T42 IOT TRACKING SOLUTIONS PLC — Earnings Release 2013

Apr 2, 2014

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RNS Number : 8057D

Starcom PLC

02 April 2014

2 April 2014

Starcom PLC

("Starcom" or the "Company")

Final Results

For the Year Ended 31 December 2013

Starcom (AIM: STAR), which specialises in the development of wireless solutions for the remote tracking, monitoring and protection of a variety of assets and people, is pleased to announce its final results for the year ended 31 December 2013.

Highlights

·     11 per cent. increase in sales to $9m (2012: $8m)

·     Strong H2 performance with sales increased 57 per cent. to $5.5m (H1: $3.5m)

·     Gross margin increased to 56 per cent. (2012: 52 per cent.)

·     Net profit of $0.7m (2012: $1.3m) reflecting significant non-recurring costs of approximately $0.6m

·     Launch of new improved product versions: Helios TT and Triton 2, during Q4

·     Since year end, WatchLock now being actively marketed by Assa Abloy's brands across UK

Michael Rosenberg, Chairman of Starcom, commented, "We are pleased to report an increase in revenues for the year despite the problems in Ukraine which led to the decision to cancel a major order for Watchlock. The Company continues to develop its various products to meet market needs and anticipates further growth in revenues during 2014, although most will occur in the second half of the year."

-ends-

For further information please contact:
Starcom plc	Northland Capital (Nomad)	Northland Capital (Broking)	Leander (Financial PR)
Michael Rosenberg Avi Hartmann Eitan Yanuv	Luke Cairns Edward Hutton Lauren Kettle	John Howes Alice Lane	Christian Taylor-Wilkinson
Tel:  07785 727595        +972 543070103        +972 36199901	Tel: 020 7382 1100	Tel: 020 7382 1100	Tel: 07795 168 157

CHAIRMAN'S STATEMENT

Overview

I am pleased to report further operational improvements and sales growth for Starcom, following a strong second half performance, with revenues of $5.5m. We ended 2013 with total sales for the year of $9m compared to $8m for the previous year. As referred to in more detail below, revenue would have been $1m higher but for the unfortunate events in the Ukraine which resulted in a long-standing customer being unable to honour his contract with us. This event also impacted our bottom line and, therefore, we report a lower profit after taxation of $0.7m compared with $1.3m for 2012. Further, our 2013 profits were also impacted by certain one off, non-recurring costs totalling $585,000 and exchange rate losses of $439,000.  However, we were pleased to see gross margins increase to 56% compared with 52% in 2012, proving the success of our business model.

To ensure sufficient resources to successfully implement our strategy for the coming year, it was decided to raise further capital in the London market in February 2014. A total of £2m was raised by a placing of 13.3m shares at a price of 15p. The Board is confident that these additional resources will enable growth to continue as planned, including an increase in support staff to help facilitate the anticipated evolution of the business.

Operational Review

The Company continued to promote its main products into the global markets and, during 2013, we released updated versions of two of our products, as we looked to stay ahead of our competitors. We have now begun improving the build and technical abilities of WatchLock and should release WatchLock 2 in 2015.

We are pleased to report that Starcom increased the number of companies with which it works and only lost one customer in the year, further details of which are provided in the Helios section below. We are determined to be very selective of who we use as distribution partners at this early stage in our development, as we are focused on building a strong and reliable partner pipeline, which will see us become a much more competitive company in the future.

Unit Sales for the year were as follows:

Product	2013	2012	% Change
Helios	29,884	45,359	(34)%
WatchLock	16,637	5,879	183%
Triton	1,278	57	2,142%
Kylos	484	164	195%

Watchlock

Unit sales of WatchLock were ahead of expectations with sales of over 16,000 units during the year (2012: 5,879). A higher proportion was sold by the Company directly to the end user, rather than through its joint venture partner, Mul-T-Lock and this naturally resulted in a higher revenue contribution to the Company. In its first full year of sales since the product's initial launch in 2012 the WatchLock has now become the largest contributor to the Company's revenues. Since the start of 2014 our partners in this project have reorganised their approach to the marketing of WatchLock and are now actively embracing the product across all their globally recognised brand names within their group. A major launch of the product was initiated in the UK in February 2014 and a similar launch will follow in the USA later in the year.

As was reported on 21 March 2014, a major purchase order for 4,000 units, which had been previously included in sales for the year, has been impacted by the events in Ukraine. The Company has worked with a local distributor in that country for many years but unfortunately the current political and economic turbulence has changed the relationships previously held by that distributor, in particular with government agencies which were purchasing the products. Accordingly the Company has decided to cancel the order and now has possession of all the units which will be sold in due course to other customers.

Helios

As already announced unit sales of Helios, the vehicle tracking system, were lower than expected and were mainly impacted by the decision taken by the Company to cease trading with one of its large South American distributors due to concerns about their financial viability. A total of approximately 30,000 units were sold during the year (2013: 45,000). In addition the Directors decided to maintain prices in the face of increased market competition, thus maintaining margin but with lower sales. The Company feels that this strategy is the correct course to take, especially following the release, at the end of 2013, of a new generation of Helios products. This lower cost and much smaller unit, called the Helios TT also addresses, for the first time, the motorcycle market. Although we are still at an early stage in promoting Helios TT, the initial reaction from the market has been positive.

Triton

We are pleased with the release for commercial testing of the Triton 2. This product, which provides a simple and effective way to track and monitor freight containers in transit, and which now has the ability to monitor temperature and humidity, is being field tested by a major pharmaceutical company.  Although we are still in the early days of testing and it is unlikely that sales for 2014 will be of significance, we have been informed that it is being well received by the market and we are confident that Triton 2 will widen the market opportunities available to us by entering the food and pharmaceutical industries. In 2013 the Company sold 1,278 units of Triton 1.

Kylos and Rainbow

This device is designed to track merchandise or personal goods. The Directors believe it is the world's smallest tracking device that contains light, temperature, humidity and location detectors. Customers are currently testing the product for a variety of applications. Commercial sales are not expected to start until 2015.

Despite some promising sales leads for the Rainbow, sales for 2013 were slow and did not contribute materially to revenues. The directors have taken the decision to focus on their more established products for 2014 and will review the prospects for the Rainbow later in the year but in the meantime do not anticipate meaningful revenues from the product in the current financial year

Starcom Online

At 31 December 2013 there were 43,787 (2012: 50,000) registered subscribers to Starcom Online, the Company's web application for online fleet and asset management. Since a large number of sales of Helios and WatchLock took place towards the end of 2013, the impact on revenues from online customers will not be felt, in any meaningful way, until later in 2014.

Financial Review

We recorded a very strong second half with sales of over $5.5m compared to $3.5m for the first half of the year in line with the release of new products and new version of existing products as well as better traction with some of our distributors.

As indicated above, the gross margin for the year showed an increase over 2013, with final figure at 56% (2013: 52%).

Sales and marketing expenses increased following the recruitment of additional staff and ancillary costs. General and administrative costs also increased due to additional staff and expenses related to the Company becoming an AIM listed public company.

Our operating profit increased to $1.8m compared with $0.6m in the first half of the year, and compared to $2m for the full year 2012.

Our net profit for the year was $0.7m compared to a loss of $89,000 in the first half and a profit of $1.3m for the full year 2012.  The main impact on the profits were finance costs of which the majority were one-time costs as follows:  The final settlement with Keren Hagshama Ltd in respect of the early repayment of their loans caused a one off expense of $340,000 and a sum of $89,000 due to the expiration of the repurchase option. In addition, profits were impacted by the calculation of the value attributable to options granted at the time of the IPO. This amounted to approximately $45,000. Exchange losses of $439,000 were also recorded. Following a change in the employment terms of certain senior management and due to recent changes in the Israeli severance law, it was necessary to make a one-time provision for notional termination of $110,000. No payment was made to the employees and no change made in the remuneration they receive and the effect is to remove the need for annual provisions under Israeli law to be made in the future.   

Year end trade receivables were $6.2m, mainly reflecting the increase in sales towards the end of the year.

Outlook

The Directors expect further growth in 2014 due to the Company's enlarged range of products and stronger relations with its distribution and sales partners. They are also focused on replacing the lost sales revenue in the Ukraine, either through a new customer relationship or pending a hopeful return to stability in that country. As in 2013, they anticipate that the majority of our expected revenue growth in 2014 will fall into the second half of the year, due to the seasonal nature of our customers' purchasing activities.

Annual Report and Notice of General Meeting

A copy of the audited annual report for the year ended 31 December 2013 will be available to shareholders from 10 April 2014 when a copy will be available for inspection on the Group's website at http://www.starcomsystems.com/

The Notice of General Meeting will be posted to shareholders on or before 10 April 2014 and the General Meeting will be held at 11am on 27 May 2014 at the office of K&L Gates, One New Change, London, EC4M 9AF.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

U.S. Dollars in thousands

		31 December,
	Note	2013		2012
ASSETS
NON-CURRENT ASSETS:
Long-term bank deposit		-		* 47
Property, plant and equipment, net	6	270		285
Intangible assets	7	2,003		1,560
Repurchase option	11c	-		89
Total Non-Current Assets		2,273		1,981
CURRENT ASSETS:
Cash and cash equivalents		49		118
Short-term deposit	5	136		* 58
Trade receivables	3C	6,196		3,761
Other accounts receivable	3B	403		565
Inventories	4	2,146		1,236
Income Tax Authorities		50		34
Deferred issuance costs		-		107
Total Current Assets		8,980		5,879
TOTAL ASSETS		11,253		7,860

EQUITY AND LIABILITIES
EQUITY	13	6,491		2,738
NON-CURRENT LIABILITIES:
Long-term loans from banks, net of current maturities	11A	533		571
Deferred tax liability	8b	210		116
Long-term loan from non-controlling interest	11C	-		303
Total Non-Current Liabilities		743		990
CURRENT LIABILITIES:
Short term bank credit		111		80
Short-term loans and current maturities of long-term loans from banks	9	354		288
Trade payables		3,146		2,940
Other accounts payable	10	249		162
Short-term loan from non-controlling interest	11c	-		506
Shareholders	3A, 18	159		156
Total Current Liabilities		4,019		4,132
TOTAL LIABILITIES AND EQUITY		11,253		7,860

* Reclassified.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

			Year Ended 31 December
	Note		2013		2012
Revenues			9,016		8,093
Cost of sales	14		(3,952)		(3,874)
Gross profit			5,064		4,219
Operating expenses:
Research and development			(152)		(98)
Selling and marketing			(758)		(299)
General and administrative	15		(2,348)		(1,786)
Operating profit			1,806		2,036
Finance income	16A		2		2
Finance costs	16B		(1,014)		(385)
Net finance costs			(1,012)		(383)
Profit before deferred income tax expense			794		1,653
Deferred income tax expense	8		(94)		(315)
Total comprehensive income for the year			700		1,338
Attributable to :
Owners of the Company			703		1,345
Non-controlling interest			(3)		(7)
Comprehensive income			700		1,338
Earnings per share:
Basic and diluted earnings per share	17		0.01		1,339

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

U.S. Dollars in thousands

		Share   Capital *			Premium on Shares			Receipts on Account of Shares		Capital Reserve		Capital Reserve in Regard to Share-Based Payment Transactions		Accumulated Earnings		Non-controlling Interest		Total
Balance as of 1 January 2011		-		-			-			-		-		151		-		151
Receipts on account of shares  (see Note 11B)		-		-			225			(197)		-		-		-		28
Comprehensive income for the year		-		-			-			-		-		789		-		789
Dividends distributed		-		-			-			-		-		(16)		-		(16)
Balance as of 31 December 2011		-		-			225			(197)		-		924		-		952
Receipts (refunds) on account of shares  (see Note 11B)		-		28			(225)			197		-		-		-		-
Issuance to others of shares in a subsidiary (see Note 11C)		-		-			-			447		-		-		1		448
Comprehensive income for the year		-		-			-			-		-		1,345		(7)		1,338
Balance as of 31 December 2012		-		28			-			447		-		2,269		(6)		2,738
Proceeds from issued share capital, net of mobilisation costs (see Note 13c)		-		2,939			-			-		-		-		-		2,939
Exchange of Keren Hagshama shares (see Note 13c)		-		349			-			(358)		-		-		9		-
Share based payment (see Note 13d)		-		(195)			-			-		309				-		114
Comprehensive income for the year		-		-			-			-		-		703		(3)		700
Balance as of 31 December 2013		-		3,121			-			89		309		2,972		-		6,491

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. Dollars in thousands

		Year Ended 31 December,
		2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit for the year		700		1,338
Adjustments to reconcile net profit to net cash provided by (used in) operating activities:
Depreciation and amortization		234		184
Interest expense and exchange rate differences		289		212
Equity settled option- based payment expense		114		-
Expiration of repurchase option		89		-
Deferred income tax expense		78		315
Capital loss		3		-
Interest to shareholders		-		2
Interest expense in regard to options		-		28
Changes in assets and liabilities:
Increase in inventories		(910)		(324)
Increase in trade receivables		(2,442)		(2,800)
Decrease (Increase)  in other accounts receivable		152		(364)
Increase  in Income Tax Authorities		(12)		(8)
Increase in deferred issuance costs		(72)		(107)
Increase in trade payables		193		938
Increase in other accounts payable		80		60
Net cash used in operating activities		(1,504)		(526)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(81)		(18)
Proceeds from sales of property, plant and equipment		23		-
Decrease in long-term bank deposits *		47		119
Increase in short-term deposits *		(69)		(50)
Purchase for intangible assets		(607)		(582)
Net cash used in investing activities		(687)		(531)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (Repayment of) short-term bank credit, net		(97)		80
Short-term loan from a bank, net		(27)		(13)
Repayment from (Proceeds to) shareholders		(3)		165
Proceeds from receipt of long-term loans		262		1,327
Proceeds from (Repayment of) Put Options		-		(225)
Repayment of long-term loans		(1,134)		(288)
Consideration from issue of shares, net		3,121		-
Net cash provided by financing activities		2,122		1,046
Decrease in cash and cash equivalents		(69)		(11)
Cash and cash equivalents at the beginning of the year		118		129
Cash and cash equivalents at the end of the year		49		118
Appendix A - Additional Information
Interest received during the year		2		2
Interest paid during the year		(112)		(142)

* Reclassified.

NOTE 1 -		GENERAL INFORMATION
	a.	The Reporting Entity
	1.		Starcom plc ("the Company") was incorporated in Jersey on 28 November, 2012. During February 2013 the Company signed an asset purchase agreement with Starcom Systems S.A., a Panamanian company that specialises 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 and engages in production, marketing, distribution, research and development of G.P.S. systems.
			In accordance with the agreement, Starcom Systems S.A. sold to the Company for a nominal consideration its business and assets, including its holdings in Starcom G.P.S. Systems Ltd., an Israeli company that engages in the same field. Subsequent to the completion of the transaction, the Company transferred to an additional company in Jersey, Starcom Systems Limited, its entire activity, except for its holdings in Starcom G.P.S. Systems Ltd., for a nominal consideration. Thus, the Company became a holding company, holding 100% of Starcom Systems Limited and approximately 97% of Starcom G.P.S. Systems Ltd., where Company operations are conducted. During the reported period, the Company acquired the remaining 3% of Starcom G.P.S. Systems Ltd. Since all the assets, liabilities and operations have been transferred from Starcom Systems S.A. to the Company, it is appropriate in these Audited Consolidated Financial Statements to present the Company's operations as if the abovementioned transaction always existed, while adjusting the capital structure to the Company capital structure. On 19 February, 2013, the Company issued 18,783,333 Ordinary Shares to each of the controlling interest pro-rata to their holdings in the Company. On 27 February, 2013 the Company's shares were admitted to trading on London's Stock Exchange Alternative Investment Market ("AIM") following a successful Initial Public Offering ("IPO") raising £2.72 ($4.09) million before expenses, reflecting a Company valuation of £14.2 ($21.53) million. The Company issued 13.6 million new shares at £0.2 per share to new investors. The Company issued upon admission an additional 1,150,000 Ordinary Shares to a lender to the Company - "Keren Hagshama Ltd" (hereinafter: Keren Hagshama).
	2.		Address of the Company's registered office in Jersey is:
			13-14 Esplanade, St Helier, Jersey JE1 1BD.
	3.		Address of the official company office in Israel of Starcom G.P.S. Systems Ltd. is:
			33 Jabotinsky St., Migdal Hateomim 1, Ramat Gan, Israel.

b.

Definitions in these financial statements:

1.

International Financial Reporting Standards (hereinafter: "IFRS") - Standards and interpretations adopted by the International Accounting Standards Board (hereafter: "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 - Starcom Plc.

3. 

The subsidiaries - Starcom GPS Systems Ltd. And Starcom G.P.S. Systems Ltd.

4.

Starcom Jersey - Starcom G.P.S. Systems Ltd.

5.

Starcom Israel - Starcom G.P.S. Systems Ltd.

6.

The Group - Starcom Plc. and the Subsidiaries.

Note 2A -

BASIS OF PREPARATION

a.

Basis of preparation:

The Company's operations are the continuation of the operations of Starcom Systems S.A., (including its holdings in Starcom Israel) held by the same shareholders as the Company. In February 2013, Starcom Systems S.A. transferred all its operations, assets and liabilities to the Company without consideration.

Since all the assets, liabilities and operations have been transferred from Starcom Systems S.A. to the Company, it is appropriate in these financial statements to consolidate the relevant data of Starcom Systems S.A. and the subsidiary for the year ending 31 December, 2012.

The relevant data has been consolidated so that the results, net assets, share capital and accumulated earnings of Starcom Systems S.A. and the subsidiary are aggregated, with intercompany balances and transactions eliminated.

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (hereinafter - "IFRS") and related clarifications published by the International Accounting Standards Board ("IASB").

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.

NOTE 3A -	SHAREHOLDERS
	Credit balances are linked to the New Israel Shekel ("NIS") and the Israeli  Consumer Price Index ("CPI").

NOTE 3B -	OTHER ACCOUNTS RECEIVABLE
			31 December
			2013		2012
	Advances to suppliers		321		417
	Government institutions		82		137
	Prepaid expenses		-		11
			403		565

NOTE 3C -	TRADE RECEIVABLES
			31 December
			2013		2012
	Group receivables		6,404		3,937
	Net of allowance for doubtful accounts		(208)		(176)
			6,196		3,761

NOTE 4 -	INVENTORIES
			31 December
			2013		2012		2011
	Raw materials		1,669		1,002		770
	Work-in-progress		187		137		95
	Finished goods		290		97		47
			2,146		1,236		912

Inventory write-downs for the years ended 31 December, 2013 and 2012 were $20 and $44 thousand, respectively, and have been included in cost of sales.

NOTE 5 -	SHORT-TERM BANK DEPOSIT
	The deposit sums of $93 and $48 for the years ended 31 December1, 2013 and 2012, respectively, serve as a security deposit for repayment of a long-term bank loan. In accordance with terms of the loan, the deposit constitutes approximately 15% of the loan balance. The deposit bears yearly interest at the rate of 1%.

NOTE 6 -	PROPERTY, PLANT AND EQUIPMENT, NET

		Computers and Software		Office Furniture and Equipment		Laboratory Equipment		Leasehold Improvements		Vehicles		Total
	Cost:
	Balance as of 1 January 2013	88		95		66		39		175		463
	Additions during the year	29		11		-		41		-		81
	Decrease	-		-		-		-		(45)		(45)
	Balance as of 31 December 2013	117		106		66		80		130		499
	Accumulated Depreciation:
	Balance as of  1 January 2013	61		29		21		16		51		178
	Depreciation during the year	21		9		10		5		25		70
	Decrease	-		-		-		-		(19)		(19)
	Balance as of 31 December 2013	82		38		31		21		57		229
	Net book value as of 13 December 2013	35		68		35		59		73		270

NOTE 6 -	PROPERTY, PLANT AND EQUIPMENT, NET (cont.)

		Computers and Software		Office Furniture and Equipment		Laboratory Equipment		Leasehold Improvements		Vehicles		Total
	Cost:
	Balance as of 1 January 2012	74		91		66		39		175		445
	Additions during the year	14		4		-		-		-		18
	Balance as of 31 December 2012	88		95		66		39		175		463
	Accumulated Depreciation:
	Balance as of  1 January 2012	41		22		12		13		25		113
	Depreciation during the year	20		7		9		3		26		65
	Balance as of 31 December 2012	61		29		21		16		51		178
	Net book value as of 31 December 2012	27		66		45		23		124		285

NOTE 7 -			INTANGIBLE ASSETS
		a.  Composition:
						Cost of Materials (including overhead costs)			Direct Labour		Total
				Cost:
				Balance as of 1 January 2013		1,097			617		1,714
				Additions during the year		405			202		607
				Balance as of 31 December 2013		1,502			819		2,321
				Accumulated Depreciation:
				Balance as of  1 January 2013		127			27		154
				Amortization during the year		97			67		164
				Balance as of 1 December 2013		224			94		318
				Net book value as of 31 December 2013		1,278			725		2,003
						Cost of Materials (including overhead costs)			Direct Labour		Total
				Cost:
				Balance as of 1 January 2012		798			334		1,132
				Additions during the year		299			283		582
				Balance as of 31 December 2012		1,097			617		1,714
				Accumulated Depreciation:
				Balance as of  1 January 2012		28			7		35
				Amortization during the year		99			20		119
				Balance as of 31 December 2012		127			27		154
				Net book value as of 31 December 2012		970			590		1,560

	b.  Detail of remaining life of instruments as of December 31, 2012:
			Instrument		Cost		Remaining Useful Life (in years)
			Set 1		566		7.75
			Set 2		340		7.75
			Set 3		534		8.50
			Set 4		273		8.50
			Set 5		132		9.50
			Set 6		71		10.00
			Set 7		95		10.00
			Set 8		237		10.00
			Set 9		72		10.00
			Total		2,320

NOTE 7 -	INTANGIBLE ASSETS (cont.)

			The expenditure capitalised includes the cost of materials and direct labour that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in profit or loss as incurred.
			Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over the estimated useful lives of the assets: ten years.
			See also Note 2C g.

NOTE 8 -	TAXES ON INCOME
	a.	Israeli taxation
		Taxable income of Starcom Israel is subject to tax at the rate of 25% for the years 2013 and 2012, respectively.
		On 5 August, 2013, the "Knesset" (the Israeli parliament)  issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 ("the Budget Law"), which consists, among others, of fiscal changes whose main aim is to enhance the collection of taxes in those years. These changes include, among others, increasing the corporate tax rate from 25% to 26.5%.
	b.	Detail of tax expense:
				Year Ended 31 December ,
				2013			2012
			Deferred taxes	(210)			(116)
	c.		Reconciliation of effective tax rate:
					2013			2012
			Profit before taxes		793			1,653
			Group's domestic tax rate		25%			25%
			Tax according to statutory rate		(198)			(413)
			Increase (decrease) in income taxes derives from:
			Fixed provisions and others		(118)			(359)
			Change in the tax rate		(7)			8
			Deferred taxes for prior years		-			130
			Tax exempt revenues		229			319
			Total tax expense		(94)			(315)

NOTE 9 -	SHORT-TERM AND CURRENT MATURITIES OF LONG-TERM LOANS FROM BANKS
						31 December
						2013					2012
		Short-term loan				-					27
		Current maturities of long-term loans				354					261
						354					288

NOTE 10 -	OTHER ACCOUNTS PAYABLE
			31 December
			2013		2012
	Employees and payroll accruals		226		156
	Accrued expenses		23		6
			249		162

	NOTE 11A -	LONG-TERM LOANS FROM BANKS
		1.		Composition:			31 December
							2013		2012
				Long-term liability			887		832
				Less: current maturities			(354)		(261)
							533		571

	2.	Aggregate maturities of long-term loans for years subsequent to 31 December, 2013 are as follows:
						Amount
		First year				354
		Second year				251
		Third year				128
		Fourth year and after				154
						887

	NOTE 11A -		LONG-TERM LOANS FROM BANKS (cont.)
			3.	Additional information regarding long-term loans:
Loan #		Date Received			Amount Received NIS (U. S. dollars)		Annual Interest Rate		Loan  Terms and Maturity Dates		Interest Payment Terms
1.		18 December, 2011			400 ($ 107)		8.8%		36 equal monthly installments including principal and interest		Monthly commencing 17 January  2012
2.		1 March,  2011			216 ($ 62)		Prime + 0.5%		One inclusive repayment on February 1, 2014		Monthly commencing 1 March, 2011
3.		19 January, 2011			192 ($ 55)		Prime + 0.5%		36 equal monthly installments including principal and interest		Monthly commencing 1 March  2011
4.		13 December, 2010			2,000 ($ 554)		7%		54 equal monthly installments that commenced on July 13, 2011, including principal and interest		Monthly commencing 13 January 2011
5.		8 August, 2012			1,200 ($ 300)		Prime + 0.9%		60 equal monthly installments including principal and interest		Monthly commencing 9 September 2012
6.		20 September, 2013			950 ($ 270)		Prime + 0.9%		60 equal monthly installments including principal and interest		Monthly commencing 20 October 2013

NOTE 11B -	PUT OPTION
	1.	Starcom S.A. signed a PUT option agreement on 30 December 2011.
		In accordance with an agreement between the parties, Starcom S.A. received an amount of $225 thousand from a third party (hereinafter: "Top Alpha") as consideration for issuance of shares that would give to Top Alpha 3.3% holdings of Starcom S.A. while Top Alpha would have the option, until July 2013, to put the shares back to Starcom S.A. for the original purchase price of $225 thousand. In actuality, the Company did not issue the shares and, therefore, these amounts were recorded on the day received in the financial statements as receipts on account of shares.
		The options were recognised initially at fair value. Subsequent to initial recognition, this financial liability was measured at amortised cost using the effective interest method.
	2.	In July 2012, the funds were returned to Top Alpha in accordance with their decision, and the rights that they had for shares were cancelled.

NOTE 11C -	LONG-TERM LOAN FROM NON-CONTROLLING INTEREST
	During April 2012, Starcom Israel received a loan through Keren Hagshama in the amount of $1 million for a period of four years that will be repaid in four equal installments of principal and interest at the end of every year. The loan bears monthly interest at the rate of 0.8%. In addition Starcom Israel received $50 thousand through Keren Hagshama as an investment in the share capital of Starcom Israel. The Company has an option for early repayment as well as to lengthen the loan period in a year. In consideration for the loan, the Company will transfer an amount of shares contingent upon the duration of the loan period and whether the Company will offer shares in an Initial Public Offering (IPO), as detailed in the agreement. Upon completion of registration of shares the Company has an option to repurchase the public Company shares within a six month period commencing from the Initial Public Offering (IPO) date in accordance with the realisation price per ordinary share as computed in accordance with the Company valuation of $18 million. In the event that the public Company valuation will exceed $23 million, the realisation price will be higher, as detailed in the agreement. As of the loan grant date, the Company transferred 3.3% of Starcom Israel share capital to Keren Hagshama. The Company paid $50 thousand as fees for mobilisation of a loan through Keren Hagshama. The loan was evaluated and divided to different components by independent appraisers as follows (in thousands): Repurchase option -$89 Liability (short and long term)-$670 Capital reserve-$469. The mobilisation costs were allocated according to the components ratio. The loan was assessed assuming a fifty-percent likelihood that the loan will be repaid within a year and fifty percent likelihood according to the original terms. Effective annual interest rate was determined as 42.46%. On 27 February, 2013 Starcom Israel and the Company agreed with Keren Hagshama pursuant to the Hagshama agreement that upon admission the Company will issue 1,150,000 Ordinary Shares, that represent 2% of the Company shares before the IPO, to Keren Hagshama and repay $1,150 thousand which is composed of $ 1,000 loan principal, interest in the amount of $100 thousand and expenses in regard to clearing of the loan in the amount of $50 thousand. Keren Hagshama will transfer its respective shares in Starcom Israel to the Company, following which no further rights or obligations exist under the Hagshama Loan Agreement save as set out below. As a result of the early repayment, the Company recorded financial expenses in the amount of approximately $340 thousand. The Ordinary Shares are subject to limitations on sale for a period of six months from admission in which the Company is entitled (but not obliged) to acquire Keren Hagshama Ordinary Shares. This option expired on 26 August, 2013 and the Company did not acquire Keren Hagshama Ordinary Shares.

NOTE 12 -

COMMITMENTS AND CHARGES

a.

Operating lease commitments:

1.

Starcom Israel rents offices and signed operating leases commencing March 2011 for a period of five years with an option for five additional years. Rent expenses for the years ended 31 December, 2013 and 2012 were in the amounts of $145 thousand and $133 thousand, respectively.

Total of future minimum lease payments under non-cancellable operating leases for each of the following periods as of 31 December, 2013:

Not later than one year

159

Later than one year and not later than five years

180

339

2.

Starcom Israel signed operating leases for rental of vehicles for a period of 36 months. Rent expenses for the vehicles for the years ended 31 December, 2013 and 2012 were in the amounts of $77 thousand and $88 thousand, respectively.

Total of future minimum lease payments under non-cancellable operating leases for each of the following periods as of 31 December, 2013:

Not later than one year

35

Later than one year and not later than four years

31

66

b.

Other commitments:

During December 2009 Starcom Israel signed a cooperative agreement with Mul-T-Lock Ltd. (hereinafter: "Mul-T-Lock") for development, production and marketing of a consolidated system that includes the operating system of Mul-T-Lock contained in the follow-up system of the Group.

In order to produce the consolidated system, each side obligated to sell to his counterpart, at a price equal to the cost of SAP with the addition of 15%, the component that he manufactures.

Cost of SAP is the cost of a completed product, including direct and indirect production costs but not including research and development costs or general and administrative expenses. Thus, cost of a consolidated system is the SAP of the Company plus the SAP of Mul-T-Lock with the addition of 15%. The system was completed and is marketed under the logo Watchlock. Sales commenced in March 2012. The Group capitalised the research and development costs relevant to development of the system.

Price of the marketed system will be uniform and will be determined in advance by both parties. At the end of each quarter, each company pays $20 for each device sold by the other company. Starcom and Mul-T-Lock are currently renegotiating the terms of the mutual payments.

Provisions were recorded according to the anticipated outcome of these negotiations.

c.

A lawsuit was filed against the subsidiary in Israel regarding breach of an agreed comprise settled in 2012 for a material amount. The Company filed a counterclaim. According to legal advisors to the Company, chances of the suit to be accepted are slim whilst chances for counter claim are reasonable. The Company did not provide for the abovementioned claim.

	d.	Charges:
		1.	A first class current general charge in favor of a bank was placed on all the subsidiary's assets.
		2.	A charge in favor of a bank was placed on subsidiary vehicles.
		3.	A first class charge in favor of a bank was placed on all subsidiary bank account.

NOTE 13 -	SHARE CAPITAL
a.		Composition - common stock of no par value, authorised - 118,500,000 shares; issued and outstanding - 71,100,000 shares as of 31 December 2013.
b.		A Company share grants to its holder voting rights, rights to receive dividends and rights to net assets upon dissolution.
c.		Issue of Shares and Mobilisation of Capital On 19 February, 2013, the Company issued 18,783,333 Ordinary Shares to each of the controlling interest pro-rata to their holdings in the Company. On 27 February, 2013, the Company's shares were admitted to trading on London's Stock Exchange Alternative Investment Market ("AIM") following a successful Initial Public Offering ("IPO") raising £ 2.72 ($4.09) million before expenses. The Company issued 13.6 million new shares at £0.2 per share to new investors. In the framework of the IPO, the Company signed agreements with an advisor, brokers and others, including granting of Options (see below). The Company issued upon admission an additional 1,150,000 Ordinary Shares to   Keren Hagshama (see also Note 11c).
d.		Options issued 1. During February 2013, the Company issued to its directors 1,422,000 Options for purchase of 1,422,000 of Company shares at the exercise price of £0.2 per share. The Options will be vested in three equal parts during three intervals commencing February 2013 and will expire at the end of ten years. Total expenses recorded in regard to these Options in the statement of comprehensive income for the reported period amounted to $114 thousand. 2. During February 2013, the Company issued to professional consultants and brokers 1,610,500 Options at the exercise price of £0.2 per share. The Options are fully vested. Approximately one million Options will expire in February 2018 and approximately 600 thousand will expire in February 2014. Fair value of the Options that was recorded as an offset against receipts from issuance is in the amount of $195 thousand.

NOTE 14 -

COST OF SALES

Year Ended 31 December,

2013

2012

Purchases

4,698

4,065

Amortisation

164

86

Outsourcing

-

47

Increase in inventory

(910)

(324)

3,952

3,874

NOTE 15 -

GENERAL AND ADMINISTRATIVE EXPENSES

Year Ended 31 December,

2013

2012

a.  Salaries and related expenses

1,025

734

Professional services(1)

556

217

Office rent and maintenance

393

320

Depreciation

70

98

Doubtful accounts

32

144

Other

272

273

2,348

1,786

(1)     Including share based payment in the amount of $114 and $0 thousand for the year ended 31 December, 2013 and 2012, respectively.

b. Cost of defined contribution plans

147

132

c. Average Number of Staff Members by Category:            

Sales and marketing		5		2
Research and development		3		4
General and administrative		11		12
		19		18

NOTE 16A -	FINANCE INCOME
			Year Ended 31 December,
			2013		2012
	Interest from bank		2		2
NOTE 16B -	FINANCE COSTS
			Year Ended 31 December,
			2013		2012
	Exchange rate differences		439		45
	Interest to non-controlling interest		338		168
	Expiration of repurchase option		89		-
	Interest to banks and others		56		87
	Bank charges		53		44
	Interest to suppliers		39		39
	Interest to shareholder		-		2
			(1,014)		(385)
	Net finance costs		(1,012)		(383)

NOTE 17 -	EARNINGS PER SHARE
	Weighted average number of shares used in computing basic and diluted earnings per share:
			Year Ended 31 December,
			2013		2012
	Number of shares		71,100,000		999

NOTE 18 -	RELATED PARTIES
		a.		The related parties that own the controlling shares in the Group are:
				Mr. Avraham Hartman (26.4%), Mr. Uri Hartman (26.4%), Mr. Doron Kedem (26.4%).
		b.	Balances: *					31 December
								2013			2012
								(151)			(156)
				* See also Note 3A.
		c.		Transactions:				Year Ended 31 December,
								2013		2012
				Key management compensation:
				Short-term employee benefits				95		179
				Post-employment benefits				76		23
				Total salaries and related expenses for shareholders				171		202

	d.	The Company entitled the related parties, mentioned in note 18a, to monthly management fees. These shareholders, however, waived their right to management fees for the period of October to December, 2013 in light of the market situation.
	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.

NOTE 19 -		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 minimise 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 from banks, suppliers and others that are linked to the NIS.

			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. Cash and cash equivalent balances of the Group are deposited in an Israeli banking corporation. 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 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.

			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:
					31December, 2013
					NIS							U.S. Dollar			Euro			Total
					Unlinked				Variable Interest			Unlinked
Financial Assets:
Cash and Cash Equivalents					(2)				-		50			1			49
Short-term Deposit					136				-		-			-			136
Trade Receivables					56				-		5,817			323			6,196
Other Accounts Receivable					-				-		-			-			-
Financial Liabilities:
Short-term Bank Credit					(111)				-		-			-			(111)
Trade Payables					(2,175)				-		(784)			(9)			(2,968)
Other Accounts Payable					(110)				-		-			-			(110)
Shareholders					(77)				-		-			-			(77)
Long-term Loans From Banks					(299)				(588)		-			-			(887)
					(2,582)				(588)		5,083			315			2,228

			31December,  2012
			NIS						U.S. Dollar				Euro			Total
			Unlinked				Variable Interest		Unlinked
Financial Assets:
Cash and Cash Equivalents			2				-			100				16		118
Short-term Deposit			58				-			-				-		58
Trade Receivables			69							3,296				396		3,761
Other Receivables			554				-			-				-		554
Repurchase Option			-				-			89				-		89
Long-term Bank Deposit			47				-			-				-		47
Financial Liabilities:
Short-term Bank Credit			(80)				-			-				-		(80)
Short-term Loans from Banks			(199)				(89)			-				-		(288)
Trade Payables			(2,699)				-			(241)				-		(2,940)
Loan from Non-controlling Interest			-				-			(809)				-		(809)
Other Payables			(76)				-			-				-		(76)
Shareholders			-				-			(156)				-		(156)
Long-term Loans From Banks			(240)				(331)			-				-		(571)
			(2,564)				(420)			2,279				412		( 293)

						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 31 December
						2013						176							(176)
						2012						158							(158)
								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 31 December
								2013						17							(17)
								2012						21							(21)
							Analysis of Sensitivity to Changes in the Prime (Variable) Interest :
													25% Increase in Prime (Variable) Interest							25% Decrease in Prime (Variable) Interest
							For the Year Ended 31 December
							2013						(29)							29
							2012						(4)							4

	d.	Fair value
		The table below is a comparison between the carrying amount and fair value of the Company's financial instruments that are presented in the financial statements not at fair value (other than those whose amortised cost is a reasonable approximation of fair values):
				Carrying amount				Fair value
				31 December,				31 December,
				2013		2012		2013		2012
		Financial liabilities:
		Interest-bearing loans		886		832		852		827
		Financial assets:
		Repurchase option		-		89		-		89

NOTE 20 -	CUSTOMERS AND GEOGRAPHIC INFORMATION

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

		Year ended 31 December,
		2013		2012		2011
Customer A		14%		15%		0.6%
Customer B		11%		12%		16.2%
Customer C		11%		0%		0%

	b.	Breakdown of Consolidated Sales to unaffiliated Customers according to Geographic Regions:

		Year ended 31 December,
		2013		2012		2011
Latin America		15%		46%		49%
Europe		37%		18%		20%
Africa		30%		10%		12%
Asia		10%		20%		13%
Middle East		8%		6%		6%
Total		100%		100%		100%

	c.	As of 31 December 2013:  $1,549 thousand of the consolidated depreciated assets are located in Israel and $724 thousand in Jersey. As of 31 December 2012:  $1,409 thousand of the consolidated depreciated assets are located in Israel and $436 thousand in Jersey.

NOTE 21 -	SEGMENTATION REPORTING

		The Group has four main reportable segments, as detailed below:
		Reported operating segments include: sets, accessory, web and other.
		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 profit before financial expenses and tax is 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:

							Sets		Web		Accessory		Other		Total
Year Ended 31.12.2013:
Segment revenues							7,217		1,478		131		190		9,016
Cost of sales							(3,407)		(184)		(170)		191		(3,952)
Gross profit  (loss)							3,810		1,294		(39)		(1)		5,064
Research & Development expenses							(102)		(50)		-		-		(152)
Selling and marketing expenses							(759)		-		-		-		(759)
Operating profit (loss) before general and administrative expenses							2,949		1,244		(39)		(1)		4,153
Unattributed general and administrative expenses															(2,252)
															1,901
Year Ended 31.12.2012:
Segment revenues							5,961		1,647		185		300		8,093
Cost of sales							(3,521)		(47)		(77)		(229)		(3,874)
Gross profit							2,440		1,600		108		71		4,219
Research & Development expenses							(78)		(20)		-		-		(98)
Selling and marketing expenses							(299)		-		-		-		(299)
Operating profit before general and administrative expenses							2,063		1,580		108		71		3,822
Unattributed general and administrative expenses															(1,786)
															2,036

This information is provided by RNS

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END

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