In my statement last year and interim statement for 2004, I indicated that we could look forward to an improved trading performance. Our results for 2004 fully justify those predictions and confirm the upward trend in activity for which we have been positioning ourselves during the severe conditions of the last few years. Our strategy of developing innovative products to the market and strategic partnerships with major customers, combined with a rigorous control of expenditure and focus on margin improvement, have all combined to produce a significant improvement in our results. We were particularly proud to have been awarded “Best Performing Supplier” status by Nokia, confirming our rigorous approach to the standards of our products.  Our cash position remains extremely strong.

Turnover for the period was $41,218,000 (2003: $37,054,000), reflecting an increase of 11% compared with the prior year. This increase is primarily related to increased demand for new VOIP products and our successful OEM relationships, particularly with Nokia.

Gross profit was $18,206,000 (2003: $11,638,000) reflecting an increase of $6,568,000 or 56%. This increase was the result of the higher turnover for the year and improved gross profit margin. As a percentage of turnover, gross profit margin was 44.1% (2003: 31.4% and excluding a provision for write down inventory of $3,283,000: 40.2%). This increase was primarily related to a favorable shift in product mix in the Edgelink product family. Inventory write-down in 2003 related to legacy products in the US and did not recur in 2004.

Selling, general and administrative expenses were $13,044,000 during 2004 compared with $13,431,000 in 2003 reflecting a 3% decrease.We continue with the tight cost control programme that was instigated in 2003 whilst taking care to maintain both high quality customer service and an efficient operating environment.

Gross research and development expenditure in this period was $10,823,000 (2003: $11,247,000). However, after contributions from the Israeli Chief Scientist and from the European Community, net research and development expenditure was $9,909,000 (2003: $10,119,000). Although there was a small decrease (2%) in net spending on research and development, our focused effort on key IP development projects was not compromised. The decrease was primarily because we needed less spending to keep certain maturing product lines fresh.

Operating loss, before goodwill amortization amounted to $4,747,000 (2003: loss $11,912,000) a reduction of $7,165,000 or 60% compared with last year. This improvement in operating results is a result of the increase in gross profit and turnover. Additionally, improved inventory management in 2004 avoided the need for significant inventory write-off in contrast with 2003. Financial income was $1,702,000 (2003: $1,775,000) and reflected a decrease of 4%.

This decrease resulted from a slightly reduced level of average cash, short-term cash investments and long-term cash investments compared with 2003. The loss after taxes amounted to $12,781,000 (2003: loss $20,221,000), giving a loss per share of 3.29 cents (2003: loss 5.21 cents).

The balance sheet remains strong with cash and  near-cash investments of $50.7 million at the year-end (June 2004: $49.5m; December 2003: $51.1m) comprised as follows: Cash and deposits, up to three months duration, of $1.1 million; short-term deposits and bonds, up to one year, of $46.5 million; and long-term bond for more than one year of $3.1 million.

As indicated in our Interim statement the company has benefited from additional income of $ 410,000 from the sale of our 49.9% holding in Eldor Computers Limited.Research & DevelopmentOur Research and Development efforts are targeted at the technology revolution presently occurring in the communications industry. 

Some of our exciting new products designed to meet these emerging requirements are as follows:

"At a time when we have reversed a declining trend and enter a period of what we believe will be renewed growth in the Company’s activities, I would like to pay tribute to the commitment and efforts of all of our employees over the last few difficult years. I would particularly like to extend my gratitude to my executive board colleagues, led by Dr. Zvi Marom.  They have shown considerable skill in identifying the correct areas of focus for the Company and demonstrated enormous energy in carrying the Company through a most difficult period. I would also like to thank my non-executive board colleagues for their counsel and strategic support, which has been invaluable."

Daniel Goldman, who has been a non-executive director of the company since 1999, has indicated that, in order to be able to concentrate on his growing commercial interests, he will not be offering himself for re-election at the Annual General Meeting. "I would like to place on record our deepest thanks for his contribution to the Board during his period of office."

We have entered the new financial year in a spirit of quiet optimism.  Our improved trading performance is continuing and our relationships with our customers have never been stronger.  Our products have proven their quality and reliability in a highly challenging environment. We are firmly based, in every area of our operations, to take advantage of the opportunities that are presenting themselves in our industry, particularly the growth of Voice over IP and the use of Broadband.

I have every expectation that 2005 will prove to be the year in which the Company demonstrates that it has returned to a pattern of growth and profitability.

Peter Sheldon
17 March 2005

On July 2004 the company sold its Investment in Eldor Computers Limited (cost $743,000) in   exchange for 430,000 shares in Taldor Computer Systems Ltd valued at the date of sale at $1,153,000, giving a profit of $410,000, included in other income. 

1. Loss per share for the years ended 31 December 2004 and 31 December 2003 are calculated using an average 388,486,036 shares in issue in 2004 and an average 388,167,140 shares in issue in 2003.2. 
2. Reconciliation of movements in shareholders’ funds

Further copies of this announcement are available from the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.