Dmatek Ld
05 September 2006
Dmatek: Interim Results for the six months ended 30th June 2006
Highest Interim Sales Recorded;
European Sales Grow 36%, US Distribution Platforms Enhanced
Dmatek Ltd. (LSE: DTK.L), the provider of leading electronic monitoring
technologies for the law enforcement and elderly care markets, today announces
interim results for the six months ended 30th June 2006:
6 months ended 30th 6 months ended 30th % change
June 2006 June 2005
Revenues $12.0m $10.1m +18%
Gross profit margin 67% 68%
Operating profit $1.25m $1.08m +15%
Profit before tax $2.12m $0.84m +151%
Net profit $1.74m $0.72m +142%
Earning per share 8c 3c +167%
Net cash balances $18.1m $14.4m
• Record first half revenues at $12 million
• Successful shift to new operations model in the US expands Elmo-Tech's
customer base
• Substantial revenue growth in Europe - offender monitoring business
expands across the board
• Inmate tracking business develops - successful implementation in large
scale facilities
• HomeFree's US sales continue to grow half on half - deal flow slower
than expected, increased number of corporate client leads
• Intellectual property portfolio builds up to secure our market
position
Yoav Reisman, Chief Executive of Dmatek commented: 'We continue our consistent
growth path as customers worldwide increase usage of remote personal monitoring
technologies. The US market is pivotal and we intend to expand our activities
there as we move forward to capitalise on market opportunities. We continue to
seek rapid growth opportunities to accelerate our expansion, enhance our
technology development and widen our market access. Long term, we remain
confident of delivering robust growth.
Overview
Dmatek is pleased to report record revenues in the first half of 2006 as the
group continues to increase penetration of its personal monitoring technologies
into the law enforcement and eldercare markets. Overall revenues rose by 18% to
$12.0m (H1 2005:$10.1m). Earnings per share more than doubled to 8 cents (H1
2005: 3 cents). Our recurring revenue base and a stronger order book provide us
with improved visibility as our business expands. During the period we continued
to build up our strategic intellectual property portfolio, further securing our
market position.
Operational Review
Elmo-Tech, Law Enforcement Market
Elmo-Tech's overall revenues grew some 20% to $10.2m, compared with $8.5m during
the same period last year.
In the US, revenues increased some 5% in comparison to the same period last
year, amounting to $3.7m (H1 2005: $3.5m). Our key progress in this market was
the successful shift from our traditional, exclusive sales channel. The new
operations model implemented by Elmo-Tech Inc., our new US subsidiary, has
enabled us to expand our direct interface with the market to capitalise on
opportunities there. During the period, we secured supply agreements with new
offender monitoring operations of all types - state and local government
agencies, large service providers and regional operators. Encouragingly, we have
seen demand for our entire range of technologies including RF presence
monitoring, GPS tracking and the recently launched MEMS 3000 alcohol monitoring
system, as well as for multiple-technology programmes, where our integrated
platform offers unique, significant competitive advantage.
Our revenues in Europe climbed 37% to a total of $5.6m compared to $4.1m in
2005's first half. We have supplied additional equipment to existing programmes
and added Switzerland and Luxemburg to our customer base. In France, we won the
first tender for GPS tracking pilot, which is being run in 2 of the regional
programmes. We expect this pilot to expand further toward the end of this year.
After the end of the period, we won renewed contracts in Sweden and France as
a result of competitive tenders. Revenues in the rest of the world were
unchanged at $0.9m.
Our inmate tracking system (TRaCE) continues to be well received. We
successfully installed 2 large-scale systems during the period - one in the US
and one in Europe. Towards the end of the period, we won our largest TRaCE
contract to date. The system will be commissioned in Nevada before the end of
this year.
HomeFree, Elderly Care Market
HomeFree revenues advanced 6% over the corresponding period to $1.8m. (H1 2005:
$1.7m). The pace of growth was slower than expected. However, we have seen an
encouraging increase in the average contract size and in sales leads from
corporate clients.
We aim to continue this strategic path of building relationships with
larger-scale customers, which would streamline our product distribution and tend
to span longer periods.
With a view to the longer term, industry research continues to validate the
potential for the residential market and we are investing research and
development resources to prepare for this.
Technology Advancements
Over the first half of the year, we put considerable work into enhancing our
integrated monitoring platform software. We introduced improved versions of our
STaR GPS tracking product, which accommodate market's functionality demands and
delivered the first MEMS-3000 alcohol monitoring systems in the US.
Intellectual Property
We operate a proactive IP strategy, to protect our existing licence to operate
and set up barriers to prevent others from entering into what we believe are
future areas of interest. We review continuously what to patent, licence or
acquire. We also look at when to design around a patent and finally, what to
drop.
During the period we were granted 3 new patents. The first of the three new
patents focuses on the 'triple-tamper' capability of Dmatek's transmitter and
the use of a motion sensor to enhance the product's security envelope. This
patent was granted by the United States Patent and Trademark Office and is
currently pending in certain European countries. Another patent that was
recently granted in the US and pending worldwide will enhance and protect our
technology development to achieve more accurate positioning in monitoring
applications inside facilities. The last patent, in line with our vision of
broader use of personal monitoring technologies in the future, shields the
method of monitoring and tracking large numbers of people within sizeable open
areas.
Financial Review
Revenue increased by 18% overall, with recurring revenues representing 42% of
the total.
Gross profit margins were steady at 67.5% (H1 2005: 67.9%). We continued recent
years' level of research and development investment amounting to $2.09m (H1
2005: $1.95m).
Sales & Marketing and General & Administrative expenditures of $2.66m and $2.06m
respectively, continued at a similar level to the second half of 2005. The
increase over H1 2005 ($2.07m & $1.80m respectively) was largely due to the
expansion of our US operations. Operating profit therefore grew 15% to $1.25m,
compared with $1.08m for the corresponding period.
Profit before tax of $2.12m (H1 2005: $0.84m), benefited from $0.69m of
financial income, which included $0.47m of exchange rate gains. We also recorded
a total of $0.18m of other income, net, resulting from an earn out against the
sale of a subsidiary in 1997 and the setting of a provision against a minority
debt.
The effective tax rate for the period was 17%, resulting in a payment of $0.36m.
It is anticipated that the total effective tax rate for 2006 will be
approximately 20%.
Net profit for the period grew considerably to $1.74m, (H1 2005: $0.72m), giving
earnings per share of 8 cents in H1 2006 compared to 3 cents in the
corresponding period of 2005.
We ended the period with a robust balance sheet. Net cash increased to $18.1m
after funding modest increases in stocks and debtors. This cash gives us the
resources to fund our future development both through organic opportunities and
strategic acquisitions.
Outlook
Overall our expectations for the full year remain unchanged. The US market is
pivotal for us. The establishment of HomeFree Inc. and more recently Elmo-Tech
Inc. have laid the ground for our US operations. We intend to expand these
activities as we move forward to capitalise on market opportunities. We continue
to seek leap growth opportunities to accelerate our expansion, enhance our
technology development and widen our market access. Long term, we therefore
remain confident of delivering robust growth.
The Board of Directors of
Dmatek Ltd.
Dear Sirs,
Re: Review of the unaudited interim consolidated financial statements
as at 30th June, 2006 and for the six-month period then ended
At your request, we have reviewed the interim consolidated balance sheet of
Dmatek Ltd. ('the Company') as at 30th June, 2006, and the related interim
consolidated statements of operations, changes in shareholders' equity (see note
5) and cash flows for the six-month period then ended.
The consolidated financial statements as at 31st December, 2005 and the year
then ended and the interim consolidated financial statements as at 30th June,
2005 and for the six-month period then ended were audited and reviewed,
respectively, by other auditors.
Our review was performed in accordance with the procedures prescribed by the
Institute of Certified Public Accountants in Israel. These procedures included,
inter alia, reading the said financial statements, reading the minutes of the
shareholders' meetings and of the meetings of the Board of Directors and its
committees, as well as making inquiries of persons responsible for financial and
accounting matters.
We received review reports of other auditors regarding the interim financial
statements of certain subsidiaries, whose assets constitute approximately 2.6%
of total consolidated assets as at 30th June, 2006 and whose revenues constitute
approximately 7.8% of the total consolidated revenues of the six-month period
then ended.
Since the review performed was limited in scope and does not constitute an audit
in accordance with generally accepted auditing standards, we do not express an
opinion on the interim consolidated financial statements.
In the course of our review, including the reading of the review reports of
other auditors as stated above, nothing came to our attention which would
indicate the necessity of making material modifications to the interim financial
statements referred to above in order for them to be in conformity with
generally accepted accounting principles in Israel.
Sincerely yours,
Somekh Chaikin
Certified Public Accountants (Isr.)
Member Firm of KPMG International
Tel Aviv, Israel
4th September, 2006
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Year ended
Six months ended 30th June 31st December
2006 2005 2005
US$'000 US$'000 US$'000
Note Unaudited Unaudited Audited
Turnover 3 11,962 10,146 22,101
Cost of revenues (3,890) (3,261) (7,056)
Gross profit 8,072 6,885 15,045
Research and development costs (2,094) (1,948) (3,662)
Selling and marketing expenses (2,663) (2,059) (4,590)
General and administrative expenses (2,068) (1,798) (3,800)
Operating profit 1,247 1,080 2,993
Financial income (expenses), net 4 691 (237) (187)
Other income, net 178 - -
Profit before tax on income 2,116 843 2,806
Tax on income (356) (150) (568)
Profit after tax 1,760 693 2,238
Minority interest (25) 24 16
Profit available for the shareholders 1,735 717 2,254
Basic earnings per ordinary share
(in U.S. dollars) 0.08 0.03 0.10
Weighted average number of ordinary
shares outstanding - in thousands 21,841 21,795 21,806
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS
As at
As at 30th June 31st December
2006 2005 2005
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Fixed assets
Tangible assets 1,007 962 985
Other assets 2,491 2,817 2,688
3,498 3,779 3,673
Non-current assets
Minority interest - (*) 252 (*) 252
Current assets
Stocks 2,962 1,987 2,386
Debtors 7,999 7,537 6,124
Cash and cash equivalents and in hand 18,523 14,799 17,625
29,484 24,323 26,135
Creditors
Amounts falling due within one year (6,222) (5,027) (5,179)
Net current assets 23,262 19,296 20,956
Total assets less current liabilities 26,760 23,327 24,881
Creditors
Amounts falling due after more than one year:
Accrued severance pay (394) (331) (300)
Minority interest (118) (*) (85) (*) (93)
Net assets 26,248 22,911 24,488
Capital and reserves
Share capital 69 69 69
Share premium account 18,410 18,345 18,385
Profit and loss account 7,769 4,497 6,034
Shareholders' funds 26,248 22,911 24,488
These financial statements have approved by the Board of Directors on 4th
September, 2006 and were signed on its behalf by:
Yoav Reisman - Director Asher Zysman - Director
(*) Reclassified
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED CASH FLOW STATEMENTS
Year ended
Six months ended 30th June 31st December
2006 2005(*) 2005
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Cash flow from operating activities
Profit available for the Shareholders 1,735 717 2,254
Adjustment to reconcile profit available for the Shareholders
to net cash provided by (used in) operating activities
(see below) (657) 2,441 3,998
Net cash provided by operating activities 1,078 3,158 6,252
Cash flow from investing activities
Acquisition of fixed assets and other assets (219) (292) (601)
Net cash used in investing activities (219) (292) (601)
Cash flow from financing activities
Exercise of options 25 - 40
Short-term bank credit, net 14 (352) (351)
Net cash provided by (used in) financing activities 39 (352) (311)
Increase in cash and cash equivalents 898 2,514 5,340
Cash and cash equivalents at beginning of period 17,625 12,285 12,285
Cash and cash equivalents at end of period 18,523 14,799 17,625
Adjustment to reconcile net profit available for the Shareholders
to net cash provided by (used in) operating activities
Year ended
Six months ended 30th June 31st December
2006 2005(*) 2005
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Minority interest 25 (24) (16)
Provision for doubtful debts in respect of minority interest 252 - -
Depreciation and amortization 606 565 1,100
Amortization of goodwill - 94 187
Deferred taxes, net (30) (76) (34)
Increase in accrued severance pay 94 53 22
Increase in stocks (857) (233) (870)
Decrease (increase) in debtors (1,776) 2,296 3,692
Increase (decrease) in creditors 1,029 (234) (83)
(657) 2,441 3,998
(*) Reclassified
The accompanying notes form an integral part of these financial statements.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
AS AT 30th JUNE 2006 (UNAUDITED)
Note 1 - General
These interim financial statements have been prepared as at 30th June, 2006 and
for the six-month period then ended. These statements should be read in
conjunction with the Company's annual financial statements as at 31st December,
2005, and for the year then ended and the notes related thereto.
Note 2 - Summary of Significant Accounting Policies
A. General
The accounting principles applied in the preparation of these interim financial
statements are consistent with those applied in the preparation of the audited
financial statements as at 31st December 2005, except for those described in B
below.
The interim financial statements have been prepared in a condensed format in
accordance with generally accepted accounting principles applicable to the
preparation of interim period financial statements in accordance with Standard
No. 14, 'Interim Financial Reporting' of the Israel Accounting Standards Board.
B. Initial implementation of accounting standards
(1) Accounting Standard No. 20 (revised) regarding the accounting
treatment of goodwill and intangible assets when purchasing an investee company
As from 1st January, 2006, the Company implements Accounting Standards No. 20
(Revised), 'The Accounting Treatment of Goodwill and Intangible Assets when
Purchasing an Investee Company' (hereinafter - the Standard) of the Accounting
Standards Board. The Standard provides the accounting treatment of goodwill and
intangible assets upon the acquisition of a subsidiary and an investee company
that is not a subsidiary, including a company under joint control.
The principal changes provided in the Standard as compared with the principles
presently applied are as follows: attribution of excess cost created upon the
acquisition of an investment in an investee company also to identifiable
intangible assets of the acquired company; distinction between intangible assets
with a limited useful life and intangible assets with an unlimited useful life;
immediate recognition of a gain on the date of acquisition in the amount of the
negative goodwill created upon the acquisition after first being offset from
intangible assets and non-monetary assets of the investee company;
discontinuance of the systematic amortization of positive goodwill and
intangible assets with an unlimited useful life; distinction between the
goodwill of a subsidiary and investee company that is not a subsidiary for the
purpose of examining impairment in value.
Goodwill amortization in the amount of US$ 94 thousand and US$ 187 thousand were
included in the financial statements for the six-month period ended 30th June,
2005 and for the year ended 31st December, 2005, respectively.
Note 2 - Summary of Significant Accounting Policies (cont'd)
B. Initial implementation of accounting standards (cont'd)
(2) Accounting Standard No. 21 regarding earnings per share
As from 1st January, 2006, the Company implements Accounting Standard No. 21,
'Earnings per Share (hereinafter - the Standard) of the Israel Accounting
Standards Board. In accordance with the provisions of the Standard, the Company
calculates basic earnings per share with respect to the earnings or loss, and
basic earnings per share with respect to earnings or loss from continuing
operations, which is attributable to the ordinary shareholders. The basic
earnings per share are calculated by dividing the earnings or loss attributable
to the ordinary shareholders with the weighted average number of ordinary shares
outstanding during the period. In order to calculate the diluted earnings per
share the Company adjusts the earnings or loss attributable to the ordinary
shareholders, and the weighted average number of outstanding ordinary shares, in
respect of the effects of all the dilutive potential ordinary shares. The
Company's share in the earnings of investee companies was calculated according
to its portion of earnings per share of such investee companies multiplied by
the number of shares held by the Company.
The initial implementation of the Standard did not have an effect on the
Company's Earnings per Share.
(3) Accounting Standard No. 22 regarding financial instruments:
disclosure and presentation
As from 1st January, 2006, the Company implements Accounting Standard No. 22,
'Financial Instruments: Disclosure and Presentation' (hereinafter - the
Standard) of the Israel Accounting Standards Board. The Standard provides rules
for presenting financial instruments in the financial statements and specifies
the proper disclosure required in respect thereto. Furthermore, the Standard
provides the method for classifying financial instruments as financial
liabilities and as shareholders' equity, for classifying the interest,
dividends, losses and gains related to them and the circumstances for offsetting
financial assets and financial liabilities, and it annuls Opinion 53, 'The
Accounting Treatment of Convertible Liabilities' and Opinion 48, 'The Accounting
Treatment of Options'.
The Standard was adopted on a prospective basis. Accordingly, the comparative
figures relating to the prior period were not restated. The initial
implementation of the Standard did not have an effect on the Company's results
of operations and financial position.
Note 2 - Summary of Significant Accounting Policies (cont'd)
B. Initial implementation of accounting standards (cont'd)
(4) Accounting Standard No. 24 regarding share-based payments
As from 1st January, 2006, the Company implements Accounting Standard No. 24'
'Share-Based Payment' (hereinafter - the Standard) of the Israel Accounting
Standards Board. In accordance with the provisions of the Standard, the Company
will recognize share-based payment transactions in the financial statements,
including transactions with employees or other parties that are settled by
equity instruments, cash or other assets. Share-based payment transactions in
which goods or services are received are recognized at their fair value.
With respect to transactions settled by equity instruments, the Standard applies
to grants executed after 15th March, 2005 that had not yet vested by 1st
January, 2006. Similarly, the Standard applies to changes in the terms of
share-based payment transactions being settled by means of equity instruments
that were executed after 15th March, 2005, even if the changes in terms relate
to grants that were executed before that date. The financial statements of 2005
are to be restated in the financial statements of 2006 so as to reflect in them
the expense relating to the grants, as aforementioned.
The initial implementation of the Standard did not have an effect on the
Company's results of operations and financial position.
(5) Accounting Standard No. 25 regarding revenues
As from 1st January, 2006, the Company applies Accounting Standard No. 25,
'Revenues' (hereinafter - the Standard) of the Israel Accounting Standards
Board. The Standard relates to three types of transactions as follows: the
selling of goods, the rendering of services and the use of the entity's assets
by others, which generates interest, royalties and dividends, and provides the
required accounting treatment (recognition, measurement, presentation and
disclosure principles) for these three types of transactions.
The initial implementation of the Standard did not have an effect on the
Company's results of operations and financial position.
Note 2 - Summary of Significant Accounting Policies (cont'd)
C. Exchange rates and linkage terms
Details of the increase (decrease) in the rates of the Israeli consumer price
index ('CPI') and exchange rates of non-dollar currencies relative to the US
dollar are as follows:
Year ended
Six months ended 30th June 31st December
2006 2005 2005
% % %
Israeli CPI 1.6 0.5 2.4
New Israeli shekels (NIS) 3.7 (5.8) (6.4)
Australian dollars (AUD) 1.2 (2.4) (5.9)
Euro 7.4 (11.3) (13.3)
Swedish kroner (SEK) 9.6 (15.3) (16.9)
English pound (GBP) 6.2 (7.1) (10.5)
D. Disclosure of effect of new accounting standard in the period
prior to its implementation
(1) In July 2006 the Israel Accounting Standards Board published
Accounting Standard No. 29, 'Adoption of International Financial Reporting
Standards ('IFRS')' (hereinafter - the Standard). The Standard provides that
entities subject to the Israeli Securities Law - 1968 that are required to
report according to the regulations of this law, are to prepare their financial
statements for periods beginning as from January 2008 according to IFRS. The
Standard permits early adoption as from financial statements published after
31st July, 2006. The aforementioned does not apply to entities subject to
Securities Regulations (Periodic and Immediate Reports of a Foreign Entity) -
2000, the financial statements of which are not prepared in accordance with
Israeli GAAP. Furthermore, the Standard provides that entities that are not
subject to the Securities Law - 1968 and not required to report according to the
regulations of this law, is also permitted to prepare its financial statements
according to IFRS as from financial statements published after 31st July, 2006.
The initial implementation of IFRS will be effected along with the
implementation of IFRS 1, the initial implementation of IFRS, for purposes of
the transition.
The Company, which is not subject to the Israeli Securities Law - 1968 and its
regulations, is examining the effect of the Standard on its financial statements
and the possibility of implementing IFRS.
(2) In August 2006 the Israel Accounting Standards Board published
Accounting Standard No. 26, 'Inventory' (hereinafter - the Standard). The
Standard provides guidelines for determining the cost of inventory and its
subsequent recognition as an expense as well as for determining impairment in
value of inventory written down to net realizable value of the inventory. The
Standard also provides guidelines regarding cost formulas used to allocate costs
to various types of inventory. The Standard will apply to financial statements
for periods beginning on 1st January, 2007 or thereafter. The Company is
currently evaluating the impact, if any, of the adoption of the Standard on its
financial position and results of operations.
Note 3 - Turnover
Year ended
Six months ended 30th June 31st December
2006 2005 2005
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Composition:
Turnover from sale of products 6,922 5,511 12,430
Turnover under lease agreements 3,410 2,802 6,036
Turnover from maintenance and services 1,630 1,833 3,635
11,962 10,146 22,101
Analysis of revenues by geographic
markets and business:
Elmo-Tech
United states 3,727 3,548 7,691
Europe 5,571 4,059 8,753
Rest of the world 892 862 1,531
10,190 8,469 17,975
HomeFree
United States 1,531 1,457 3,648
Europe 240 220 478
Rest of the world 1 - -
1,772 1,677 4,126
All Group
United States 5,258 5,005 11,339
Europe 5,811 4,279 9,231
Rest of the world 893 862 1,531
11,962 10,146 22,101
Note 4 - Financial Income (Expenses), Net
Year ended
Six months ended 30th June 31st December
2006 2005 2005
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Interest receivable, primarily from bank deposits 352 174 471
Interest payable on short-term bank loans (89) (75) (120)
Bank fees and others (42) (43) (122)
221 56 229
Foreign currency exchange gains, net 470 (293) (416)
691 (237) (187)
Note 5 - Reconciliation of Movements in Shareholders' Funds
Share
Share premium Profit and
capital account loss account Total
US$'000 US$'000 US$'000 US$'000
Six months ended
30th June, 2006:
Balance at 1st January, 2006
(Audited) 69 18,385 6,034 24,488
Changes during the period
(Unaudited):
Exercise of options (*) - 25 - 25
Profit for the period - - 1,735 1,735
Balance at 30th June, 2006
(Unaudited) 69 18,410 7,769 26,248
Six months ended
30th June, 2005:
Balance at 1st January, 2005
(Audited) 69 18,345 3,780 22,194
Changes during the period
(Unaudited):
Profit for the period - - 717 717
Balance at 30th June, 2005
(Unaudited) 69 18,345 4,497 22,911
Year ended 31st December, 2005:
Balance at 1st January, 2005
(Audited) 69 18,345 3,780 22,194
Changes in 2005 (Audited):
Exercise of options (*) - 40 - 40
Profit for the year - - 2,254 2,254
Balance at 31st December, 2005
(Audited) 69 18,385 6,034 24,488
(*) Represents an amount less than US$ 1 thousand.
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