MIND C.T.I. LTD.
Shareholders of record at the close of business on March 8, 2004 are entitled to notice of, and to vote at, the Meeting. All shareholders are cordially invited to attend the Meeting in person.
Shareholders who are unable to attend the Meeting in person are requested to complete, date and sign the enclosed form of proxy and to return it promptly in the pre-addressed envelope provided. No postage is required if mailed in the United States. Shareholders who attend the Meeting may revoke their proxies and vote their shares in person.
Joint holders of shares should take note that, pursuant to Article 32(d) of the Articles of Association of the Company, the vote of the senior of the joint shares who tenders a vote, in person or by proxy, will be accepted to the exclusion of the vote(s) of the other joint holder(s). For this purpose seniority will be determined by the order in which the names stand in the Company's Register of Shareholders.
| Dated: March 9, 2004 |
By Order of the Board of Directors, /s/ Monica Eisinger ------------------- Chairperson of the Board of Directors, President and Chief Executive Officer |
The Company currently is not aware of any other matters that will come before the Meeting. If any other matters properly come before the Meeting, the persons designated as proxies intend to vote in accordance with their judgment on such matters.
A form of proxy for use at the Meeting and a return envelope for the proxy are enclosed. Shareholders may revoke the authority granted by their execution of proxies at any time before the exercise thereof by filing with the Company a written notice of revocation or duly executed proxy bearing a later date, or by voting in person at the Meeting. Unless otherwise indicated on the form of proxy, shares represented by any proxy in the enclosed form, if the proxy is properly executed and delivered to the Company not less than 72 hours prior to the time fixed for the Meeting, will be voted in favor of all the matters to be presented to the Meeting, as described above. On all matters to be considered at the Meeting, abstentions and broker non-votes will be treated as neither a vote "for" nor "against" the matter, although they will be counted in determining whether a quorum is present.
Proxies for use at the Meeting are being solicited by the Board of Directors of the Company. Only shareholders of record at the close of business on March 8, 2004 will be entitled to vote at the Meeting. Proxies are being mailed to shareholders on or about March 13, 2004 and will be solicited chiefly by mail. However, certain officers, directors, employees and agents of the Company, none of whom will receive additional compensation therefore, may solicit proxies by telephone, telegram or other personal contact. The Company will bear the cost for the solicitation of the proxies, including postage, printing and handling, and will reimburse the reasonable expenses of brokerage firms and others for forwarding material to beneficial owners of shares.
On March 4, 2004, the Company had outstanding 20,998,087 Ordinary Shares, each of which is entitled to one vote upon each of the matters to be presented at the Meeting. Two or more shareholders holding the Ordinary Shares conferring in the aggregate at least 25% of the outstanding Ordinary Shares, present in person or by proxy, will constitute a quorum at the Meeting. If within an hour from the time appointed for the Meeting a quorum is not present, the Meeting shall stand adjourned to the same day in the next week, at the same time and place, at which adjourned meeting, any two shareholders shall constitute a quorum.
The following table sets forth certain information regarding the beneficial ownership of the Company's shares as of March 4, 2004, by each person who is known to own beneficially more than 5% of the Company's outstanding shares.
| Name of Beneficial Owners(1) | Total Shares Beneficially Owned(1) | Percentage of Ordinary Shares (2) |
| Monica Eisinger | 4,410,000 | 21.00% |
| Rimon Ben-Shaoul(3) | 3,772,204 | 17.96% |
| Lior Salansky | 2,671,140 | 12.72% |
| Polar Communications Ltd. | 3,772,204 | 17.96% |
| Driehaus Capital Management, Inc. | 1,299,869 | 6.19% |
Under the Company's Articles of Association, our Board of Directors (excluding our outside directors) is divided into three classes of directors designated as Class I, Class II and Class III, which are differentiated by the dates of expiration of the terms of office of their respective directors.
Ms. Monica Eisinger is a member of Class I of the Board of Directors, and her term of office shall expire at the Meeting. If Ms. Monica Eisinger is re-elected, her term of office shall expire at the Company's 2007 Annual General Meeting of shareholders.
Ms. Eisinger is a founder of our company and has been President, Chairperson and Chief Executive Officer of our company since inception. Prior to founding MIND, Ms. Eisinger served as an information systems consultant to Raphael, the Israeli Armaments Industry and directed over 40 projects. Ms. Eisinger holds a B.Sc. in Computer Sciences and a Masters Degree in Telecommunications (with expertise in Voice and Data Integration over the Ethernet) from the Technion, Israel Institute of Technology.It is proposed that at the Meeting the following resolution be adopted:
"RESOLVED, to re-elect Ms. Eisinger as a Class I director of the Company to serve until the Annual General Meeting to be convened in the third year following this re-election."
The affirmative vote of the holders of a majority of the Ordinary Shares present, in person or by proxy, and voting on the matter is required for the approval thereof.
The Board of Directors recommends a vote FOR approval of this proposed resolution.
Companies incorporated under the laws of Israel whose shares have been offered to the public, such as the Company, are required by the Israeli Companies Law, 5759-1999 (the "Companies Law"), to have at least two outside directors ("outside directors"). To qualify as an outside director, an individual may not have, and may not have had at any time during the previous two years, any affiliation with the Company or its affiliates, as such terms are defined in the Companies Law. In addition, no individual may serve as an outside director if the individual's position or other activities create or may create a conflict of interest with his or her role as an outside director. For a period of two years from termination from office, a former outside director may not serve as a director or employee of the Company or provide professional services to the Company for compensation.
The Company's Board of Directors is divided into three classes of directors, denominated Class I, Class II and Class III. The outside directors are required to be elected by the shareholders, but they will not be members of any class. The term of service of an outside director is three years and may be extended for an additional three years. All of the outside directors of a company must be members of its audit committee and each other committee of a company's board of directors that is authorized to carry out one or more powers of the board of directors must include at least one outside director.
At an Extraordinary Meeting of the Company's shareholders held on February 12, 2001, the shareholders elected Mr. Amnon Neubach as an outside director of the Company. The first three-year term of service of Mr. Amnon Neubach expired on February 11, 2004. At the Meeting, shareholders will be asked to re-elect Mr. Amnon Neubach for a second three-year term of service as an outside director of the Company on the same terms as approved for outside directors at the Extraordinary Meeting of the Company's shareholders held on February 12, 2001. The Company has received a declaration from such nominee that he fulfills all the qualifications of an outside director under the Companies Law. The Company's Board of Directors determined in its meeting on February 10, 2004 that Mr. Amnon Neubach be designated as the Company's "audit committee financial expert," as defined by the SEC rules.
A brief biography of Mr. Amnon Neubach is set forth below: Mr. Neubach has served as an external director of our company since February 2001. He has also served as an economic consultant to several companies in the private sector since 1995. From 2001 until 2003, Mr. Neubach served as Chairman of the Board of Pelephone Communications Ltd., a company founded by Bezek and Motorola, From 1995 until 1997, Mr. Neubach served as country advisor to Goldman Sachs in Israel. Currently Mr. Neubach also serves as a director of Arelnet Ltd., Delta Galil Ltd., Aspan Ltd., and Orbit Alchut Ltd. and of two privately held companies. Mr. Neubach holds a B.A. in Economics and Business Administration and an M.A. in Economics, both from Bar Ilan University.
It is proposed that at the Meeting the following resolution be adopted:
"RESOLVED, to re-elect Mr. Amnon Neubach as an outside director of the Company for a
term of three years."
The election of outside directors requires the affirmative vote of the holders of a majority of the Ordinary Shares present, in person or by proxy, and voting on the matter, provided that either (i) at least one third of the shares of non-controlling shareholders are voted in favor of the election of the outside directors or (ii) the total number of shares of non-controlling shareholders voted against the election of the outside directors does not exceed one percent of the outstanding Ordinary Shares.
The Board of Directors recommends a vote FOR approval of this proposed resolution.
At a meeting held on February 10, 2004, the Company's Board of Directors resolved to recommend that the shareholders adopt a resolution that the Mind 1998 Share Option Plan ("1998 Plan") and Mind 2000 Share Option Plan ("2000 Plan") (collectively, the "Plans"), all of which terminated during 2003, be extended and shall continue as if not terminated until December 31, 2010. Accordingly, the option pool reserved under the Plans shall also be reinstated.
It is proposed that at the Meeting the following resolution be adopted:
"RESOLVED, that each of the Mind 1998 Share Option Plan and Mind 2000 Share Option Plan, be
extended and shall continue as if not terminated until December 31, 2010."
The affirmative vote of the holders of a majority of the Ordinary Shares present, in person or by proxy, and voting on the matter is required for the approval thereof.
The Board of Directors recommends a vote FOR approval of this proposed resolution.
At a meeting held on February 10, 2004, the Company's Board of Directors decided to increase the aggregate option pool reserved under the Plans by an additional 1,000,000 Ordinary Shares. Following such increase, 2,266,800 Ordinary Shares will be reserved and may only be issued in accordance with the terms of the Plans and 2,041,200 Ordinary Shares are either subject to outstanding options or have already been issued upon the exercise of options.
It is proposed that at the Meeting the following resolution be adopted:
"RESOLVED, to increase the aggregate option pool reserved under the MIND 1998 Share Option
Plan and the MIND 2000 Share Option Plan by an additional 1,000,000 Ordinary Shares."
The affirmative vote of the holders of a majority of the Ordinary Shares present, in person or by proxy, and voting on the matter is required for the approval thereof.
The Board of Directors recommends a vote FOR approval of this proposed resolution.
The Company's auditor is Kesselman & Kesselman, certified public accountants in Israel and a member of PricewaterhouseCoopers International Limited (the "Auditor"). A report shall be presented to the Meeting of the remuneration to the Auditor for audit and non-audit services provided to the Company. Under the Israeli Companies Law, 5759 - 1999 (the "Companies Law"), the shareholders of the Company are authorized to appoint the Company's auditor and to authorize the Board of Directors to determine its remuneration. To comply with the Sarbanes-Oxley Act of 2002, the Company's Board of Directors will authorize its Audit Committee to determine the Auditor's remuneration for audit and nonaudit services. It is proposed that the Auditor, Kesselman & Kesselman, be re-appointed as the Company's independent auditor until the close of the following Annual General Meeting.
It is proposed that at the Meeting the following resolution be adopted: "RESOLVED, that the Company's Auditor, Kesselman & Kesselman, be, and it hereby is, reappointed as the auditor of the Company until the close of the next Annual General Meeting, and that the Board of Directors be, and it hereby is, authorized to determine its remuneration or to delegate the Audit Committee of the Company to do so."
The affirmative vote of the holders of a majority of the Ordinary Shares present, in person or by proxy, and voting on the matter is required for the approval thereof.
The Board of Directors recommends a vote FOR approval of this proposed resolution.
The audited financial statements of the Company for the year ended December 31, 2003 (the "Financial Statements"), are being distributed to Company's shareholders together with this proxy statement but are not formally part of the proxy solicitation materials. The Financial Statements were approved by the Board of Directors as required by the Companies Law.
The Company will hold a discussion with respect to the Financial Statements at the Meeting.
Management knows of no other business to be transacted at the Meeting. If any other matters are properly presented to the Meeting, the persons named in the enclosed form of proxy will vote upon such matters in accordance with their best judgment.
| Dated: March 9, 2004 |
By Order of the Board of Directors, /s/ Monica Eisinger ------------------- Chairperson of the Board of Directors, President and Chief Executive Officer |
In our letter of last year we stated that year 2003 goal is to increase revenue and maintain profitability. We are pleased with year 2003 results. We have met our expectations of continuous revenue growth and improving profitability. Year 2003 was the third challenging year for the telecom industry and MIND succeeded to execute in this difficult market. Our goal for 2004 is to gain market share, increase revenue and deploy larger solutions.
Year 2003 HighlightsOn July 15, 2003, the Company adopted a dividend policy according to which, subject to Board approval prior to each dividend declaration and subject to the Companies Law, the Company will declare a cash dividend once per calendar year in an amount equal to the Company's net profits for the preceding calendar year. In November 2003 we paid a cash dividend of $3 million.
On February 10, 2004, the Board declared a cash dividend in the amount equal to our 2003 net income, which is approximately $3.63 million, before taxes on the dividend amount. The record date for the dividend will be February 24, 2004, at 5:00 p.m. (New York time), and the payment date will be March 8, 2004.
Currently there are approximately 21 million shares outstanding, and the number of shares eligible for trading has increased significantly in 2004. Over 10 million shares are now freely tradable on the stock markets on which our shares are listed. In 2003 we have experienced increased public interest in MIND and its shares both on Nasdaq and the Tel-Aviv Stock Exchange.
Since 1997 MIND has been a pioneer in enabling the VoIP technology for emerging and incumbent service providers. MIND's know-how in the IP space enabled us to successfully deploy "best-in-class" solutions for Service Enabling of IP services in the wireless arena. We continue to add functionality to our products that now offer a complete solution for convergent billing for carriers that provide both traditional and IP services, voice, data and content.
Seizing the Potential Markets UpturnOur results in 2003 reflect the continued acceptance of our solutions and our market leadership in real-time billing for convergent VoIP networks. Our customer base demonstrates our ability to provide leading solutions for VoIP, service enabling in the 3G space and convergent end-to-end billing and customer care. Our product-based approach and our customer-oriented business model enabled us to grow revenues for seven consecutive quarters.
During the second half of 2003 we started to prepare the company for the expected growth in the telecom sector. We are in a continuous process of gradually increasing the company size and we have added experienced people to our team. We see professional services as a key revenue generator and a major factor in our ability to win larger deals.
In 2003 we continued to deploy expansions of license and services to key customers as well as new projects. Our proven ability to deliver product-based solutions in short deployment time, positions us well to capitalize on the growth of IP services deployments. Looking ahead, we expect to see new customer wins, especially in the VoIP area and continued growth in customer extensions. We are confident in our strategy and we continue to build a company that is fit for any market conditions and all set to seize the improvement in the market to achieve growth.
We thank you for your continued support.
Sincerely,
/s/ Monica Eisinger
-------------------
Chairperson of the Board of Directors, President and
Chief Executive Officer
MIND C.T.I. LTD.
(An Israeli Corporation)
2003 CONSOLIDATED FINANCIAL STATEMENTS
| Page | |
| REPORT OF INDEPENDENT AUDITORS | F-2 |
| CONSOLIDATED FINANCIAL STATEMENTS: | |
| Balance sheets | F-3 |
| Statements of operations | F-4 |
| Statements of changes in shareholders' equity | F-5 |
| Statements of cash flows | F-6 |
| Notes to financial statements | F-7 |
PriceWaterhouseCoopers |
Kesselman & Kesselman Certified Public Accountants (Isr.) Trade Tower, 25 Hamered Street Tel Aviv 68125 Israel P.O Box 452 Tel Aviv 61003 Israel Telephone +972-3-7954555 Facsimile +972-3-7954556 |
We have audited the consolidated balance sheets of MIND C.T.I. Ltd. (the "Company") and its subsidiaries as of December 31, 2003 and 2002 and the consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Israel and in the United States of America, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company's Board of Directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2003 and 2002 and the results of their operations, changes in shareholders' equity and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
| Tel-Aviv, Israel | Kesselman & Kesselman |
| February 10, 2004 | Certified Public Accountants (Isr.) |
Kesselman & Kesselman is a member of PricewaterhouseCoopers International Limited, a company limited by guarantee registered in England and Wales.
F-2
MIND C.T.I. LTD.
CONSOLIDATED BALANCE SHEETS
| December 31 | |||
| 2003 | 2002 | ||
| (In thousands of U.S. $) | |||
| A s s e t s | |||
| CURRENT ASSETS (note 8): | |||
Cash and cash equivalents (note 9a) |
4,391 | 11,312 | |
Accounts receivable (note 9b): |
|||
Trade |
2,181 | 2,026 | |
Other |
864 | 658 | |
Inventories |
11 | 14 | |
T o t a l current assets |
7,447 | 14,010 | |
| LONG-TERM BANK DEPOSITS (note 9c) | 40,482 | 31,631 | |
| PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization (note 2) | 1,182 | 1,363 | |
| OTHER ASSETS, net of accumulated amortization (note 3) | 868 | 963 | |
T o t a l assets |
49,979 | 47,967 | |
| Liabilities and shareholders' equity | |||
| CURRENT LIABILITIES (note 8)- | |||
accounts payable and accruals: |
|||
Trade |
718 | 167 | |
Deferred revenues (note 1i) |
1,607 | 1,526 | |
Other (note 9d) |
1,116 | 983 | |
T o t a l current liabilities |
3,441 | 2,676 | |
| EMPLOYEE RIGHTS UPON RETIREMENT (note 4) | 998 | 809 | |
| COMMITMENTS (note 5) | |||
T o t a l liabilities |
4,439 | 3,485 | |
| SHAREHOLDERS' EQUITY (note 6): | |||
| Share capital - ordinary shares of | |||
NIS 0.01 par value (authorized - 88,000,000 shares; issued and outstanding: |
53 | 52 | |
Additional paid-in capital |
58,515 | 61,090 | |
Accumulated deficit |
(13,027) | (16,660) | |
T o t a l shareholders' equity |
45,540 | 44,482 | |
To t a l liabilities and shareholders' equity |
49,979 | 47,967 | |
|
_______________ Monica Eisinger |
) Chairperson of the Board of Directors, ) President and Chief Executive Officer |
|
______________ Zamir Bar-Zion |
) ) Director |
MIND C.T.I. LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years ended December 31, | ||||
| 2003 | 2002 | 2001 | ||
| In thousands of U.S. $ (except per share data) | ||||
| REVENUES (note 10a): | ||||
Sales of licenses |
$ 8,105 | $ 6,535 | $ 7,108 | |
Services |
4,831 | 3,473 | 3,361 | |
| $ 12,936 | $ 10,008 | $ 10,469 | ||
| COST OF REVENUES | 3,208 | 2,479 | 2,242 | |
| GROSS PROFIT | 9,728 | 7,529 | 8,227 | |
| RESEARCH AND DEVELOPMENT EXPENSES (note 10b) | 3,319 | 3,723 | 4,423 | |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | ||||
Selling |
4,065 | 4,154 | 6,767 | |
General and administrative (note 10c) |
1,149 | 1,279 | 3,097 | |
| OPERATING INCOME (LOSS) | 1,195 | (1,627) | (6,060) | |
| FINANCIAL AND OTHER INCOME - net (note 10d) | 2,607 | 2,078 | 1,588 | |
| INCOME (LOSS) BEFORE TAXES ON INCOME | 3,802 | 451 | (4,472) | |
| TAXES ON INCOME (note 7) | 169 | 117 | 7 | |
| INCOME (LOSS) BEFORE MINORITY INTEREST | 3,633 | 334 | (4,479) | |
| MINORITY INTEREST IN LOSSES OF A SUBSIDIARY | 89 | |||
| NET INCOME (LOSS) FOR THE YEAR | $ 3,633 | $ 334 | $ (4,390) | |
| EARNINGS (LOSS) PER ORDINARY SHARE (note 10e): | ||||
| Basic | $0.18 | $0.02 | $ (0.21) | |
| Diluted | $0.17 | $0.02 | $ (0.21) | |
| WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES USED IN COMPUTATION | ||||
| OF EARNINGS (LOSS) PER ORDINARY SHARE - IN THOUSANDS (note 10e): | ||||
Basic |
20,732 | 20,677 | 20,654 | |
Diluted |
21,143 | 20,761 | 20,654 | |
MIND C.T.I. LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
| Share capital | Additional paid-in capital |
Deferred stock compensation |
Accumulated Deficit |
Total | ||
| Number of shares | Amount |
|||||
| (In thousands) | (In thousands of U.S. dollars) | |||||
| BALANCE AT JANUARY 1, 2001 | 20,566 | $ 51 | $ 61,233 | $ (453) | $ (12,604) | $48,227 |
| CHANGES DURING 2001: | ||||||
Net loss |
(4,390) | (4,390) | ||||
Employee stock options exercised and paid |
88 | 1 | 32 | 33 | ||
Decrease in deferred compensation related to employee stock option grants as a result Of forfeiting of options |
(187) | 187 | -,- | -,- | ||
Amortization of deferred compensation related to employee stock option grants |
121 | 121 | ||||
| BALANCE AT DECEMBER 31, 2001 | 20,654 | 52 | 61,078 | (145) | (16,994) | 43,991 |
| CHANGES DURING 2002: | ||||||
Net income |
334 | 334 | ||||
Employee stock options exercised and paid |
32 | * | 19 | 19 | ||
Decrease in deferred compensation related to employee stock option grants as a result of forfeiting of options |
-7 | 7 | -,- | |||
Amortization of deferred compensation related to employee stock option grants |
138 | 138 | ||||
| BALANCE AT DECEMBER 31, 2002 | 20,686 | 52 | 61,090 | -,- | (16,660) | 44,482 |
| CHANGES DURING 2003: | ||||||
Net income |
3,633 | 3,633 | ||||
Dividend paid out of share premium (note 6a) |
(2,929) | (2,929) | ||||
Employee stock options exercised and paid |
311 | 1 | 353 | 354 | ||
| BALANCE AT DECEMBER 31, 2003 | 20,997 | $53 | $58,514 | $-,- | ($13,027) | $45,540 |
MIND C.T.I. LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years ended December 31, | |||
| 2003 | 2002 | 2001 | |
| (In thousands of U.S. dollars) | |||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||
Net income (loss) |
$ 3,633 | $ 334 | $ (4,390) |
Adjustments to reconcile net income or loss to net cash provided by or used in operating activities: |
|||
Minority interest in losses of a subsidiary |
(89) | ||
Depreciation and amortization |
806 | 944 | 805 |
Deferred income taxes - net |
(8) | 16 | (4) |
Compensation expense resulting from options granted to employees |
138 | 121 | |
Accrued severance pay |
189 | 37 | (4) |
Capital loss (gain) on sale of property and equipment - net |
(35) | 14 | (2) |
Write-off of an investment in a company |
93 | ||
Loss from trading securities |
2 | ||
Interest accrued on long-term bank deposits |
(2,159) | (1,631) | |
Proceeds from sale of trading securities |
101 | ||
Changes in operating asset and liability items: |
|||
Decrease (increase) in accounts receivable: |
|||
Trade |
(155) | 888 | 2,675 |
Other |
(198) | 281 | 514 |
Increase (decrease) in accounts payable and accruals: |
|||
Trade |
551 | (318) | (470) |
Other |
214 | 1,023 | (1,415) |
Decrease (increase) in inventories |
3 | 12 | (6) |
Net cash provided by (used in) operating activities |
2,841 | 1,738 | (2,069) |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||
Purchase of property and equipment |
(499) | (180) | (831) |
Amounts funded (withdrawn) in respect of accrued severance pay |
(105) | (37) | 87 |
Purchase of intangible assets, see note 3 |
(1,000) | ||
Investment in long-term bank deposits, see note 9c |
(77,000) | (30,000) | |
Withdrawal of long-term bank deposits, see note 9c |
70,308 | ||
Proceeds from sale of property and equipment |
109 | 49 | 130 |
Net cash used in investing activities |
(7,187) | (30,168) | (1,614) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||
Employee stock options exercised and paid |
354 | 19 | 33 |
Dividend paid out of share premium |
(2,929) | ||
Net cash provided by (used in) financing activities |
(2,575) | 19 | 33 |
| DECREASE IN CASH AND CASH EQUIVALENTS | (6,921) | (28,411) | (3,650) |
| BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 11,312 | 39,723 | 43,373 |
| BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR | $ 4,391 | $ 11,312 | $ 39,723 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH ACTIVITIES - | |||
cash paid during the year for income tax |
$ 61 | $ 60 | $ 125 |
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| % | |
| Computers and electronic equipment | 15-33 (mainly 33) |
| Office furniture and equipment | 6-7 |
| Vehicles | 15 |
| Years ended December 31, | |||
| 2003 | 2002 | 2001 | |
| (In thousands of U.S. dollars, except for per share data) | |||
| Net income (loss), applicable to ordinary shares, as reported | $ 3,633 | $ 334 | $ (4,390) |
| Add - stock-based employee compensation expense, included in reported net income (loss), net of related tax effect | -,- | 138 | 121 |
| Deduct - stock-based employee compensation expense determined under fair value method ,net of related tax effect | (720) | (1,906) | (1,153) |
| Pro forma net income (loss) applicable to ordinary shares | $ 2,913 | $ (1,434) | $ (5,422) |
| Earnings (loss) per share: | |||
Basic - as reported |
$ 0.18 | $ 0.02 | $ (0.21) |
Diluted - as reported |
$ 0.17 | $ 0.02 | $ (0.21) |
Basic - pro forma |
$ 0.14 | $ (0.07) | $ (0.26) |
Diluted - pro forma |
$ 0.14 | $ (0.07) | $ (0.26) |
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| December 31 | ||
| 2003 | 2002 | |
| (In thousands of U.S. dollars) | ||
| Computers and electronic equipment | $2,072 | $1,978 |
| Office furniture and equipment | 474 | 495 |
| Vehicles | 1,054 | 903 |
| Leasehold improvements | 19 | 19 |
| 3,619 | 3,395 | |
| Less - accumulated depreciation and amortization | 2,437 | 2,032 |
| $1,182 | $1,363 | |
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| December 31 | ||
| 2003 | 2002 | |
| (In thousands of U.S. dollars) | ||
| Amounts funded with severance pay funds and by insurance policies in respect of liability for employee rights upon retirement, see note 4 | $ 418 | $ 313 |
| Intangible assets, net of accumulated amortization, see b. below | $ 450 | $ 650 |
| $868 | $963 | |
As of December 31, 2003 and 2002, the accumulated amortization amounted to $ 550,000 and $ 350,000, respectively.
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| December 31 | ||
| 2003 | 2002 | |
| (In thousands of U.S. dollars) | ||
| Accrued severance pay | $ 998 | $ 809 |
| L e s s - amounts funded (presented in "other assets") | (418) | (313) |
| Unfunded balance | $ 580 | $ 496 |
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (In thousands of U.S. dollars) | |
| Years ending December 31: | |
| 2004 | $ 376 |
| 2005 | 376 |
| 2006 | 29 |
| $ 781 |
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 8, 2000, 3,000,000 ordinary shares of NIS 0.01 par value were offered by the Company in an initial public offering ("IPO") at a price of $ 10 per share (before underwriting discount and offering costs). An additional 450,000 ordinary shares of NIS 0.01 par value were purchased by the underwriters in September 2000, pursuant to an over allotment option which was fully exercised at the same price per share. The proceeds to the Company, $ 29.9 million, are net of 7% underwriting discount and offering costs of $ 2.1 million.
During 2003, the Company distributed to its shareholders approximately $ 3 million.
Since the Company at that time had insufficient retained earnings, the distribution was done by way of reduction of share premium, representing return of amounts paid in by shareholders, after due approval by an Israeli court order, in accordance to section 303 of the Israeli Companies Law.
Immediately upon issuance, the ordinary shares issuable upon the exercise of the options will confer on holders the same rights as the other ordinary shares.
The Board of Directors determines the exercise price and the vesting period of the options granted.
The options vest over three to five years.
Options not exercised will expire approximately 7 years after they are granted.
The 1998 Plan, in respect of Israeli employees, is subject to the terms stipulated by Section 102 of the Israeli Income Tax Ordinance. Inter alia, these terms provide that the Company will be allowed to claim, as an expense for tax purposes, the amounts credited to the employees as a benefit in respect of shares or options granted under the plan, as follows:
Through December 31, 2002, the amount that the Company will be allowed to claim as an expense for tax purposes will be the amount of the benefit chargeable to tax in the hands of the employee.
As from January 1, 2003, the amount that the Company will be allowed to claim as an expense for tax purposes, will be the amount of the benefit chargeable to tax as work income in the hands of the employee, while that part of the benefit that is chargeable to capital gains tax in the hands of the employee shall not be allowable. All being subject to the restrictions specified in Section 102 of the Income Tax Ordinance.
The aforementioned expense will be recognized in the tax year that the benefit is credited to the employee.
The following is a summary of the status of the 1998 Plan as of December 31, 2003, 2002 and 2001, and changes during the years ended on those dates:
| Years ended December 31, | ||||||
| 2003 | 2002 | 2001 | ||||
| Number | Weighted average exercise price | Number | Weighted average exercise price | Number | Weighted average exercise price | |
| Options outstanding at beginning of year | 1,676,720 | 3.24 | 2,019,320 | 3.45 | 738,220 | 4.36 |
| Changes during year: | ||||||
| Granted(a)(b) | 362,000 | 3.91 | 22,000 | 1.23 | 2,206,300 | 3.28 |
| Exercised | -311,100 | 1.14 | -32,000 | 0.57 | -38,000 | 0.64 |
| Forfeited | -69,520 | 1.58 | -332,600 | 4.64 | -887,200 | 3.89 |
| Options outstanding at end of year | 1,658,100 | 3.85 | 1,676,720 | 3.24 | 2,019,320 | 3.45 |
| Options exercisable at end of year | 657,190 | 4.17 | 575,475 | 3.01 | 297,820 | 1.50 |
| Weighted average fair value of options granted during the year(c) | $ 1.97 | $ 0.46 | $ 3.28 | |||
| (a) Including options granted to: | ||||||
| The Company's Chairperson of the Board of Directors, President and Chief Executive Officer | 80,000 | 1.65 | ||||
| Years ended December 31, | |||
| 2003 | 2002 | 2001 | |
| Dividend yield | 22% | 0% | 0% |
| Expected volatility | 38% | 29% | 121% |
| Risk-free interest rate | 1.5% | 3% | 5% |
| Expected average lives - in years | 2.56 | 2 | 2 |
| Options outstanding | Options exercisable | ||||||
| Range of exercise prices | Number outstanding at December31, 2003 | Weighted average remaining contractual life | Weighted average exercise price | Number exercisable at December31, 2003 | Weighted average remaining contractual life | Weighted average exercise price | |
| Years | Years | ||||||
| $ 1.23-1.65 | 514,000 | 4.99 | $ 1.63 | 253,500 | 4.99 | $ 1.62 | |
| $ 2.32 | 224,400 | 4.45 | $ 2.32 | 58,860 | 4.45 | $ 2.32 | |
| $ 3.35-3.84 | 264,000 | 6.8 | $ 3.82 | ||||
| $ 4.17 | 98,000 | 6.9 | $ 4.17 | ||||
| $ 5-5.875 | 453,900 | 3.92 | $ 5.67 | 281,350 | 3.83 | $ 5.55 | |
| $ 10.00 | 103,800 | 3.6 | $ 10.00 | 63,480 | 3.6 | $ 10.00 | |
| 1,658,100 | 4.94 | $ 3.85 | 657,190 | 4.31 | $ 4.17 | ||
On February 10, 2004, the Board of directors of the Company declared an additional dividend of $0.13 per share in respect of the year 2003.
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| December 31 | ||
| 2003 | 2002 | |
| (In thousands of U.S. dollars) | ||
| Accrued severance pay | $ 2 | |
| Research and development expenses | $ 7 | 12 |
| Amortization in respect of VeraBill product line | 1 | 90 |
| Dividend distributable from tax exempt income, see a. above | (908) | |
| Carryforward tax losses | 908 | 26 |
| 8 | 130 | |
| L e s s - valuation allowance | (130) | |
| * $ 8 | $ - | |
| December 31 | |||
| 2003 | 2002 | 2001 | |
| (In thousands of U.S. dollars) | |||
| Current - | |||
| Non-Israeli | $ 177 | $ 101 | $ 11 |
| Deferred, see e. above | (8) | 16 | (4) |
| $ 169 | $ 117 | $ 7 | |
| Years ended December 31, | ||||||
| 2003 | 2002 | 2001 | ||||
| (In thousands of U.S. dollars) | ||||||
| Income (loss) before taxes on income, as reported | ||||||
| in the statements of income* | $ 3,802 | 100% | $451 | 100% | $(4,472) | 100% |
| Theoretical tax expense (tax saving) | 1,369 | 36% | 162 | 36% | -1,610 | 36% |
| L e s s - tax benefits arising from approved enterprise status, see a. above | (418) | (11) | (158) | (35) | 1,565 | (35) |
| 951 | 25 | 4 | 1 | (45) | 1 | |
| Increase (decrease) in taxes resulting from permanent differences: | ||||||
Non-Israeli tax withholding which can not be offset against Israeli income tax |
177 | 5 | 101 | 22 | ||
Disallowable deductions |
14 | - | 8 | - | ||
Differences between the basis of measurement of income reported for tax purposes, and the basis of measurement of income for financial reporting purposes - net, see b. above |
38 | (1) | ||||
Increase in taxes in respect of tax losses incurred in the reported year for which deferred taxes were not created |
21 | 5 | 19 | - | ||
Decrease in taxes resulting from utilization, in the reported year, of carryforward tax losses for which deferred taxes were not created in previous years |
(965) | (25) | ||||
Other |
(8) | - | (9) | (2) | (13) | - |
Taxes on income |
$ 169 | 5% | $ 117 | 26% | $ 7 | -% |
| * As follows: | > | |||||
Taxable in Israel |
$ 3,792 | $ 441 | $ (4,482) | |||
Taxable outside Israel |
10 | 10 | 10 | |||
| $ 3,802 | $ 451 | $ (4,472) | ||||
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| December 31, 2003 | |||
| Israeli currency | Other non-dollar currencies** | ||
| Linked* | Unlinked | ||
| (In thousands of U.S. dollars) | |||
| Current assets: | |||
| Cash and cash equivalents | $ 33 | $ 211 | |
| Accounts receivable: | |||
| Trade | 493 | 779 | |
| Other | 702 | 70 | |
| $ 702 | $ 596 | $ 990 | |
| Current liabilities - | |||
| accounts payable and accruals: | |||
| Trade | $ 512 | $ 42 | |
| Other | 837 | 126 | |
| $ 1,349 | $ 168 | ||
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| December 31 | ||
| 2003 | 2002 | |
| (In thousands of U.S. dollars) | ||
| 1) Trade: | ||
Open accounts |
$ 2,455 | $ 2,426 |
Less - allowance for doubtful accounts, see also note 10c |
(274) | (400) |
| $ 2,181 | $ 2,026 | |
| 2) Other: | ||
Government of Israel |
$ 702 | $ 568 |
Prepaid expenses |
92 | 46 |
Employees |
30 | 43 |
Deferred income taxes, see note 7e |
8 | |
Related parties |
1 | 1 |
Sundry |
31 | |
| $ 864 | $ 658 | |
During the last quarter of 2003, the Company deposited an amount of $ 40 million with several banks for periods between seven and ten years. Under the arrangements with the banks, whether or not the deposits bear interest depends upon the rate of the three months LIBOR, as follows:
An amount of $ 14 million ("$14M deposit"):
For each day in which the three months dollar LIBOR is below on agreed annual fixed rate of 3% in the first year, 4% in the second year, 5% in the third year, 6% in the fourth year and 7% in the fifth to seventh year, the deposit bears interest at the rate of 8.56% per annum ("the positive interest rate"). On all other days the deposit does not bear any interest at all. The bank has a right to refund the deposit, and terminate this arrangement every six months.
An amount of $ 10 million:
Similar terms as the $14M deposit, except that the positive interest rate is 8.4% per annum.
An amount of $ 13 million:
For each day in which the three months dollar LIBOR is below an agreed annual fixed rate of 3% in the first year, 4% in the second year, 5% in the third year, 6% in the fourth year and 7% in the fifth to tenth year, the deposit bear interest of the rate of 9.7% per annum ("the positive interest rate"). On all other days the deposit does not bear any interest at all. The bank has a right to refund the deposits, and terminate this arrangement at each anniversary of the deposit.
An amount of $3 million:
For each day in which the three months dollar LIBOR is below an agreed annual fixed rate of 7% in the first to tenth year, the deposit bear interest at the rate of 7.9% per annum ("the positive interest rate"). On all other days the deposit does not bear any interest at all. The bank has a right to refund the deposit, and terminate this arrangement every six months.
The Company recognizes interest income based on the expected interest rate receivable which in the reported periods and as of December 31, 2003 is equal to the positive interest rate.
In 2002, the Company deposited an amount of $ 30 million with a bank for a period of three years. Under the arrangement with the bank, whether or not the deposits bear interest depends upon the rate of the LIBOR, as follows. For each day that the LIBOR is below a fixed agreed rate, the deposits bear interest at the rate of 7.25% per annum. On all other days the deposits do not bear any interest at all. The balance as of December 31, 2002, included accrued interest of approximately $ 1.6 million. The bank exercised its right to refund the deposits, and terminated this arrangement at the first anniversary of the deposits, in March 2003. In April 2003, the Company deposited $37 million in similar deposits which were refunded by the banks in October 2003.
| December 31 | ||
| 2003 | 2002 | |
| (In thousands of U.S. dollars) | ||
| Payroll and related expenses | $ 597 | $ 664 |
| Accrued vacation pay | 84 | 44 |
| Accrued expenses and sundry | 435 | 275 |
| $ 1,116 | $ 983 | |
Most of the Company's cash and cash equivalents at December 31, 2003 and 2002 were deposited with Israeli and U.S. banks. The Company is of the opinion that the credit risk in respect of those balances is insignificant.
Most of the Company's revenues have historically been from a large number of customers. Consequently, the exposure to credit risks relating to trade receivables is limited. The Company performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for doubtful accounts.
The fair value of the financial instruments included in the working capital of the Company and its subsidiaries is identical or close to their carrying value.
MIND C.T.I. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following are data regarding revenues classified by product lines:
| Years ended December 31, | |||
| 2003 | 2002 | 2001 | |
| (In thousands of U.S. dollars) | |||
| Product line "A" | $ 10,392 | $ 7,447 | $ 7,859 |
| Product line "B" | 2,544 | 2,561 | 2,610 |
| $ 12,936 | $ 10,008 | $ 10,469 | |
| Years ended December 31, | |||
| 2003 | 2002 | 2001 | |
| (In thousands of U.S. dollars) | |||
| America (mainly United States) | $ 2,368 | $ 2,869 | $ 2,520 |
| Asia Pacific and Africa | 3,479 | 2,860 | 3,693 |
| Europe | 6,005 | 3,364 | 3,176 |
| Israel | 1,084 | 915 | 1,080 |
| $ 12,936 | $ 10,008 | $ 10,469 | |
| Years ended December 31, | |||
| 2003 | 2002 | 2001 | |
| (In thousands of U.S. dollars) | |||
| Customer A | $ 1,033 | $ 1,826 | |
| Customer B | $ 1,180 | ||
| Customer C | $ 2,882 | $ 1,083 | |
| Customer D | $ 1,502 | ||
| Years ended December 31, | |||
| 2003 | 2002 | 2001 | |
| (In thousands of U.S. dollars) | |||
| b. Research and development expenses: | |||
| Expenses incurred: | |||
Payroll and related expenses | $ 2,176 | $ 2,525 | $ 3,276 |
Depreciation and amortization | 460 | 430 | 335 |
Non-cash compensation | 43 | 57 | |
Other | 683 | 725 | 755 |
| $ 3,319 | $ 3,723 | $ 4,423 | |
| c. General and administrative expenses: | |||
| The changes in allowance for doubtful accounts are composed as follows: | |||
Balance at beginning of year | $ 400 | $ 700 | $ 850 |
Increase (decrease) during the year | (5) | 107 | 1,053 |
Bad debt written off | (121) | (407) | (1,203) |
Balance at end of year | $ 274 | $ 400 | $ 700 |
| d. Financial and other income - net: | |||
| Income: | |||
Interest on bank deposits | $ 2,315 | $ 1,931 | $ 1,627 |
Non-dollar currency gains - net | 351 | 171 | 79 |
Capital gains on sale of property and equipment - net | 35 | ||
| 2,701 | 2,102 | 1,706 | |
| Expenses: | |||
Loss on sale of trading securities | 2 | ||
Bank commissions | 24 | 24 | 23 |
Non-dollar currency losses - net | 70 | ||
Capital loss on write-off of an investment | 93 | ||
| 94 | 24 | 118 | |
| $ 2,607 | $ 2,078 | $ 1,588 | |
| Years ended December 31, | |||
| 2003 | 2002 | 2001 | |
| (In thousands of U.S. dollars) | |||
| Weighted average number of shares issued and outstanding - used in computation of basic EPS | 20,732 | 20,677 | 20,654 |
| A d d - incremental shares from assumed exercise of options | 411 | 84 | * |
| Weighted average number of shares used in computation of diluted EPS | 21,143 | 20,761 | 20,654 |