the recoverable amount.
	h.	Short-term deposit
		Deposits with maturities of more than three months but less than one year are included in short-term deposits.
	i.	Leases
		The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
		Group as a lessee
		The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
		1.  Right-of-use assets
		The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:
		Property -               5 years
		Vehicles -   3 years
		If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
		The right-of-use assets are also subject to impairment. Refer to the accounting policies in Note 2C(k).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 2C -	SIGNIFICANT ACCOUNTING POLICIES (cont.)
	i.	Leases (cont.)
		2.  Lease liabilities
		At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
		In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
		3.  Short-term leases and leases of low-value assets
		The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognized as an expense on a straight-line basis over the lease term.
	j.	Inventories
		Inventories are stated at the lower of cost or net market value.
		Cost is determined using the "first-in, first -out" method.
		Inventory write-downs are provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, and discontinued products and for market prices lower than cost, if any. At the point of loss recognition, a new lower cost basis for that inventory is established.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 2C -	SIGNIFICANT ACCOUNTING POLICIES (cont.)
	k.	Impairment in value of assets
		During every financial period, the Group examines the book value of its tangible and intangible assets to determine any signs of loss from impairment in value of these assets. In the event that there are signs of impairment, the Group examines the realization value of the designated asset. In the event that the realization cannot be measured for an individual asset, the Group estimates realization value for the unit where the asset belongs. Joint assets are assigned to the units yielding cash on the same basis. Joint assets are designated to the smallest groups of yielding assets for which one can identify a reasonable basis that is consistent with the allocation.
		The realization value is the higher of net sale price of the asset as compared with its useful life that is determined by the present value of projected cash flows to be realized from this asset and its realization value at the end of its useful life. In the event that the book value of the asset or cash-yielding unit is greater than its realization value, a devaluation of the asset has occurred in the amount of the difference between its book value and its realization value. This amount is recognized immediately in the statements of comprehensive income.
		In the event that prior devaluation of an asset is nullified, the book value of the asset or of the cash-yielding unit is increased to the estimated current fair value, but not in excess of the asset or cash-yielding unit book value that would have existed had there not been devaluation. Such nullification is recognized immediately in the statements of comprehensive income.
	l.	Revenue recognition
		The Group generates revenues from sales of products, which include hardware and software, software licensing, professional services and maintenance. Professional services include mainly installation, project management, customization, consulting and training. The Group sells its products indirectly through a global network of distributors, system integrators and strategic partners, all of whom are considered end-users, and through its direct sales force.
		Revenue from products and software licensing is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and collectability is probable.
		Revenues from maintenance and professional services are recognized ratably over the contractual period or as services are performed, respectively.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 2C -	SIGNIFICANT ACCOUNTING POLICIES (cont.)
	m.		Allowance for doubtful accounts
			The Group evaluates its allowance for doubtful accounts on a regular basis through periodic reviews of the collectability of the receivables in light of historical experience, adverse situations that may affect the repayment abilities of its customers, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
			The Group performs ongoing credit evaluations of its customers and generally does not require collateral because (1) management believes it has certain collection measures in-place to limit the potential for significant losses, and (2) because of the nature of its customers that comprise the Group's customer base. Receivables are written off when the Group abandons its collection efforts. An allowance for doubtful accounts is provided with respect to those amounts that the Group has determined to be doubtful of collection.
		n.	Concentrations of credit risk
			Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term deposits and trade receivables.
		o.	Provisions
			Provisions are recognized when the Group has a current obligation (legal or derived) as a result of a past occurrence that can be reliably measured, that will in all probability result in the Group being required to provide additional benefits in order to settle this obligation. Provisions are determined by capitalization of projected cash flows at a rate prior to taxes that reflects the current market preparation for the money duration and the specific risks for the liability.
		p.	Employee benefits
			The Group has several benefit plans for its employees:
		1. Short-term employee benefits - Short-term employee benefits include salaries, vacation days, recreation and deposits to the National Insurance Institute that are recognized as expenses when rendered. 2. Benefits upon retirement - Benefits upon retirement, generally funded by deposits to insurance companies and pension funds, are classified as restricted deposit plans or as restricted benefits. All Group employees have restricted deposit plans, in accordance with Section 14 of the Severance Pay Law (Israel), whereby the Group pays fixed amounts without bearing any legal responsibility to pay additional amounts thereto even if the fund did not accumulate enough amounts to pay the entire benefit amount to the employee that relates to the services he rendered during the current and prior periods. Deposits to the restricted plan are classified as for benefits or for compensation and are recognized as an expense upon deposit to the plan concurrent with receiving services from the employee and no additional provision is required in the financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands
NOTE 2C -		SIGNIFICANT ACCOUNTING POLICIES (cont.)
		q.	Finance income and expenses
			Finance income includes interest in regard to invested amounts, changes in the fair value of financial assets presented at fair value in the statements of comprehensive income and gains from changes in the exchange rates and interest income that are recognized upon accrual using the effective interest method.
			Finance expenses include interest on loans received, changes in the time estimate of provisions, changes in the fair value of financial assets presented at fair value in the statements of comprehensive loss and losses from changes in value of financial assets.
			Gains and losses from exchange rate differences are reported net. Exchange rate differences in regard to issuance of shares are charged to equity.
		r.	Taxes
			Tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that they relate to a business combination, or items recognized directly in equity or in other comprehensive income.
			Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.
			Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
			Deferred tax is not recognized for:
			●	Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
			●	Temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and
			●	Taxable temporary differences arising on the initial recognition of goodwill.
			Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
			Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same Tax Authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands
NOTE 2C -	SIGNIFICANT ACCOUNTING POLICIES (cont.)
	r.	Taxes (cont.)
		Since there is uncertainty in regard to existence of taxable revenues in the near future, a deferred tax asset was not recognized.
		A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets and liabilities are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit (taxes on income) will be realized.
	s.	Basic and Diluted Earnings per Share
		Basic earnings per share are computed based on the weighted average number of common shares outstanding during each year. Diluted earnings per share are computed based on the weighted average number of common shares outstanding during each year, plus dilutive potential common shares considered outstanding during the year.
	t.	Statement of cash flows
		The statement of cash flows from current operations is presented using the indirect method, whereby interest amounts paid and received by the Group are included in the cash flows in current operations.
	u.	Dividend distribution
		Dividend distribution to the Company's shareholders is recognized as a liability in the Group's financial statements in the period in which the dividends are approved by the Group's shareholders.
	v.	Segment reporting
		Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses and tax.
	w.	Government grants
		A government grant is not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to it, and that the grant will be received. The Group received government grants, the nature of which is compensation for a decrease in revenues, the Group decided to record the grants received by the Government of Israel as revenues.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 3A -	OTHER ACCOUNTS RECEIVABLE
			December 31
			2021		2020
	Government institutions		130		78
	Prepaid expenses		30		3
			160		81

NOTE 3B -	TRADE RECEIVABLES, NET
			December 31
			2021		2020
	Group receivables		1,176		1,736
	Allowance for doubtful accounts		(497)		(607)
			679		1,129

NOTE 4 -	INVENTORIES
			December 31
			2021		2020
	Raw materials		1,117		1,284
	Finished goods		673		843
			1,790		2,127

NOTE 5 -	SHORT-TERM BANK DEPOSIT
	The bank deposit sums of $154 and $150 as of December 31, 2021 and 2020, respectively, serve as a security deposit for repayment of bank loans in accordance with terms of the loans. The deposit bears yearly interest at the rate of 0.02%.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 6 -

PROPERTY, PLANT AND EQUIPMENT, NET

		Computers and Software		Office Furniture and Equipment		Laboratory Equipment		Leasehold Improvements		Vehicles*		Total
	Cost:
c	Balance as of January 1, 2021	200		127		285		60		152		824
	Additions during the year	18		4		12		11		4		49
	Balance as of December 31, 2021	218		131		297		71		156		873
	Accumulated Depreciation:
	Balance as of  January 1, 2021	177		93		123		23		90		506
	Depreciation during the year	11		8		26		6		17		68
	Balance as of December 31, 2021	188		101		149		29		107		574
	Net book value as of December 31, 2021	30		30		148		42		49		299

 

		Computers and Software		Office Furniture and Equipment		Laboratory Equipment		Leasehold Improvements		Vehicles*		Total
	Cost:
c	Balance as of January 1, 2020	194		121		279		60		152		806
	Additions during the year	6		6		6		-		-		18
	Balance as of December 31, 2020	200		127		285		60		152		824
	Accumulated Depreciation:
	Balance as of  January 1, 2020	164		85		93		17		69		428
	Depreciation during the year	13		8		30		6		21		78
	Balance as of December 31, 2020	177		93		123		23		90		506
	Net book value as of December 31, 2020	23		34		162		37		62		318

* See also Note 13.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 7 -			INTANGIBLE ASSETS, NET
						Total
			Cost:
			Balance as of January 1, 2021			5,036
			Additions during the year			283
			Impairment *			(3,601)
			Balance as of December 31, 2021			1,718
			Accumulated Amortization:
			Balance as of January 1 ,2021			(2,934)
			Amortization during the year			(348)
			Impairment *			2,598
			Balance as of December 31, 2021			(684)
			Net book value as of December 31, 2021			1,034
						Total
			Cost:
			Balance as of January 1, 2020			4,755
			Additions during the year			281
			Balance as of December 31, 2020			5,036
			Accumulated Amortization:
			Balance as of January 1, 2020			(2,434)
			Amortization during the year			(500)
			Balance as of December 31, 2020			(2,934)
			Accumulated Impairment of assets			(202)
			Net book value as of December 31, 2020			1,900
	The expenditure capitalized includes the cost of materials and direct labor that are directly attributable to preparing the assets for their intended use. Other development expenditure is recognized in profit or loss as incurred. Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses. Amortization is calculated using the straight-line method over the estimated useful lives of the assets: ten years. * The Group is undergoing a significant change in its business model and new branding. As part of the process management is reviewing its current product portfolio in order to focus on those products developed in the past that management believes have the potential for the future. Accordingly, it has decided to impair some of its products, as of July 1st 2021, amounts $801 thousand, net of accumulated amortization. See also Note 2C g and Note 2C k.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 8 -	TAXES ON INCOME
	a.	Israeli taxation
		1.	The Israeli corporate tax rate for 2021 and 2020 is 23%.
		2.	Tax Benefits from the Encouragement of Capital Investments Law, 1959 ("The Encouragement Law")
			Starcom Israel presents its financial statements to the tax authorities as an Approved Enterprise. In the framework of the Law for Change of Priorities, an increase in tax rates was approved, commencing with 2014 and thereafter, on revenues from an approved enterprise, as stated in the Encouragement Law for an Approved Enterprise. An eligible company in Development Area A was entitled to a tax rate of 9% during 2015. During 2016 an amendment to the law was confirmed according to which an eligible company in Development Area A is entitled to a tax rate of 7.5% as of 2017. In an area that is not Development Area A, the tax rate will be 16%. Concurrently, the tax rate on dividend, for distribution from January 1, 2014, the source of which is preferred income as stated in the Encouragement Law, is 20%. Starcom Israel is subject to a tax rate of 16% for the years 2021 and 2020.
		3.	Starcom Israel has carryforward operating tax losses of approximately NIS 39 million as of December 31, 2021 (NIS 30 million as of December 31, 2020). As for deferred tax assets see Note 2C(r). Starcom Israel has been assessed by the Income Tax Authorities up to and including the year 2017.
	b.	Jersey taxation
		Taxable income of the Company and Starcom Jersey is subject to tax at the rate of zero percent for the years 2021 and 2020.
	c.	Detail of tax income
		Since the recording of a deferred tax asset is limited to the amount of deferred tax liabilities, no deferred tax income will be recorded in 2021 or was recorded in 2020.

 

NOTE 9 -	OTHER ACCOUNTS PAYABLE
			December 31
			2021		2020
	Employees and payroll accruals		209		303
	Advanced payments from trade receivables		529		-
			738		303

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 10 -		LONG-TERM LOANS FROM BANKS, NET OF CURRENT MATURITIES
	1.			Composition:			December 31
							2021		2020
				Long-term liability			315		315
				Less: current maturities			(76)		(12)
							239		303

2.	Aggregate maturities of long-term loans for years subsequent to December 31, 2021 are as follows:
					Amount
	First year				76
	Second year				78
	Third year				81
	Fourth onwards				80
					315

3.	Additional information regarding long-term loans:
	Date Received		Amount Received NIS (U. S. dollars)		Annual Interest Rate		Loan Terms and Maturity Dates		Interest Payment Terms
	Dec 9, 2020		1,000 ($310)		Prime + 1.5		48 equal monthly installments including principal and interest (once year grace for principal) *		Monthly commencing 09 Dec 2020
	See also Note 13.
	*The loan is a state-guaranteed loan, received as assistance due to the spread of the Covid -19 virus, the State pays the interest for the first year. See also Note 25.

NOTE 11 -

FINANCIAL LIABILITIES OF CONVERTIBLE LOANS AND WARRANTS

a.

During December 2021, The Company received from third parties loans in the total amount of $1,251 thousand (£925 thousand) in the form of convertible loans enabling the lenders to convert the loans at an exercise price of £0.15 per share at any time, under the limitations of the AIM, Takeover Code and MAR regulations, up to December 31, 2023. The convertible loans bear interest at the rate of 8% per annum calculated by reference to the principal amount of the convertible loans. If not converted, the loans will be repayable on December 31, 2023. In addition, the lenders received fully vested warrants to subscribe a total of 1,541,667 further shares at an exercise price of £0.17 per share. Any unexercised warrants expire at the end of two-years from grant. In addition, the lenders received fully vested warrants to subscribe a total of 1,541,667 further shares at an exercise price of £0.19 per share. Any unexercised warrants expire at the end of three-years from grant. The loan was evaluated and divided into different components by independent appraisers as follows: Conversion component at fair value Ð $279 thousand Warrants at fair value Ð $115 thousand Amortized cost of a loan Ð $857 thousand Transaction costs were allocated according to the component's fair value ratio. The part of the expenses that is attributed to the amortized cost of the loan was reduced from its cost.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 11 -	FINANCIAL LIABILITIES OF CONVERTIBLE LOANS AND WARRANTS (cont.)
	An effective interest rate was calculated for the liability component of the loan, based on its amortization table. The effective interest rate is 33% per annum.
b.	During March 2020, The Company received from Directors Michael Rosenberg (via Montrose Securities Ltd), Avi Engel and Igor Vatenmacher and an employee (hereinafter: "the lenders") loans in the total amount of $290 thousand (£244 thousand) in the form of convertible loans enabling the lenders to convert the loans at an exercise price of £0.0125 per share at any time up to September 30, 2021, as detailed below:  Lender Value of Loan provided Number of Warrants granted Montrose Securities Limited, a company controlled by Michael Rosenberg (Non-Executive Chairman) £100,000 1,600,000 Avi Engel (Non-Executive Director) 429,330 Israeli Shekels (approximately £100,000) 1,600,000 Igor Vatenmacher (Chief Financial Officer) 100,000 Israeli Shekels (approximately £21,800) 400,000 Starcom Employee 100,000 Israeli Shekels (approximately £21,800) 400,000 The convertible loan bears interest at the rate of 8% per annum calculated by reference to the principal amount of the convertible loan. If not converted, the loans will be repayable on September 30, 2021. In addition, the lenders received fully vested warrants to subscribe a total of 4 million further shares at an exercise price of £0.015 per share. Any unexercised warrants expire at the end of two-years from grant. The loan was evaluated and divided into different components by independent appraisers as follows: Conversion component at fair value Ð $59 thousand Warrants at fair value Ð $12 thousand Amortized cost of a loan Ð $210 thousand Transaction costs were allocated according to the component's fair value ratio. The part of the expenses that is attributed to the amortized cost of the loan was reduced from its cost. An effective interest rate was calculated for the liability component of the loan, based on its amortization table. The effective interest rate is 35.2% per annum. During September 2021 the loans were converted to 19,488,000 (2,436,000 after shares consolidation) new ordinary shares according to the conditions set-above. See also Note 20.
	Total revaluation expenses regarding these components in the statement of comprehensive loss for the reported period are as follows:
		Loan component		Option		Warrant
	Balance as of January 1, 2021	254		42		10
	Additions during the year	857		279		115
	Finance (income) expenses	56		(42)		(7)
	Payments	(17)		-		-
	Conversion	(293)		-		-
	Balance as of December 31, 2021	857		279		118

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 12 -		SHORT-TERM BANK LOAN
		During July 2020, Starcom Israel signed a loan agreement with an Israeli bank in order to receive loans and credits in an aggregate principal amount that will not exceed NIS 5 million (hereinafter Ð "the Loan"). During November 2021, the company signed an amendment to the loan agreement which adjust the total loan amount to NIS 3 million and adjust the interest the loan shall bear to amount of Prime + 4% calculated and payable on a monthly basis, to be repaid after a year. In the framework of the financial agreement that was signed, the Company is obligated to maintain financials covenants in regard to the Groups' EBITDA and Equity. As of December 31, 2021, the Company did not meet its financial covenants, thus the bank has the right to demand the repayment of the loan immediately.

NOTE 13 -	CHARGES
		In respect of the short-term and long-term bank loans set out in Notes 10 and 12 above-
	1.	A charge was placed on the Starcom Israel's vehicle.
	2.	A floating pledge was placed on the assets of Starcom Israel.
	3.	A cross-Group charge was placed.
	4.	A Pledge on the bank deposit of Starcom Israel was placed.

NOTE 14 -	EQUITY
	a.	During November 2021 the Company held a general meeting which resulted with a decision to consolidated shares by a ratio of 1:8 ("shares consolidation"). Composition - common stock of no-par value, issued and outstanding 52,526,822 shares and 43,934,975 (Adjusted to shares consolidation) shares as of December 31, 2021 and December 31, 2020, respectively.
	b.	A Company share grants to its holder voting rights, rights to receive dividends and rights to net assets upon dissolution.
	c.	During May 2021 the Company issued 9,686,775 (1,210,847 after shares consolidation) new ordinary shares in lieu of 60% of director fees for 14-18 months ending May 31 2021 in a total amount of £77 thousands ($109 thousands). The shares were issued at 0.8p per share, being the most recent closing offer price for ordinary shares.
	d.	During October 2021, the Company raised £450 ($621) thousand before expenses through a placing of 36,000,000 Ordinary Shares (4,500,000 after shares consolidation).
	e.	See Note 11b.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 14 -	EQUITY (cont.)
	f.	Share-based payment The following table lists the number of share options and warrants and the exercise prices of such during the current and prior years:
	2021 2020* Number of options Weighted average exercise price Number of options Weighted average exercise price   £   £ Share options outstanding at beginning of year 6,244,243 0.22 6,161,743 0.22 Warrants granted during the year 4,322,869 0.17 500,000 0.12 Options & Warrants exercised during the year (445,000) - - - Options & Warrants expired during the year - - (417,500) 0.144 Share options & warrants outstanding at end of year 10,122,112 0.206 6,244,243 0.22 Share options & warrants exercisable at end of year 9,127,829 0.207 5,744,243 0.22
	* The 2020 number of options and Weighted average exercise price were revised in accordance with the share consolidation. I. During May 2021 the Company Issued 3,000,000 new share options (375,000 after the shares consolidation) to executive management and additional 1,000,000 share options (125,000 after the shares consolidation) to other employees. The executive management options will be exercisable, subject to their continued employment with the Company, over three years as to one third at 1.5p (12p after the shares consolidation) per share from the first anniversary of the date of grant, one third at 2p (16p after the shares consolidation) per share from the second anniversary of date of grant and one third at 2.5p (20p after the shares consolidation) per share from the third anniversary of date of grant. The employees' options will become exercisable, subject to their continued employment with the Company, at 1.25p (10p after the shares consolidation) per share over three years as to one third for each anniversary of the date of grant.
	II. During May 2021 the Company's CEO and its Board of directors Chairman exercised 3,560,000 (445,000 after the shares consolidation) options granted to them under the Company's share option scheme in lieu of salary and fees, as announced on 17 June 2019. The options were exercisable at nil cost.
	III. During July 2021 the Company issued 6,251,162 new share options (781,395 after the shares consolidation) to certain directors ("Fee Options") at a price of 1.075 pence per share in order to reduce fees by £5,600 per month, for a twelve-month period until 31 May 2022. The Fee Options vest month by month and can be exercised from that date at nil cost per share, until 10 years from date of grant. Due to Mr Engel step down from the board of directors, the number of shares was updated to 5,916,280 (739,535 after the shares consolidation), according to the mutual agreement.
	IV. See Note 11a.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 15 -		COST OF SALES
						Year Ended December 31,
						2021			2020
	Purchases and other					2,241			2,655
	Amortization*					348			500
	Decrease (Increase) in inventory					(44)			219
						2,545			3,374
	* See also Note 7 regarding the impairment of some of the intangible assets.
NOTE 16 -		GENERAL AND ADMINISTRATIVE EXPENSES
							Year Ended December 31,
							2021			2020
		a.
		Salaries and related expenses (see also Note 20)					1,307			1,167
		Professional services (1)					548			557
		Doubtful accounts and bad debts					154			550
		Depreciation					202			225
		Office maintenance					104			112
		Car maintenance					73			69
							2,388			2,680
		(1)  Including share-based payment to directors and senior management in the amounts of $28 and $181 thousand for the years ended December 31, 2021 and 2020, respectively. See also Note 14f

b. Average Number of Staff Members by Category:
		Year Ended December 31,
		2021		2020
Sales and marketing		6		5
Research and development		3		3
General and administrative		12		12
		21		20

 

NOTE 17 -	OTHER INCOME (EXPENSES)
		Year Ended December 31,
		2021		2020
	Intangible assets impairment	(801)		-
	Other income	45		24
		(756)		24

NOTE 18A -		FINANCE INCOME
						Year Ended December 31,
						2021			2020
		Interest from deposits				-			1
NOTE 18B -  FINANCE EXPENSES
	Exchange rate differences				(98)				(140)
	Interest to banks and others				(55)				(62)
	Bank charges				(62)				(43)
	Interest to suppliers				(46)				(16)
	Interest to related parties				(10)				(10)
					(271)				(271)
	Net finance expenses				(271)				(270)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 19 -	LOSS PER SHARE
	Weighted average number of shares used in computing basic and diluted loss per share: (adjusted to shares consolidation)
			Year Ended December 31,
			2021		2020
	Number of shares		46,294,206		43,650,630

NOTE 20 -	RELATED PARTIES
	a.	The related parties that own shares in the Group are:
		Mr. Avraham Hartman (10.25%), Mr. Uri Hartman (5.6ֻ%), Mr. Doron Kedem (5.6%).
	b.	Short-term balances:		December 31
				2021		2020
		Credit balances
		Avi Hartmann		(38)		(56)
		Uri Hartmann		(482)		(444)
		Doron Kedem		(173)		(173)
		Total Credit Balance		(693)		(673)
		Loans
		Avi Hartmann		38		87
		Uri Hartmann		(236)		(236)
		Doron Kedem		199		207
		Total Loans		1		58
				(692)		(615)

	c.	Shareholders' credit balances are related to deferred salaries and are linked to the New Israel Shekel ("NIS"). Loans from shareholders accrue 4% annual interest.
	d.	Transactions:		Year Ended December 31,
				2021		2020
		Key management compensation:
		Total salaries and related expenses for shareholders/related parties		543		450
		Non-Executive directors' fees		141		90
		Total share-based payment		22		80
		Interest to related parties		10		10
	e.	Directors and the shareholders of the Group are each entitled to benefits, in addition to salaries, that include a vehicle, meals, cellular phones and a professional enrichment fund. Concurrently, the Group deposits for them amounts in a restricted benefit plan for implementation upon completion of their employment.
	f.	For the purposes of the AIM Rules other transactions with related parties are disclosed in notes 11a, 11b,14c, 14f(I), 14f(II) and 14f(III)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 21 -		FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL RISKS
	a.		Financial Risk Factors:
			The Group's operations expose it to a variety of financial risks, including: market, currency, credit and liquidity risks. The comprehensive Group plan for risk management focuses on the fact that it is not possible to predict financial market behavior and an effort to minimize possible negative effects on Company financial performance.
			In this Note, information is stated in regard to Group exposure to each of the risks abovementioned and the handling of these risks. Risk management and capital are handled by the Group management that identifies and evaluates financial risks.
			1)	Exchange rate risk
				Group operations are exposed to exchange rate risks arising mainly from exposure of loans that are linked to the NIS from banks, suppliers and others.
			2)	Credit risk
				Credit risks are handled at the Group level. These risks arise from cash and cash equivalents, bank deposits and unpaid receivable balances. The Group settled a credit insurance with one of the biggest credit insurance companies worldwide and manages its credit risk accordingly. Cash and cash equivalent balances of the Group are deposited in an Israeli bank. Group management is of the opinion that there is insignificant credit risk regarding these amounts.
			3)	Liquidity risks
				Cautious management of liquidity risks requires that there will be sufficient amounts of cash to finance operations. Group management currently examines projections regarding liquidity surpluses deriving from cash and cash equivalents. This examination is based on projected cash flows, in accordance with procedures and limitations determined by the Group. Short term loan covenants compliance is closely monitored by the financial department.
	b.		Linkage terms of financial instruments:
			Group exposure to Index and foreign currency risks, based on par value, except for derivative financial instruments is as follows:

	December 31, 2021
	NIS				U.S. Dollar			GBP						Euro		Total
	Unlinked		Variable Interest		Unlinked
Financial Assets:
Cash and cash equivalents	358		-		805			133		238							1,534
Short-term deposit	-		154		-			-		-							154
Trade receivables, net	128		-		533			-		18							679
Other accounts receivable	211		-		-			5		-							216
Financial Liabilities:
Short-term bank credit	-		(24)		-			-		-							(24)
Short term bank loan	-		(922)		-			-		-							(922)
Trade payables	-		(1,220)		(237)			(94)		(2)							(1,553)
Other accounts payable	(210)		-		(120)			-		(408)							(738)
Leasehold liabilities	-		(706)		-			-		-							(706)
Related parties	-		(692)		-			-		-							(692)
Long-term loans from banks	-		(315)		-			-					-				(315)
Financial liabilities of convertible loans	-		(1,251)		-			-					-				(1,251)
	487		(4,976)		981			44				(154)				(3,618)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 2 1 -

FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL RISKS (cont.)

	December 31, 2020
	NIS				U.S.  Dollar		GBP		Euro		Total
	Unlinked		Variable Interest		Unlinked
Financial Assets:
Cash and cash equivalents	2		-		251		-		11		264
Short-term deposit	-		150		-		-		-		150
Trade receivables, net	233		-		872		5		19		1,129
Other accounts receivable	132		-		-		5		-		137
Financial Liabilities:
Short-term bank credit	-		(25)		-		-		-		(25)
Short-term bank loan	-		(739)		-		-		-		(739)
Trade payables	-		(1,018)		(412)		(146)		(3)		(1,579)
Other accounts payable	(303)		-		-		-		-		(303)
Leasehold liabilities	-		(372)		-		-		-		(372)
Related parties	-		(615)		-		-		-		(615)
Long-term loans from banks	-		(315)		-		-		-		(315)
Financial liabilities of convertible loans	-		(196)		-		(110)		-		(306)
	64		(3,130)		711		(246)		27		(2,574)

Analysis of Sensitivity to Changes in the Exchange Rate of the U.S. Dollar Against the NIS:
												5% Increase in Exchange Rate						5% Decrease in Exchange Rate
For the Year Ended December 31
2021												(224)						224
2020												(153)						153
Analysis of Sensitivity to Changes in the Exchange Rate of the U.S. Dollar Against the Euro:
													5% Increase in Exchange Rate							5% Decrease in Exchange Rate
For the Year Ended December 31
2021													(8)							8
2020													1							(1)
Analysis of Sensitivity to Changes in the Exchange Rate of the U.S. Dollar Against the GBP:
												5% Increase in Exchange Rate							5% Decrease in Exchange Rate
For the Year Ended December 31
2021												2							(2)
2020												(12)							12

 

	c.	Fair value
		As of December 31, 2021, there was no significant difference between the carrying amounts and fair values of the Company's financial instruments that are presented in the financial statements not at fair value.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 22 -	Leases
	Group as a lessee
	The Group has lease contracts for various items of property and vehicles used in its operations. The leases of property have lease terms of 5 years, while motor vehicles have lease terms of 3 years. The Group's obligations under its leases are secured by the lessor's title to the leased assets. Generally, the Group is restricted from assigning and subleasing. There are several lease contracts that include extension and termination options, which are further discussed below.
	The Group also has certain leases of machinery with lease terms of 12 months or less and leases of office equipment with low value. The Group applies the 'short-term lease' and 'lease of low-value assets' recognition exemptions for these leases.
	Below are the carrying amounts of right-of-use assets recognized and the movements during the period:

		Property		Vehicles		Total
Balance at January 1, 2020		180		48		228
Additions		111		138		249
Depreciation expenses		(85)		(62)		(147)
Balance at December 31, 2020		206		124		330
Additions		629		-		629
Disposals		(136)		-		(136)
Depreciation expenses		(70)		(63)		(133)
Balance at December 31, 2021		629		61		690

	Below are the carrying amounts of lease liabilities (included under Leasehold Liabilities) and the activities during the period:

		2021		2020
As at January 1		(372)		(250)
Additions		(629)		(249)
Disposals		162		-
Exchange rate differences and others		(9)		(22)
Accretion of interest		5		(13)
Payments		137		162
Balance at December 31		(706)		(372)
Current		(148)		(136)
Non-Current		(558)		(236)

	Maturity analysis - contractual undiscounted cash flows
	Less than one year 170 One to five years 606 Total undiscounted lease liabilities at December 31, 2021 776
	The following are the amounts recognized in profit or loss:

		2021		2020
Depreciation expenses of right-of-use assets		(133)		(147)
Interest income (expenses) on lease liabilities		(15)		(13)
Accretion of interest		11		(22)
Total amount recognized in profit or loss		(137)		(182)

		Within 5 years		More than 5 years		Total
Extension options expected not to be exercised		-		720		720
Termination options expected to be exercised		-		-		-
December 31, 2021		-		720		720
Extension options expected not to be exercised		-		-		-
Termination options expected to be exercised		-		-		-
December 31, 2020		-		-		-

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 22 -

Leases (cont.)

 

 

The Group had total cash outflows for leases of $137 in 2021 ($162 in 2020). The Group also had non-cash additions to right-of-use assets and lease liabilities of $629 in 2021 ($249 in 2020)

The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and to align with the Group's business needs. Management performs significant judgment operations in determining whether these extension and termination options are reasonably certain to be exercised. Below are the undiscounted potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term:

NOTE 23 -	CUSTOMERS AND GEOGRAPHIC INFORMATION

	a.	Major customers' data as a percentage of total consolidated sales to unaffiliated customers:

		Year Ended December 31,
		2021		2020
Customer A		10%		14%
Customer B		9%		12%
Customer C		6%		5%

b.

Breakdown of consolidated sales to unaffiliated customers according to geographic regions:

		Year Ended December 31,
		2021		2020
Latin America		17%		15%
Europe		15%		16%
Africa		29%		33%
Asia		7%		9%
Middle East		23%		20%
North America		9%		7%
Total		100%		100%

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands

NOTE 24 -

SEGMENTATION REPORTING

		The Group has two main reportable segments, as detailed below:
		Reported operating segments include: Hardware and SaaS.
		For each of the strategic divisions, the Group's CEO reviews internal management reports on at least a quarterly basis.
		There are no inter-segment sales. Information regarding the results of each reportable segment is included below. Performance is measured based on segment gross profit included in the internal management reports that are reviewed by the Group's CEO. Segment profit is used to measure performance, as management believes that such information is the most relevant in evaluating the results of certain segments.

Segment information regarding the reported segments:

			Hardware		SaaS
Year Ended 31.12.2021:
Segment revenues			2,069		2,145
Cost of sales			(2,291)		(254)
Gross profit (loss)			(222)		1,891
Year Ended 31.12.2020:
Segment revenues			2,833		2,208
Cost of sales			(3,070)		(304)
Gross profit			(237)		1,904

NOTE 25 -

SIGNIFICANT EVENTS DURING THE REPORTED PERIOD (COVID-19)

Due to the pandemic outbreak since March 2020, most of the countries across the globe have taken extra measures to prevent and reduce COVID-19 exposure. The unprecedented conditions resulted in a decrease in revenues for the year. In addition, normal global component's shortage, purchasing processes and difficult shipping limitations created additional costs and delays which impacted the Group ability to fully respond to the increased business demand.To meet this demand, the Groups' management made special arrangements to obtain sufficient components for the future ongoing business through 2022. The Group has taken actions to manage its liquidity, including reducing operating expenses and strict cashflow monitoring. Based on current operational assumptions, the Group believes it has adequate liquidity beyond the next twelve months. In addition, the Group also managed to use the opportunity of COVID-19 impact on freight movement from the other hand and was able to conclude 2 significant distribution contracts which are expected to contribute significantly to revenues during 2022.

 

END

 

 

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