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F.T.S. - FORMULA TELECOM SOLUTIONS LTD.

AND ITS SUBSIDIARIES

(An Israeli Corporation)

CONSOLIDATED INTERIM FINANCIAL STATEMENTS 

AS OF JUNE 30, 2008

F.T.S FORMULA TELECOM SOLUTIONS LTD. AND ITS SUBSIDIARIES

(An Israeli Corporation)

Formula Telecom Solutions Ltd. (FTS) Announces Interim Results

For the Six Months Ended June 30, 2008

London, UK | August 21, 2008: FTS (LSE: FTS), a global provider of Billing, CRM and Business Control solutions for communications and content service providers, today announced it's results for the six months ending June 30, 2008.

Highlights: 

'In the first six months of 2008 the growth in our operations exceeded the expectations of our Board of Directors,' said Amos Sivan, FTS' Chief Executive Officer. 'FTS has focused its efforts on the implementation of new contracts and succeeded in meeting the challenges of the competitive telecommunications market. We are extremely confident in our strong pipeline, breadth of products and roadmap and are currently negotiating several new projects, which we expect will materialize in the second half of the year. We are very pleased with our results, which would not have been possible without the commitment of our experienced management team and the dedication of our excellent employees. In line with our consistent track record of successful M&As, we will continue to examine potential fusions that will allow us to further increase our profitability and revenues.'

Commenting on recent share movements, CEO Sivan added: 'FTS has noted the recent decline in its share price, which was due to a forced sale, unrelated to FTS, by a shareholder who experienced difficulties and was forced to dispose of all his FTS holdings, amongst other holdings in his portfolio. FTS has an extensive pipeline and we expect to continue on the path of strong, stable growth.'

About Formula Telecom Solutions (FTS):

FTS (LSE: FTS) is a leading provider of Billing, CRM and Business Control solutions for communications and content service providers. By analyzing events from a business standpoint rather than just billing them, FTS allows providers to better understand their customer base and leverage business value from every event and interaction. FTS deploys its full range of end-to-end, stand-alone and add-on solutions to customers in over 40 countries and has implemented solutions in wireless, wireline, cable, content and broadband markets including multiple cross-network installations. Serving the evolving needs of both traditional and next generation service providers, the company's operations comprise of four international R&D locations and strategically-located sales support offices worldwide. In 2007, FTS was voted the 'Most Promising Company' at the prestigious TeleStrategies Billing and OSS World industry event.  

Chairman's Statement

I am pleased to report FTS' 2008 interim results for the six months to 30 June 2008.

FTS sells Next Generation Business Control and infrastructure software solutions for communications service providers. Our solutions enable providers to address the key issues of today's communication market: customer retention and revenue growth. By analyzing events from a business standpoint rather than just billing them, FTS allows providers to better understand their customer base and leverage business value from every event and interaction. FTS deploys its full range of solutions to customers worldwide and has implemented solutions in wireless, wire line, cable, content and broadband markets. The Company targets Tier-1 operators in developed markets with its business control solutions, as well as operators in emerging markets.

The telecoms market is evolving with the growth in IP based communication and continuing consolidation in the market. In response to market changes, providers are restructuring their businesses and aligning vendors to their future needs. This is both a challenge and long-term opportunity for FTS. FTS predicted these transformations in the industry and has been working aggressively to adapt the Company to the new market environment, as well as developing new products and services that meet the customers' ever changing requirements.

In the course of repositioning and re-branding its product line FTS recently announced the launch of Leap™ Billing & CRM - the next generation of its converged billing & CRM solutions.

The product suite has been designed to inherently unify billing and CRM information, providing a holistic view of all customer events and billing events and enabling in-depth service personalization. Based upon a process-driven design, the solution offers unparalleled flexibility, empowering service providers to quickly launch and easily manage multi-service offerings in-house in real time without vendor intervention.

Leap Billing & CRM is an end-to-end converged solution based on telecom-specific business processes that reflect the industry's best practices. The solution allows new business practices to be instantly implemented and new services, bundles and promotions to be rolled out immediately, without involving costly billing and CRM integration projects. In this way, Leap Billing & CRM offers a long-term, viable solution to the ever-evolving needs of telecom providers.

Initial market response is highly positive with strong feedback from industry analysts, industry press, potential partners and customers, stressing the real market need the Company is addressing and the superiority of the solutions it presents. FTS expects to continue its marketing efforts during the second half of 2008 to leverage this new momentum with a marketing and sales campaign to launch the new strategy and products. The Company anticipates this new positioning and the associated marketing campaign will result in market interest in its products and lead to new bid proposals. It is expected that some of these will materialize into contracts in the second half of 2008, although it is difficult to predict the exact timing.

Results

In the six months to 30 June 2008 total revenue increased by 6.5% to $16.351m (2007: $15.351m).  

Gross profit for the six months was $7.750m (2007: $7.450m), an increase of 4.0%.

Research and development expenditure in the six months to 30 June 2008 was $2.007m (2007: $2.635m), a decrease of 24%. This decrease was mainly due to diversion of R&D efforts towards delivery of projects. 

Sales and marketing costs in the six months to 30 June 2008 were $1.715m (2007: $2.300m), a decrease of 25%.  

General and administrative costs in the six months to 30 June 2008 were $2.294m (2007: $2.396m), a decrease of 4%. 

The Company's operating income in the six months to 30 June 2008 was $1.734m (2007: $0.119m). 

The financial income, net for the six months to 30 June 2008 was $0.236m (2007: financial income of $0.088m) which resulted from gains on securities and bonds, less interest paid on bank loans.

Net income for the six months to 30 June 2008 was $1.857m (2007: net income of $0.334m). 

Outlook

We believe that due to management's extensive efforts, this positive momentum will continue in the forthcoming years and will increase the Company's revenues and profitability as well.  

The board continues to believe that FTS is ideally placed to exploit the opportunities offered in both developed and emerging markets. We have a number of reasons to be confident that FTS can develop its business further in the future: the very positive response we have received from the repositioning and re-branding of our product line; our world-wide reach; and the multiple successful deployments of the full range of FTS solutions to our multi-player operator customers around the globe.

The Company is involved in a number of bid proposals which are at various stages of the sales cycle. We expect some of these to crystallize into contracts in the near future although it is difficult to predict the exact timing.

We also believe that our business control solutions based on our Leap BCE product will enable us to penetrate Tier-1 service providers in developed markets. We expect to continue on the path of strong, stable growth in the future, as we have an extensive pipeline and a consolidated roadmap of products and solutions.

Dan Goldstein

Chairman

To the shareholders of F.T.S - Formula Telecom Solutions Limited

We have reviewed the accompanying consolidated financial statements of F.T.S - Formula Telecom Solutions Limited (hereafter- 'the company'), which comprise of the balance sheet as of 30 June 2008, and the consolidated income statement, statement of changes in equity and consolidated cash flow statement for the period then ended, in accordance with International Financial Reporting Standards. All information included in these financial statements is the representation of the management of the company.

A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with International Financial Reporting Standards.

Tel-Aviv, Israel    August 21, 2008

 

	Ziv Haft
	Certified Public Accountants (Isr.)
	BDO Member Firm

 

Consolidated income statement for the period ended June 30, 2008

 

	Period ended June 30,				Year ended December 31,
	2008		2007		2007
	U.S. In thousands
	Unaudited				Audited
Revenues	16,351		15,351		32,105
Cost of sales	(8,601)		( 7,901)		(16,467)
Gross profit	7,750		7,450		15,638
Research and development expenses	(2,007)		(2,635)		(4,856)
Distribution costs	(1,715)		(2,300)		(4,413)
General and administrative expenses, net	(2,294)		(2,396)		(5,739)
Profit from operations	1,734		119		630
Finance expense	(182)		(225)		(484)
Finance income	418		313		1,157
Other operating expense	-		(1)		-
Profit before tax	1,970		206		1,303
Tax income (expense)	(113)		128		730
Profit for the period	1,857		334		2,033
Earnings per share:
Basic (dollars per share)	0.0568		0.0102		0.0623
Diluted (dollars per share)	0.0568		0.0102		0.0622

 

The accompanying notes form an integral part of the financial statements.

Consolidated statement of changes in equity for the period ended June 30, 2008

For the six months ended June 30, 2008:

 

	Share capital		Additional paid in capital		Retained earnings		Treasury share reserves		Total
	U.S. In thousands
	Unaudited
Balance at January 1, 2008	1		10,025		11,096		(463)		20,659
Changes during the six months             ended June 30, 2008:
Profit for the period	-		-		1,857		-		1,857
Issuance of employees' stock options	-		32		-		-		32
Balance at June 30, 2008	1		10,057		12,953		(463)		22,548

 

 

For the six months ended June 30, 2007:

	Share capital		Additional paid in capital		Retained earnings		Treasury share reserves		Total
	U.S. In thousands
	Unaudited
Balance at January 1, 2007	1		9,943		9,063		(463)		18,544
Changes during the six months      ended June 30, 2007:
Profit for the period	-		-		334		-		334
Issuance of employees' stock options	-		-		-		-		-
Balance at June 30, 2007	1		9,943		9,397		(463)		18,878

For the year ended December 31, 2007:

	Share capital		Additional paid in capital		Retained earnings		Treasury share reserves		Total
	U.S. In thousands
	Audited
Balance at January 1, 2007	1		9,943		9,063		(463)		18,544
Changes in equity for 2007:
Profit for the year	-		-		2,033		-		2,033
Issuance of employees' stock options	-		82		-		-		82
Balance at December 31, 2007	1		10,025		11,096		(463)		20,659

Consolidated balance sheet as of June 30, 2008

		30.6.2008		30.6.2007		31.12.2007
		U.S. In thousands
		Unaudited				Audited
ASSETS
Non-current assets:
Property, plant and equipment (PPE)		737		1,129		925
Intangible assets		7,687		7,624		7,646
Rental deposits		42		70		62
Long term unbilled receivables		-		243		-
Deferred tax assets		3,125		2,776		3,258
Total non-current assets		11,591		11,842		11,891
Current assets:
Other receivables and prepaid expenses		756		1,659		1,161
Current tax assets		2,199		1,549		1,786
Trade receivables		9,094		11,927		9,629
Other financial assets		4,500		5,325		5,165
Cash and cash equivalents		12,805		4,380		9,707
Total current assets		29,354		24,840		27,448
TOTAL ASSETS		40,945		36,682		39,339
LIABILITIES
Non-current liabilities:
Employee benefits, net		547		321		448
Total Non-current liabilities		547		321		448
Current Liabilities:
Other payables		3,735		4,357		3,760
Trade payables		6,060		3,518		4,040
Customer advances and deferred revenue		2,760		4,440		4,525
Short-term borrowings		5,295		5,168		5,907
Total current liabilities		17,850		17,483		18,232
Total liabilities		18,397		17,804		18,680
TOTAL NET ASSETS		22,548		18,878		20,659

	30.6.2008		30.6.2007		31.12.2007
	U.S. In thousands
	Unaudited				Audited
Capital and reserves attributable to    equity holders of the company
Share capital	1		1		1
Additional paid-in capital	10,057		9,943		10,025
Treasury share reserve	(463)		(463)		(463)
Retained earnings	12,953		9,397		11,096
TOTAL EQUITY	22,548		18,878		20,659

The financial statements were approved by the Board of Directors on August 21, 2008 and were signed on it's behalf by:

August 21, 2008
Date of approval		Dan Goldstein	Alon Raz	Amos Sivan
of financial statements		Chairman  of the Board	Chief Financial Officer	Chief Executive Officer and Director

Consolidated cash flow statement for the period ended June 30, 2008

		Period ended June 30,				Year ended December 31,
		2008		2007		2007
		U.S. In thousands
		Unaudited				Audited
Operating Activities:
Net profit (loss)		1,857		334		2,033
Adjustments for:
Depreciation and amortization		970		1,399		2,716
Gain from sale of property, plant and equipment		-		24		-
Deferred taxes		133		(242)		(725)
Employees' stock options		32		-		82
Cash flows from activities before changes    In working capital and provisions:
Decrease (increase) in short-term investments, net		665		111		271
Decrease (increase) in trade receivables		535		(1,837)		704
Decrease (increase) in other receivables prepaid expenses and rental deposits		425		(372)		135
Decrease (increase) in tax balances		(413)		(230)		(467)
Increase (decrease) in trade payables		2,006		236		754
Increase (decrease) in other payables		(25)		39		(558)
Increase in employee benefits		99		(32)		95
Increase (decrease) in customer advances  and deferred revenues		(1,765)		(2,310)		(2,225)
Cash generated from operations		4,519		(2,880)		2,815

Supplement disclosure on cash flow information

		Period ended June 30,				Year ended December 31,
		2008		2007		2007
		U.S. In thousands
		Unaudited				Audited
Cash flows from operating activities brought forward		-		-		2,815
Investing Activities:
Acquisition of business enterprise (Annex A)		-		(52)		(52)
Capitalization of software development costs		(677)		(1,177)		(2,203)
Proceeds from sale of PPE		-		1		-
Purchase of PPE		(132)		(137)		(217)
		(809)		(1,365)		(2,472)
Financing Activities:
Short-term bank borrowing, net		(682)		(2,066)		(1,497)
Other short-term credit		70		-		170
		(612)		(2,066)		(1,327)
Increase (decrease) in cash and cash equivalents		3,098		(6,311)		(984)
Cash and cash equivalents at beginning of period		9,707		10,691		10,691
Cash and cash equivalents at end of period		12,805		4,380		9,707
Non-cash activities:
Purchase of property and equipment against trade payables		51		67		50

Annex 'A' - Acquisition of business enterprise:

	Period ended June 30,				Year ended December 31,
	2008		2007		2007
	U.S. In thousands
	Unaudited				Audited
Customer contracts and related customer relationships	-		-		143
Property and equipment	-		-		17
Working Capital	-		-		(108)
	-		-		52

The directors of the Company are responsible for the financial information set out below.

NOTE 1 - ACCOUNTING POLICIES:

General:

F.T.S. - Formula Telecom Solutions Ltd (the 'Company') was founded in January 1997 under the law of the state of Israel.

The Company is a global provider of convergent telecom management solutions for mobile, fixed-line and advanced services operators. The Company provides a range of versatile solutions to the market, which include convergent real-time prepaid and postpaid billing and Customer Relationship Management ('CRM') order management, infrastructure management, Electronic Bill Presentation software, as well as call center implementations.

The Company operates in one operating segment.

Note 2 - Significant Accounting Policies:

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2007 are applied consistently in these interim consolidated financial statements.

NOTE 3 - FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING 

STANDARDS (IFRS):

Reconciliations and explanatory notes on how the transition to IFRS has affected profit and net assets previously reported under US Generally Accepted Accounting Principles are given below: 

Profit and loss account reconciliation for the period ended June 30, 2007:

 

			US GAAP		Adjustments		IFRS
	Sub-note		$'000		$'000		$'000
Revenue			15,351		-		15,351
Cost of sales			(7,901)		-		(7,901)
Gross profit			7,450		-		7,450
Research and development costs			(2,635)		-		(2,635)
Distribution costs			(2,300)		-		(2,300)
General and administrative expenses	B, C		(2,521)		125		(2,396)
Loss from operations			(6)		125		119
Finance costs			(225)		-		(225)
Finance income			313		-		313
Other income			(1)		-		(1)
Profit (loss) before tax			81		-		206
Tax income	D		159		(31)		128
Profit (loss) for the period			240		94		334

Balance sheet reconciliation as at June 30, 2007:

			US GAAP		Adjustments		IFRS
	Sub-note		$'000		$'000		$'000
ASSETS
Non-current assets:
Property, plant and equipment			1,129		-		1,129
Intangible assets	A		8,583		(959)		7,624
Severance pay fund	B		147		(147)		-
Rental deposits			70		-		70
Long term unbilled receivables			243		-		243
Deferred tax assets	A, D		-		2,776		2,776
Total non-current assets			10,172		1,670		11,842
Current assets:
Other receivables and prepaid expenses	A,E		4,817		(3,158)		1,659
Current tax assets	E		-		1,549		1,549
Trade receivables	C		12,927		(1,000)		11,927
Other financial assets			5,325		-		5,325
Cash and cash equivalents			4,380		-		4,380
Total current assets			27,449		(2,609)		24,840
TOTAL ASSETS			37,621		(939)		36,682
LIABILITIES
Non-current liabilities:
Employee benefits	B		637		(316)		321
Total Non-current liabilities			637		(316)		321
Current Liabilities:
Other payables			4,357		-		4,357
Trade payables			3,518		-		3,518
Customer advances and deferred revenue			4,440		-		4,440
Short-term borrowings			5,168		-		5,168
Total current liabilities			17,483		-		17,483
Total liabilities			18,120		(316)		17,804
TOTAL NET ASSETS AND EQUITY			37,621		(939)		36,682

Adjustments:

Explanations of the adjustments made to the US GAAP income statement and balance sheets are as follows:

A.    Deferred taxes in current assets were classified to non current assets in separate line in accordance with IAS 1.

B.    Employee benefits were calculated according to actuarial assumptions based on the 'projected unit credit' method in accordance with IAS 19. In addition, assets and liabilities were presented in net value.

C.    The company estimated its allowance for doubtful debts in accordance with IAS 39 - treatment in impairment of financial assets.

D.    The effect on deferred taxes due to changes made in employee benefits and allowance for doubtful debts.

E.    Current tax assets were classified from other receivables and prepaid expenses in separate line in accordance with IAS 1.

ENDIR SEWFSFSASEDA