RNS Number:2310D
Dmatek Ld
04 September 2007

  For immediate release, 7:00am 4th September 2007



Dmatek: Interim Results for the six months ended 30th June 2007

Sales & EBITDA Strengthen 70%



Dmatek Ltd. (LSE: DTK.L), the provider of leading electronic monitoring
technologies for the law enforcement and elderly care markets, today announces
its interim results for the six months ended 30th June 2007 for the first time
reported under International Financial Reporting Standards (IFRS):

                                                6 months ended     6 months ended     % change
                                                30th June 2007*    30th June 2006*
Revenues                                        $20.4m             $12.0m             +70%

Strong progress in line with plan - revenues up by 70% including the first 6 months of Pro Tech
acquisition.

Recurring revenues now comprise 66% of the total, giving us improved visibility.

Substantial increase in the number of customers reduces risk.

HomeFree sales grew strongly by 96%.

Gross profit margin                             58%                67%                -9%

Integration of Pro Tech is yielding results.

Pro Tech's lower gross profit margins improving.

EBITDA                                          $3.1m              $1.8m              +70%
EBITDA increases in line with sales.

Profit before tax                               $0.64m             $1.90m             -66%
Profitability during the first half impacted by non-cash items - depreciation & amortisation related to
Pro Tech and a charge for the cost of share options.

Financial income down due to lower cash balances after funding acquisition.

Going forwards, profits will benefit from improving gross margins and operational gearing.

Net profit                                      $0.51              $1.54m             -67%
Earning per share                               2c                 7c                 -67%
Net cash balances                               $6.6m              $18.1m             -63%
Cash generated from operations up 23% to $1.9m.

Balance sheet remains robust.

Pro Tech acquisition funded from cash.



Yoav Reisman, Chief Executive of Dmatek commented:


"We are pleased to have been able to achieve such strong progress so soon after
the completion of the transaction and expect additional acquisition benefits to
be realised as we move ahead. We are in a much stronger position in the US
thanks to the successful integration of Pro Tech's operations as well as
positive results from investing in Elmo-Tech customer facing operations. With
expected law enforcement market expansion world-wide and further growth in the
Eldercare market, we plan for profitable growth in the future."



Media & Investor Enquiries:

Dmatek Ltd.

Idit Mor/Dina Myers

Mobile: 07834 126 742

idit@dmatek.com; dinam@dmatek.com





Overview

Dmatek is pleased to report on strong progress made in the first 6 months of
2007 in line with plan. Revenue grew by 70% compared with the first half of
2006. Recurring revenues now comprise 66% of the total, thanks to growth in our
law enforcement business in the US and Europe, giving us increased visibility
going forwards. Our eldercare business grew 96% as sales growth resumed.

EBITDA was up by 70% in line with the expansion of our business.  Pre-tax
profit, however, was impacted by Pro Tech's higher manufacturing cost and the
depreciation on lease equipment, as the business is almost exclusively leases
rather than sales.  Other largely non-cash items including amortisation
associated with Pro Tech and a $0.6m charge for share options together with
lower financial income on reduced cash balances after funding the Pro Tech
acquisition also impacted pre-tax profit for the half year.

Going forwards, profits should benefit from improving gross margins, as we
reduce manufacturing costs and improve the efficiency of service and support,
and from operational gearing.

Pro Tech Acquisition

The Pro Tech acquisition was completed on the 12 of January this year. Pro Tech
operates in the US law enforcement market, and is market leader in GPS tracking.
The acquisition supports and enhances our position as the world's leading
equipment provider for offender monitoring applications. As expected, we are
already seeing significant strengthening of Dmatek's strategic foothold in North
America as Pro Tech's business continued to expand during the first half of the
year. Pro Tech's revenues for the first 6 months of 2007 were $7.3m, up 34% on
the corresponding period for 2006.

In line with our integration plans we have started to move manufacturing to our
Tel Aviv facility and are in the process of assigning service tasks to our
Florida facility. We saw some gross profit margin improvement from Pro Tech in
the first half and expect to see further improvement in the second half of the
year.

We have successfully integrated back office systems and are already undertaking
some joint R&D projects and more are planned for the future. Sales and marketing
for Pro Tech have remained independent as planned, and have been stepped up.

We are pleased with the way the acquisition of Pro Tech was accepted by
customers and the market. We have increased the number of customers in both Pro
Tech and Elmo-Tech during the period, and have seen no adverse effect on either
customer base despite the certain overlaps.



Law Enforcement Market

Revenues from our global law enforcement business which comprises Elmo-Tech and
Pro Tech, increased  66% to $16.9m over the same period last year (8% on a like
for like basis i.e. including Pro Tech in the 2006 comparatives) and from a much
larger customer base. Revenues increased in all territories.  Sales revenues
were down by $1.5m, whereas lease and support service revenues grew by $8.2m.
This shift to a much greater proportion of recurring revenues gives  us the
benefit of better visibility and the larger customer base, reducing risk. Both
were integral to the rationale for the Pro Tech acquisition.

United States (US)

We have always identified the US as a key market with significant potential for
us. Over the last few years, we have been looking for ways to fully exploit this
potential.  In particular, we determined some time ago that we wanted to move
from a single distribution channel to multiple channels and diversify from our
once sale-only delivery option.  Elmo-Tech has been successfully shifting in
this direction and the process has been speeded up significantly by the
acquisition of Pro Tech.

US revenues for the period increased 153% to $9.4m over the same period last
year.  A further breakdown shows a considerable increase in lease revenues,
which now make 76% of our US law enforcement business, against a reduction in
sales revenues from our historical distribution channel, leading to a total
increase of 3% on a like for like basis.  Whereas Pro Tech's business model has
always been lease based, Elmo-Tech, which has traditionally focused on sales is
now shifting more towards leases as its distribution broadens.

The period's revenues generally reflect the expansion of existing customer
accounts as well as new clients taken on by both Elmo-Tech and Pro Tech. Our
strengthened law enforcement business is now geared towards long-term customer
relationships and steady revenues, providing the group with a much stronger
visibility of future revenue pipeline.

We see continued progress in the general US offender monitoring market, which
still has significant growth ahead. Similar to our previous estimates, recent
data released by the US National Institute of Justice points to approximately
125,000 offenders who are electronically monitored and estimates that by
year-end 2008, this number will push towards 200,000. The Institute further
suggests that this increase will occur largely as a result of the implementation
of a number of state legislative mandates regarding Global Positioning System
(GPS) tracking of offenders.



Europe

We continued to expand our business in Europe, which is a mixture of sales and
leases, showing 16% growth over the first 6 months of 2006 to $6.4m (H1 2006:
$5.6m).  Our strong market position across the continent enables us to benefit
from the continued expansion of the installed base.



Electronic monitoring in Europe continued to expand during the period, both in
the number of units and in scope.  The programmes in Spain and in France have
grown by over 50% each compared to the same period in 2006. Smaller programmes
in Estonia and Denmark also expanded during the period.



Interest from Eastern Europe in the concept and benefits of offender monitoring
is increasing as evidenced by our recently announced new electronic monitoring
programme in Russia. Some of the countries in the region suffer from
exceptionally high offender population rates second only to the US, which we
believe may drive them to implement remote offender monitoring programmes.



Rest of the World

Revenues from our law enforcement business in the rest of the world, increased
to $1m, (H1 2006: $0.9m).



Eldercare Market

HomeFree revenues nearly doubled in comparison to the corresponding period last
year to $3.5m (H1 2006: $1.8m) and our order book was enhanced since the
beginning of the year.

Our strategy for HomeFree is to pursue higher value deals, by targeting larger
facilities and multi-facility management companies.   During the period, we saw
an increase in the number of orders from larger facilities and are also
beginning to see repeat orders from management companies as they add new
facilities and expand the systems in existing facilities.




IFRS First Report Effects



We have made the transition to IFRS this year and so 2006 comparatives have been
restated.  The changes are small and are mainly presentational, resulting in the
restatement of employee benefits and share-based payment transactions.



 The combined effect of the IFRS restatement on the P&L for the six months ended
30 June 2006 and the year ended 31 December 2006 was an increase in the cost of
revenues and operational costs by $126,000 and $119,000 respectively.



The IFRS effect on the balance sheet was a decrease in equity as follows: a
decrease of $286,000 on 1 January 2006, of $412,000 on 30 June 2006, and of
$504,000 on 31 December 2006.





Financial Review



Revenues for the period grew by 70%.  This includes a full six months from Pro
Tech.  If Pro Tech had been part of the group for the corresponding period, the
increase would have been 17%.


                              H1 2007       %           H1 2006         %           Increase
                              $'000                     $'000
Sales                         7,000         35%         6,922           58%         1%
Lease                         11,595        56%         3,410           28%         240%
Service & Support             1,759         9%          1,630           14%         8%
Total                         20,354        100%        11,962          100%        70%



Recurring revenues in total have increased to 66% of the all revenues (H1 2006:
42%), giving us a more visible revenue stream. The increase in leases as a
proportion of revenues to 56% was due mainly to Pro Tech, but also to increased
lease business for Elmo-Tech.  A side effect of this is that revenues from
service and support, which are typically bundled into lease agreements, will
reduce.



As expected, the proportion of revenues from the US rose - by 141% - thanks to
the addition of Pro Tech and the increase in HomeFree sales.  The US now
accounts for 62% of group revenues (up from 44% in the corresponding period of
2006).


                        H1 2007       %         H1 2006       %         Increase
                        $'000                   $'000
USA                     12,692        62%       5,258         44%       141%
Europe                  6,646         33%       5,811         49%       14%
ROW                     1,016         5%        893           7%        14%
Total                   20,354        100%      11,962        100%      70%



In terms of the business split, it is pleasing to note that even with the Pro
Tech acquisition pushing law enforcement revenues up by 66%, the Eldercare
market still accounts for a significant portion of the business.


                        H1 2007       %         H1 2006       %         Increase
                        $'000                   $'000
Law Enforcement         16,887        83%       10,190        85%       66%
Eldercare               3,467         17%       1,772         15%       96%
Total                   20,354        100%      11,962        100%      70%



Gross profit margins were lower at 58% for the half year (H1 2006: 67%).  This
reflects the addition of Pro Tech, where margins have historically been
substantially lower than at the Dmatek group. Pro Tech's margins have improved
under our management and are expected to increase further as we complete Pro
Tech's integration into the group.



EBITDA grew to $3.1m, an increase of 70% over the corresponding period, in line
with the revenue increase and in line with our plans.  However, depreciation was
much higher as a result of the Pro Tech acquisition.


Our investment in R&D amounted to 17% of revenue (H1 2006: 18%) and grew by 58%,
reflecting our existing business efforts, those of Pro Tech and our joint
projects.  Sales and marketing costs increased by $1.2m, mainly in the US, to
$3.9m. General & Admin expenses increased from $2.2m in H1 2006 to $3.8m in H1
2007, the majority of which is attributed to not cash items.



Operating profit was therefore $0.6m, down from $1.2m in H1 2006.



Finance income was down on the prior year because of lower cash balances, and
the effective tax rate was slightly higher than in the previous period.  We are
currently planning for a full year effective tax rate of approximately 20%. The
profit attributable to shareholders was $0.5, compared to $1.6 for H1 2006.



In terms of cash flow, we generated $1.9m from operations, up 23% on H1 2006.
Even after funding the acquisition of Pro Tech amounting to $12.3m net of cash
acquired, and other non-current asset purchases of $0.6m, we ended the period
with net cash balances of $6.6m.  Our financial position therefore remains
robust.



Outlook

We are better positioned than ever to take advantage of the opportunities ahead.

The law enforcement market is continuing to expand across the world. The change
in Elmo-Tech's positioning and the Pro Tech acquisition have put us in a much
stronger position in the US and we are pleased to have been able to achieve such
strong progress so soon after the completion of the transaction. Our European
business is also expanding as we continue our close cooperation with European
administrations.  We expect continued growth in our current markets and see the
possibility of new markets in Eastern Europe. With expected law enforcement
market expansion world-wide and further acquisition benefits yet to be realised,
we are confident of profitable growth in the future.

We are encouraged by HomeFree's return to significant growth and we look forward
to continued business expansion.  We are constantly seeking further expansion
opportunities through new technologies or by gaining access to new markets.



The Board of Directors of

Dmatek Ltd.





Review of the unaudited interim consolidated financial statements

as at 30th June, 2007 and for the six-month period then ended



At your request, we have reviewed the accompanying interim consolidated balance
sheet of Dmatek Ltd. and its subsidiaries ("the Company") as at 30th June, 2007,
and the related interim consolidated statements of income, changes in equity and
cash flows for the six month period then ended. Management is responsible for
the preparation and presentation of this interim consolidated financial
information in accordance with IAS 34, "Interim Financial Reporting". Our
responsibility is to express a conclusion on this interim consolidated financial
information based on our review.



We conducted our review in accordance with the International Standard on Review
Engagements 2410, "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity". A review of interim consolidated financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing and consequently does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.



We received review reports of other auditors regarding the interim financial
statements of certain consolidated subsidiaries, whose assets constitute
approximately 3.76% of total consolidated assets as at 30th June, 2007 and whose
revenues constitute approximately 6.66% of the total consolidated revenues of
the six-month period then ended.



The financial statements do not include disclosure regarding segments as
required in International Accounting Standard No. 14 due to the reasons
described in Note 2(Q).



Based on our review, with the exception of the disclosure described above
regarding segments, including the reading of the review reports of other
auditors as stated above, nothing has come to our attention that causes us to
believe that the accompanying interim consolidated financial information as at
30th June, 2007 is not prepared, in all material respects, in accordance with
IAS 34, "Interim Financial Reporting".





Somekh Chaikin

Certified Public Accountants (Isr.)

Member Firm of KPMG International



Tel Aviv, Israel

3rd September, 2007



CONSOLIDATED INCOME STATEMENT




                                                                                                      Year ended
                                                                     Six months ended 30th June    31st December
                                                                           2007            2006             2006
                                                                        US$'000         US$'000          US$'000
                                                                    (Unaudited)     (Unaudited)        (Audited)

Revenue                                                                 20,354          11,962           26,834

Cost of revenues                                                        (8,592)         (3,903)          (9,113)

Gross profit                                                            11,762           8,059           17,721

Research and development expenses                                       (3,377)         (2,132)         (4,174)

Selling and marketing expenses                                          (3,924)         (2,711)          (5,547)

General and administrative expenses                                     (3,828)         (2,189)          (4,208)

Other income (expenses), net                                                (2)            178              206

Operating profit                                                           631           1,205            3,998

Financial income                                                           215             854            1,248

Financial expenses                                                        (206)           (163)            (285)
Net finance income (expenses)                                                9             691              963

Profit before income tax                                                   640           1,896            4,961

Income tax expense                                                        (129)           (356)            (824)

Profit for the period                                                      511           1,540            4,137

Attributable to:

Equity holder of the Company                                               508           1,515            4,126

Minority interest                                                            3              25               11

Profit for the period                                                      511           1,540            4,137

Basic earnings per share (in U.S. dollars)                                 0.02            0.07             0.19
Diluted earnings per share (in U.S. dollars)                               0.02            0.07             0.18



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



CONSOLIDATED BALANCE SHEET




                                                                                                          As at
                                                                              As at 30th June     31st December
                                                                         2007            2006              2006
                                                                      US$'000         US$'000           US$'000
                                                                  (Unaudited)     (Unaudited)         (Audited)

Assets
Property, plant and equipment                                        4,656            1,818               2,272
Intangible assets                                                   10,580            2,279               3,692
Deferred tax assets                                                    552              536                 557
Total non-current assets                                            15,788            4,633               6,521

Inventories                                                          4,393            2,151               2,864
Trade and other receivables                                         12,354            7,675              10,526
Deposits                                                                 -                -              12,500
Cash and cash equivalents                                            8,041           18,523               8,667
Total current assets                                                24,788           28,349              34,557
Total assets                                                        40,576           32,982              41,078

Liabilities
Employee benefits                                                      333              288                 306
Total non-current liabilities                                          333              288                 306

Bank overdraft                                                       1,427              419                 654
Loans and borrowings                                                     -              350               3,374
Trade and other payables                                             7,801            5,453               7,501
Total current liabilities                                            9,228            6,222              11,529
Total liabilities                                                    9,561            6,510              11,835

Equity
Share capital                                                           70               69                  69
Share premium and reserves                                          20,465           19,145              19,319
Retained earnings                                                   10,373            7,140               9,751
Total equity attributable to equity holders of the Company          30,908           26,354              29,139

Minority interest                                                      107              118                 104

Total equity                                                        31,015           26,472              29,243

Total equity and liabilities                                        40,576           32,982              41,078




These financial statements have approved by the Board of Directors on 3rd
September, 2007 and were signed on its behalf by:



Yoav Reisman - Director                                                     Asher Zysman - Director
CEO                                                                         CFO



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



CONSOLIDATED CASH FLOW STATEMENTS




                                                                                                      Year ended
                                                                     Six months ended 30th June    31st December
                                                                          2007             2006             2006
                                                                       US$'000          US$'000          US$'000
                                                                   (Unaudited)      (Unaudited)        (Audited)

Cash flows from operating activities
Profit for the period                                                   511            1,540           4,137
Adjustments for:
Depreciation and amortization                                         2,439              606           1,160
Net finance (Income)                                                    (9)             (691)           (963)
Equity-settled share-based payment transactions                         607              213             383
Income tax expense                                                      129              356             824
                                                                      3,677            2,024           5,541

Increase in inventories                                              (1,192)            (427)         (1,140)
Decrease (increase) in trade and other receivables                    1,379            1,824          (1,027)
Increase (decrease) in trade and other payables                      (1,917)           1,028           2,268
Increase in employee benefits                                            27              101             119
                                                                     (1,703)           2,526             220

Income tax paid                                                        (124)            (386)           (875)
Net cash from operating activities                                    1,850            4,164           4,886

Cash flows from investing activities
Cash in escrow                                                       12,500                -         (12,500)
Acquisition of property, plant and equipment and intangible            (618)            (650)         (2,263)
assets
Acquisition of newly consolidated subsidiary (see A)                (12,306)               -               -
Net cash used in investing activities                                  (424)            (650)        (14,763)

Cash flows from financing activities
Exercise of options                                                     540               25              29
Loan repayment                                                            -                -            (350)
Short-term loans, net                                                (3,374)          (3,347)             27
Financial Income                                                         215              854           1,248
Financial expenses                                                     (206)            (163)           (285)
Net cash from (used in) financing activities                         (2,825)          (2,631)            669

Increase (decrease) in cash and bank overdraft                       (1,399)             883          (9,208)

Cash and bank overdrafts at beginning of period                       8,013           17,221          17,221
Cash and bank overdrafts at end of period                             6,614           18,104           8,013

Cash and bank overdrafts at end of period comprise:
Cash and cash equivalents                                             8,041           18,523           8,667
Overdrafts                                                           (1,427)            (419)           (654)
                                                                      6,614           18,104           8,013










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


CONSOLIDATED CASH FLOW STATEMENTS (cont'd)




                                                                                                      Year ended
                                                                     Six months ended 30th June    31st December
                                                                           2007            2006             2006
                                                                        US$'000         US$'000          US$'000
                                                                    (Unaudited)     (Unaudited)        (Audited)


A.        Acquisition of newly consolidated subsidiary
 (see Note 4)

Net current assets                                                     1,214            -               -
Net non-current assets                                                 3,831            -               -
                                                                                        -               -
Intangible assets:                                                                      -               -
Intellectual properties and related assets                             6,900            -               -
Goodwill                                                               1,948            -               -
Capitalized cost (paid in 2006)                                       (1,587)           -               -

Net current assets                                                     12,306           -               -







NOTES TO THE INTERIM FINANCIAL STATEMENTS

AS AT 30TH JUNE 2007

(UNAUDITED)





Note 1 - General



(a)        DMATEK Ltd. ("DMATEK" or "the Company") and its subsidiaries ("the
Group") operate in the field of electronic monitoring of moving objects. The
Group develops, manufactures, and markets its products utilizing a combination
of hardware and software based on its technologies. In addition, certain
subsidiaries provide maintenance services for the Group's products.



(b)        The Company's ordinary shares have been listed on the Official List
of the London Stock Exchange since April 2000. Prior to that date and commencing
from December 1995, the Company's ordinary shares were listed on AIM.



(c)        On 12 January, DMATEK acquired 100% of the Pro Tech Monitoring, Inc.
share (see Note 4).





Note 2 - Significant Accounting Policies



DMATEK is a company domiciled in Israel. The consolidated interim financial
statements of the Group for the six months ended 30th June 2007 comprise the
Company and its subsidiaries.



The consolidated interim financial statements were authorised for issuance on
3th September, 2007.



A.        Statement of compliance



The consolidated interim financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRSs) for interim financial
statements. These are the Group's first IFRS consolidated interim financial
statements for part of the period covered by the first IFRS annual financial
statements and IFRS 1 First-time adoption of International Financial Reporting
Standards has been applied. The consolidated interim financial statements do not
include all of the information required for full annual financial statements.



An explanation of how the transition to IFRSs has affected the reported
financial position, financial performance and cash flows of the Group is
provided in Note 11. This note includes reconciliations of equity and profit or
loss for comparative periods reported under Israeli GAAP (previous GAAP) to
those reported for those periods under IFRSs.





B.        Basis of preparation



The financial statements are presented in U.S. dollar ("dollar"), which is the
Group's functional currency. All financial information presented in dollar has
been rounded to the nearest thousand and prepared on the historical cost basis.



Note 2 - Significant Accounting Policies (cont'd)



B.        Basis of preparation (cont'd)



Non-current assets and disposal groups held for sale are stated at the lower of
carrying amount and fair value less costs to sell.



The preparation of interim financial statements in conformity with IAS 34
Interim Financial Reporting requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. Actual results may differ from
these estimates.



These consolidated interim financial statements have been prepared on the basis
of IFRSs in issue that are effective or available for early adoption at the
Group's first IFRS annual reporting date, 31st December 2007. Based on these
IFRSs, the Board of Directors have made assumptions about the accounting
policies expected to be adopted (accounting policies) when the first IFRS annual
financial statements are prepared for the year-ended 31st December 2007.



The IFRSs that will be effective or available for voluntary early adoption in
the annual financial statements for the period ended 31 December 2007 are still
subject to change and to the issue of additional interpretation(s) and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period that are relevant to this interim financial information will
be determined only when the first IFRS financial statements are prepared at 31st
December 2007.



The preparation of the consolidated interim financial statements in accordance
with IAS 34 resulted in changes to the accounting policies as compared with the
most recent annual financial statements prepared under previous GAAP. The
accounting policies set out below have been applied consistently to all periods
presented in these consolidated interim financial statements. They also have
been applied in preparing an opening IFRS balance sheet at 1st January 2006 for
the purposes of the transition to IFRSs, as required by IFRS 1. The impact of
the transition from previous GAAP to IFRSs is explained in Note 11.



The accounting policies have been applied consistently throughout the Group for
purposes of these consolidated interim financial statements.





C.        Basis of consolidation



(i)         Subsidiaries



Subsidiaries are entities controlled by the Group. Control exists when the Group
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that presently are exercisable or convertible
are taken into account. The financial statements of subsidiaries are included in
the consolidated interim financial statements from the date that control
commences until the date that control ceases.



(ii)        Transactions eliminated on consolidation



Intragroup balances, and any unrealised gains and losses or income and expenses
arising from intragroup transactions, are eliminated in preparing the
consolidated interim financial statements.



 Note 2 - Significant Accounting Policies (cont'd)



D.        Foreign currency



(i)         Foreign currency transactions



Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated to
dollar at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in profit or loss.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date of
the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to dollar at foreign
exchange rates ruling at the dates the fair value was determined.



(ii)        Financial statements of foreign operations



The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, generally are translated to dollar
at foreign exchange rates ruling at the balance sheet date. The revenues and
expenses of foreign operations, excluding foreign operations in
hyperinflationary economies, generally are translated to dollar at rates
approximating the foreign exchange rates ruling at the dates of the
transactions.



(iii)       Rates of exchange and linkage terms



Monetary balances in foreign currency, or linked thereto or linked to the
Israeli consumer price index ("CPI") are presented at the representative
exchange rates at the balance sheet date, or according to the index to which the
corresponding balance is linked to, as appropriate.



Following are details regarding increase (decrease) in the rates of the Israeli
CPI and exchange rates of non-dollar currencies relative to the US dollar:


                                                                                                 Year ended
                                                                 Six months ended 30th June     31st December
                                                                    2007            2006            2006
                                                                      %               %               %


Israeli CPI                                                            1               1.6            (0.1)
New Israeli shekels (NIS)                                            (0.6)             3.7             8.9
Australian dollars (AUD)                                              7.5              1.2             7.7
Euro                                                                  2.1              7.4             11.3
Swedish kroner (SEK)                                                 (0.1)             9.6             15.8
English pound (GBP)                                                   2.1              6.2             13.7



Note 2 - Significant Accounting Policies (cont'd)



E.         Derivative financial instruments



(1)        The gains and losses on derivative financial instruments held as
hedging instruments for firm commitments and anticipated transactions are
deferred, and are recognized in the same period in which the gains and losses
from the hedged transactions are recognized.



(2)        Derivative financial instruments, not held for hedging, are stated in
the financial statements at their fair value.  Changes in fair value are
recognized as incurred as part of the financing item.



The fair value of derivative financial instruments is determined on the basis of
their market values or the quotations of financial institutions. In the absence
of a market value or financial institution quotation the fair value is
determined on the basis of a valuation model.





F.         Property, plant and equipment



Property, plant and equipment are presented at cost less accumulated
depreciation and amortization. Depreciation is charged to profit or loss on a
straight-line basis over the estimated useful lives of each part of an item of
the property, plant and equipment.

Leasehold improvements are amortized over the shorter of the lease period or the
estimated useful life of the asset.

When parts of an item of fixed assets have different useful lives, those
components are accounted for as separate items of property, plant and equipment.



Annual rates of depreciation and amortization are as follows:


                                                                                               %


Computers                                                                                     33
Equipment and moulds                                                                        7-25
Leasehold improvements                                                                        10



Depreciation methods, useful lives and residual values area reassessed at the
reporting date.





G.        Intangible assets



(i)         Goodwill



All business combinations are accounted for by applying the purchase method.
Goodwill has been recognised in acquisitions of subsidiaries, associates and
joint ventures.



Note 2 - Significant Accounting Policies (cont'd)



G.        Intangible assets (cont'd)



Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units and is no longer amortised but is tested
annually for impairment (see accounting policy O). In respect of associates, the
carrying amount of goodwill is included in the carrying amount of the investment
in the associate.



Negative goodwill arising on an acquisition is recognised directly in profit or
loss.



(ii)        Research and development



Expenditure on research activities undertaken with the prospect of gaining new
scientific or technical knowledge and understanding, is recognised in profit or
loss as an expense as incurred.



(iii)       Other intangible assets



Intangible assets other than goodwill (patents, trademarks and intellectual
property) that are acquired by the Group are stated at cost less accumulated
amortisation (see below) and impairment losses (see accounting policy O).



Expenditure on internally generated goodwill and brands is recognised in profit
or loss as an expense as incurred.



(iv)       Subsequent expenditure



Subsequent expenditure on capitalised intangible assets is capitalised only when
it increases the future economic benefits embodied in the specific asset to
which it relates. All other expenditure is expensed as incurred.



(v)        Amortisation



Amortisation is charged to profit or loss on a straight-line basis over the
estimated useful lives of intangible assets unless such lives are indefinite.
Goodwill and intangible assets with an indefinite useful life are tested
systematically for impairment at each annual balance sheet date. Other
intangible assets are amortised from the date that they are available for use.
The estimated useful lives are as follows:



patents and trademarks 7 - 10 years



Note 2 - Significant Accounting Policies (cont'd)



H.        Inventories



Inventories are stated at the lower of cost and net realizable value. Cost is
calculated for raw materials on the basis of the average purchase prices. Cost
is determined for finished goods and work-in-progress on the basis of the
average purchase prices of raw materials plus subcontractors and direct labor
costs.



Net realizable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses.





I.          Allowance for doubtful accounts



The allowance for doubtful accounts is computed on the specific identification
basis for accounts whose collectability, in management's estimation, is
uncertain.





J.         Cash and cash equivalents



Cash and cash equivalents comprises cash balances and call deposits with an
original maturity of three months or less. Bank overdrafts that are repayable on
demand and form an integral part of the Group's cash management are included as
a component of cash and cash equivalents for the purpose of the statement of
cash flows.





K.        Deferred income taxes



Deferred income taxes are provided using the balanced sheet liability method.
Accordingly, the Group companies create deferred taxes in respect of temporary
differences. Temporary differences are differences between the value of assets
and liabilities for tax purposes and for financial reporting purposes. Deferred
tax balances (asset or liability) are calculated according to the tax expected
to be in force when the deferred tax liability is utilized, or when the deferred
tax asset is realized, on the basis of tax rates and tax laws, the legislation
of which has been completed or essentially completed as at balance sheet date.



The computation of deferred taxes has not taken into account taxes that would
have been applicable in case of future realization of investments in
subsidiaries, since the Group does not contemplate such realization in the near
future. In addition, excluded from the computation were also deferred taxes in
respect of dividends distribution within the Group for cases in which such
dividend distributions by subsidiaries are expected to be tax-exempt.



Note 2 - Significant Accounting Policies (cont'd)



L.         Provisions



A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, when appropriate, the risks specific to the
liability.



(i)         Warranties



A provision for warranties is recognised when the underlying products or
services are sold.

The Group generally warrants its products for a period of one year. The
provision with respect to these warranties is computed at 2% of the revenues,
based on the Group's previous experience and managements estimated.





M.       Employee benefits



(i)         Defined contribution plans



Obligations for contributions to defined contribution pension plans are
recognised as an expense in profit or loss as incurred.



(ii)        Defined benefit plans



The Group's net obligation in respect of defined benefit post-employment plans,
including pension plans, is calculated separately for each plan by estimating
the amount of future benefit that employees have earned in return for their
service in the current and prior periods. That benefit is discounted to
determine its present value, and the fair value of any plan assets is deducted.
The discount rate is the yield at the balance sheet date on Israeli government
bonds that have maturity dates approximating the terms of the Group's
obligations. The calculation is performed by a qualified actuary using the
projected unit credit method.



All actuarial gains and losses at 1 January 2006, the date of transition to
IFRSs, were recognised. The Group recognises actuarial gains and losses that
arise subsequent to 1 January 2006 to the profit and loss accounts.



(iii)       Share-based payment transactions



The share option programme allows Group employees to acquire shares of the
Company. The fair value of options granted is recognised as an employee expense
with a corresponding increase in equity. The fair value is measured at grant
date and spread over the period during which the employees become
unconditionally entitled to the options. The fair value of the options granted
is measured using the Monte-Carlo valuation method, taking into account the
terms and conditions upon which the options were granted. The amount recognised
as an expense is adjusted to reflect the actual number of share options that
vest except where forfeiture is only due to share prices not achieving the
threshold for vesting.



Note 2 - Significant Accounting Policies (cont'd)



N.        Revenue recognition



Revenues are recognized upon shipment of products or as services are rendered,
when title has been transferred and collectability is reasonably assured.



Revenues from leased products are recognized over the period of the lease
contract.





O.        Impairment



The carrying amounts of the Group's assets, other than inventories (see
accounting policy H), employee benefit assets (see accounting policy M), and
deferred tax assets (see accounting policy K), are reviewed at each balance
sheet date to determine whether there is any indication of impairment. If any
such indication exists, the asset's recoverable amount is estimated (see
accounting policy O(i)).



For goodwill, intangible assets that have an indefinite useful life and
intangible assets that are not yet available for use, the recoverable amount is
estimated at each annual balance sheet date.



An impairment loss is recognised whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment losses are
recognised in profit or loss unless the asset is recorded at a revalued amount
in which case it is treated as a revaluation decrease.



Impairment losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to the
cash-generating unit (group of units) and then, to reduce the carrying amount of
the other assets in the unit (group of units) on a pro rata basis.



(i)         Calculation of recoverable amount



The recoverable amount of assets is the greater of their net selling price and
value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset. For an asset that does not generate largely independent cash inflows,
the recoverable amount is determined for the cash-generating unit to which the
asset belongs.



An impairment loss in respect of goodwill is not reversed.



In respect of other assets, an impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount.



An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net
of depreciation or amortisation, if no impairment loss had been recognised.



Note 2 - Significant Accounting Policies (cont'd)



P.         Earnings per ordinary share



The Group presents basic and diluted earnings per share (EPS) data for its
ordinary shares.

Basic EPS is calculated by dividing the profit or loss attributable to ordinary
shareholders of the Company by the weighted average number of ordinary shares
outstanding during the period.

Diluted EPS is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary shares
outstanding for the effects of all dilutive potential ordinary shares, which
comprise share options granted to employees.



Q.        Segment reporting



The Group generates revenues from sale, lease and maintenance of electronic
monitoring products in the law enforcement and the elderly care fields (as
presented in Note 3).  The revenues are segmented geographically due to the fact
that the two businesses operate in what the Group considers to be a highly
competitive and narrow sector within the electronic monitoring market.
Furthermore, the Group deems this true and fair disclosure without exposing the
Group to significant business risks and therefore Segment reporting is not
presented according to IAS 14.



R.        New standards and interpretations not yet effective



The Group has not applied the following IFRSs and IFRIC interpretations that
have been issued but are not yet effective:



1.         The IASB issued IFRS 8 "Operating Segments" in December 2006. This
will replace IAS 14 "Segment Reporting". IAS 14 required identification of two
sets of segments - one based on related products and services, and the other on
geographical areas. Under IFRS 8 The identification of segments is based on the
information about the components of the entity that management uses to make
decisions about operating matters. IFRS 8 is effective for annual accounting
periods beginning on or after January 1, 2009 and is not expected to have a
material effect on the consolidated financial statements.



2.         The IASB issued IAS 23 "Borrowing Costs" in march 2007, which
supersedes IAS 23, revised in 1993. The amendments eliminate the option
available under the previous version of the standard to recognize all borrowing
costs immediately as an expense, to the extent that borrowing costs relate to
the acquisition, construction or production of a qualifying asset. The revised
Standard requires that they be capitalized as part of the cost of that asset.
All other borrowing costs should be expensed as incurred. The revised Standard
becomes mandatroy for the Group's 2009 financial statements, and is not expected
to have a material effect on the consolidated financial statements.



3.         The IFRIC issued interpretation IFRIC 13 "Customer loyalty programmes
" in June 2007. IFRIC 13 addresses accounting by entities that grant loyalty
award credits (such as 'points' or travel miles) to customers who buy other
goods or services. Specifically, it explains how such entities should account
for their obligations to provide free or discounted goods or services ('awards')
to customers who redeem award credits. The interpretation is effective for
annual accounting periods beginning on or after July 1, 2008 and is not expected
to have a material effect on the consolidated financial statements.



Note 2 - Significant Accounting Policies (cont'd)



R.        New standards and interpretations not yet effective (cont'd)



4.         The IFRIC issued interpretation IFRIC 14 "IAS 19 - The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction" in
July 5, 2007. IFRIC 14 addresses three issues: (A) when refunds or reductions in
future contributions should be regarded as 'available' in the context of
paragraph 58 of IAS 19 Employee Benefits; (B) how a minimum funding requirement
might affect the availability of reductions in future contributions; and (C)
when a minimum funding requirement might give rise to a liability. An entity
shall apply this Interpretation for annual periods beginning on or after
January 1, 2008 and is not expected to have a material effect on the
consolidated financial statements.





Note 3 - Revenue
                                                                                                   Year ended
                                                                  Six months ended 30th June     31st December
                                                                     2007            2006             2006
                                                                    US$'000         US$'000         US$'000
                                                                  (Unaudited)     (Unaudited)      (Audited)


Composition:
Revenue from sale of products                                       7,000           6,922          16,347
Revenue under lease agreements                                     11,595           3,410           7,450
Revenue from maintenance and services                               1,759           1,630           3,037
                                                                   20,354          11,962          26,834

Analysis of revenue by geographic
 markets and business:

Law Enforcement Business
United states                                                       9,440           3,727           7,705
Europe                                                              6,439           5,571          12,150
Rest of the world                                                   1,008            892            2,666
                                                                   16,887          10,190          22,521
Eldercare Business
United States                                                       3,252           1,531           3,744
Europe                                                               207             240             413
Rest of the world                                                     8               1              156
                                                                    3,467           1,772           4,313
All Group
United States                                                      12,692           5,258          11,450
Europe                                                              6,646           5,811          12,563
Rest of the world                                                   1,016            893            2,821
                                                                   20,354          11,962          26,834



Note 4 - Pro Tech Acquisition



On 12 January, 2007, Dmatek acquired 100% of the Pro Tech Monitoring, Inc.
share, by Pro Tech Holdings, Inc., a fully-owned subsidiary of Dmatek. The
combined purchase price was US$ 12,500,000 divided into payment for the entire
issue share capital of Pro Tech (US$6,304,045) and payment for the credit note
issued by Pro Tech to the former owner, RMS (US$6,195,955). The amount was
settled in cash from the existing reserve that as of 31st December, 2006 was
held by an escrow account of Pro Tech Holdings, Inc. The overall acquisition
cost was US$14.1 million.



Pro Tech Monitoring Inc. is a privately owned US based, specialized in people
tracking technology as a developer and system vendor offering a range of GPS
products.



The acquisition is accounted for under the purchase method of accounting. The
purchase price of Pro Tech Monitoring Inc. has been allocated based on
independent appraisals and management estimates.



The assets and liabilities recorded in connection with the PPA for the Pro Tech
Monitoring Inc. acquisitions are based upon preliminary estimates of fair values
for the acquired assets and liabilities.

Actual adjustment will be based on the final appraisals and other analysis of
fair values, which are in process.  The Company expects to complete the PPA
during 2007.  The Company does not expect the difference between the preliminary
and final PPA for this business acquisition to have a material impact on its
results of operations or financial position.



The allocation of the acquisition cost is as follows:
                                                                                                   Fair value
                                                                                                 $ in thousands


Tangible assets:
Net current assets                                                                                       1,408
Net non-current assets                                                                                   3,831

Intangible assets:
Intellectual properties and related assets                                                               6,900
Goodwill                                                                                                 1,948

Total fair value                                                                                        14,087





In the six months ended 30th June, 2007, the subsidiary contributed revenue of
$7.3m.





Note 5 - Income taxes



Current tax



Current tax expense for the interim periods presented is the expected tax
payable on the taxable income for the period, calculated as the estimated
average annual effective income tax rate applied to the pre-tax income of the
interim period.



The Company and its subsidiaries, Elmo-Tech and HomeFree, are "Industrial
Companies" as defined in the Israeli Law for the Encouragement of Industry
(Taxes) - 1969, and as such, are entitled to certain tax benefits, primarily
increased depreciation rates, the right to deduct public offering costs and the
amortization of patents and other intangible property. Based on this Law,
commencing 2002, the Company, Elmo-Tech and HomeFree submit consolidated tax
returns.



The Company's foreign subsidiaries are assessed for tax purposes individually
according to each company's local tax rules at a tax rate of 30% to 35%.



Substantially all of the Company's subsidiaries', Elmo-Tech and HomeFree, have
been granted approved enterprise status programs, as provided by the Israeli Law
for the Encouragement of Capital Investments - 1959 ("Investments Law"). The tax
benefits derived from approved enterprise status relate only to taxable income
attributable to approved enterprise investments.



Current tax for current and prior periods is classified as a current liability
to the extent that it is unpaid. Amounts paid in excess of amounts owed are
classified as a current asset.



Deferred tax



The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using the estimated average annual effective income tax rate for the interim
periods presented.



The primary components of the entity's recognised deferred tax assets include
temporary differences related to employee benefits, provisions and other items,
and the value of tax loss carry-forwards recognised.



The primary components of the entity's deferred tax liabilities include
temporary differences related to property, plant and equipment, intangible
assets.



Deferred tax expense arises from the origination and reversal of temporary
differences, the effects of changes in tax rates and the benefit of tax losses
recognised. The primary component of deferred tax expense for the six months
ended 30 June 2007 is related to a decrease in deferred tax relating primarily
to property, plant and equipment, intangible assets.



Reconciliation of effective tax rate



The current tax expense for the six months ended 30 June 2007 was calculated
based on the estimated average annual effective income tax rate of 20.2 percent
(six months ended 30 June 2006: 17.0 percent), as compared to the tax rates
expected to be enacted or substantively enacted at the annual balance sheet date
of 15 percent (six months ended 30 June 2006: 15 percent). Differences between
the estimated average annual effective income tax rate and statutory rate
include but are not limited to the effect of tax rates in foreign jurisdictions,
non-deductible expenses, tax incentives not recognised in profit or loss, the
effect of tax losses utilised and under (over) provisions in previous years.



Note 6 - Change in Equity
                                                  Share
                                 Share           premium          Retained         Minority
                                capital        and reserves       earnings         interest          Total
                                US$'000          US$'000          US$'000          US$'000          US$'000


Six months ended
 30th June, 2007:

Balance at
 1st January, 2007
 (Audited)                     69              19,319           9,865            104              29,357

Changes during
 the period
 (Unaudited):
Exercise of options            1               539              -                -                540
Share base payment             -               607              -                -                607
Profit for the period          -               -                508              3                511
Balance at
 30th June, 2007
 (Unaudited)                   70              20,465           10,373           107              31,015

Six months ended
 30th June, 2006:

Balance at
 1st January, 2006
 (Audited)                     69              18,907           5,625            93               24,694

Changes during
 the period
 (Unaudited):
Exercise of options           * -              25               -                -                25
Share base payment             -               213              -                -                213
Profit for the period          -               -                1,515            25               1,540
Balance at
 30th June, 2006
 (Unaudited)                   69              19,145           7,140            118              26,472

Year ended
 31st December,
 2006:

Balance at
 1st January, 2006
 (Audited)                     69              18,907           5,625            93               24,694

Changes in 2006
 (Audited):
Exercise of options            *-              29               -                -                29
Share base payment             -               383              -                -                383
Profit for the year            -               -                4,126            11               4,137
Balance at
 31st December,
 2006 (Audited)                69              19,319           9,751            104              29,243



* Less than one thousand dollars.



Note 7 - Earnings per share



Basic earnings per share



The calculation of basic earnings per share was based on the following data:


                                                                                                   Year ended
                                                                  Six months ended 30th June     31st December
                                                                     2007            2006             2006
                                                                    US$'000         US$'000         US$'000
                                                                  (Unaudited)     (Unaudited)      (Audited)


Profit attributable to shareholders                                       508           1,515           4,126

Weighted average number of ordinary shares
 outstanding during the period                                         22,017          21,841          21,893

Basic earnings per ordinary share (in US dollars)                        0.02            0.07            0.19




Diluted earnings per share



The calculation of diluted earnings per share was based on the following data:


                                                                                                      Year ended
                                                                     Six months ended 30th June    31st December
                                                                           2007            2006             2006
                                                                        US$'000         US$'000          US$'000
                                                                    (Unaudited)     (Unaudited)        (Audited)


Profit attributable to shareholders                                        508           1,515           4,126

Weighted average number of ordinary shares
 (diluted) during the period                                            22,886          22,387          22,495

Diluted earnings per ordinary share (in US dollars)                       0.02            0.07            0.18






Note 8 - Employee Benefits



A.        Israeli labor laws and agreements require the Company to pay severance
pay to dismissed or retiring employees (including those leaving their employment
under certain other circumstances).  The calculation of the severance pay
obligation was made in accordance with labor agreements in force and based on
salary components, which in Management's opinion, create entitlement to
severance pay.





B.        The Israeli company's severance pay liabilities to its employees are
funded partially by regular deposits with recognized severance pay funds in the
employees' names and by purchase of insurance policies and are accounted as
defined benefit plans.





Employee benefits are comprised as follows:

                                                                
                                                                                                        As at
                                                                           As at 30th June          31st December
                                                                        2007            2006             2006
                                                                       US$'000         US$'000         US$'000
                                                                     (Unaudited)     (Unaudited)      (Audited)


Present value of the obligation                                           1,590            1,329            1,430
Fair value of individual plan assets                                      1,257            1,041            1,124

Liability for defined benefit obligation                                    333              288              306



The Group makes contributions to defined benefit plans that provided pension
benefits for employees upon retirement or post employment.




Note 8 - Employees Benefits (cont'd)



Movements in the liability for defined benefit obligation:


                                                                                                     As at
                                                                        As at 30th June          31st December
                                                                     2007            2006             2006
                                                                    US$'000         US$'000         US$'000
                                                                  (Unaudited)     (Unaudited)      (Audited)

Liability for defined benefit obligation at                              1,337           1,146            1,146
January 1
Benefits paid                                                              (16)            (65)            (155)
Current service costs and interest                                         128             128              227
Actuarial losses (gains)                                                    82             (17)              11
Foreign exchange losses (gains)                                            (12)             43              107

Liability for defined benefit obligation as at
 the end of the period                                                   1,519           1,235            1,336





Movement in the individual plan assets


                                                                                                     As at
                                                                        As at 30th June          31st December
                                                                     2007            2006             2006
                                                                    US$'000         US$'000         US$'000
                                                                  (Unaudited)     (Unaudited)      (Audited)

Fair value of the individual assets at January                           1,125             958              958
1
Contribution paid                                                           88              83              166
Benefits paid                                                              (16)            (56)            (136)
Expected return on individual assets                                        23              28               33
Actuarial gains (losses)                                                    46              (9)              14
Foreign exchange gains (losses)                                            (9)              37               89

Fair value of the individual assets at the end
 of the period                                                           1,257           1,041            1,124





Note 8 - Employees Benefits (cont'd)



Expenses recognized in profit or loss:


                                                                                                     As at
                                                                        As at 30th June          31st December
                                                                     2007            2006             2006
                                                                    US$'000         US$'000         US$'000
                                                                  (Unaudited)     (Unaudited)      (Audited)


Current service costs                                                       100               94              188
Interest on obligation                                                       28               34               40
Expected return on individual assets                                       (23)             (28)             (33)
PV of contribution                                                           21               20               42
Net actuarial gain (loss) in the period                                      36              (8)              (3)
                                                                            162              112              234





Actuarial assumptions:



a)         The calculations for all periods presented are based on the following
demographic assumptions about future characteristics of current employees who
are eligible for benefits:



i)          Mortality rates are based on the Ministry of Finance insurance
circular 2007-1-3, reflecting the latest mortality assumptions in Israel,
including future mortality improvements.



ii)         Disability rates are based upon the pension circular 2000/1 of the
Ministry of Finance (Israel).



iii)         The leave rate assumed is derived from the experience of the
Company. leave rates are assumed to be dependent on the number of service years,
as follows:


                                                                            Without entitlement
     Number of service years        With entitlement to severance              to severance


                0                                0 %                               13%
               1 +                               3%                                10%



iv)        Retirement age: 67 for men, 64 for women.



Note 8 - Employees Benefits (cont'd)



Actuarial assumptions: (cont'd)



b)         The calculations are based on the following financial assumptions:



i)          The discount rate used is based on the yield of fixed-interest
Israeli government bonds with duration equal to the duration of the gross
liabilities:


Valuation Date                       Duration of Liabilities           Discount Rate

31st December 2006                   6.47 years                        3.66%
30th June 2006                       6.50 years                        3.90%
30th June 2007                       6.47 years                        2.75%





ii)         The salary pattern is based on the experience analysis from the
company. The future real salary increase is assumed to be 4.0% per age year.



Note 9 - Share-based payments



The Option Plans of the Group are administered by the Board of Directors, which
designates the optionees and dates of grant. Under the Share Option Plans, the
exercise price of an option could be set with a maximum discount of 10% of the
fair market value of the Company's Ordinary Shares (as determined on the grant
date). However, for all grants made in the years 2003 - 2007, the exercise price
of the options was set as the fair market value of the Company's Ordinary
Shares. The options are generally granted with a vesting period of up to three
years and are non-assignable except by the laws of descent. According to the
Share Option Plans, the options are subject to certain vesting conditions and
are exercisable for a period of ten years from the grant of options. The grantee
is responsible for all personal tax consequences arising out of the grant and
exercise of the options.



Note 9 - Share-based payments (cont'd)



The terms and conditions of the grants are as follows; all options are to be
settled by physical delivery of shares:



                                               Number of                                        Contractual
                                               options in                                       life of
Grant date / employees entitled                thousands        Vesting conditions              options


4/8/1999 Dir.                                   990,461         3                               10
4/8/1999 Emp.                                   270,000         3                               10

23/3/2000 Dir.                                  75,000          3                               10
16/11/2000 Dir.                                 39,000          3                               10
1/2/2000 Emp.                                   230,000         3                               10
16/7/2000 Emp.                                  10,000          3                               10

1/3/2001 Dir.                                   85,000          3                               10
1/3/2001 Emp.                                   318,000         3                               10
11/10/2001 Emp.                                 63,500          3                               10

2/1/2002 Emp.                                   10,000          3                               10
24/2/2002 Emp.                                  15,000          3                               10
7/4/2002 Emp.                                   60,000          3                               10
30/12/2004 Emp.                                 910,705         3                               10

2/6/2005 Dir.                                  215,000          4                               10
2/6/2005 Dir.                                  185,000          3                               10
30/12/2005 Emp.                                 94,500          3                               10

25/1/2007 Emp.                                  100,000         3                               10
26/4/2007 Dir.                                  525,000         0-3                             10

                                                4,196,166





During the six months ended 30th June 2007, the Company granted 625,000 options
to its directors and employees. The CEO has been granted 500,000 options and the
balance related to employees under a new U.S. tax program and to a new
appointment of director. The U.S tax program and the grant for the directors
including the CEO have been approved by the AGM on April 26, 2007.



Note 9 - Share-based payments (cont'd)



The number and weighted average exercise prices of share options is as follows:


                                                    30th June, 2007         30th June, 2006       31st December, 2006


                                                             Weighted                Weighted                Weighted
                                                  Number      average     Number      average     Number      average
                                                    of       exercise       of       exercise       of       exercise
                                                  options      price      options      price      options      price
                                                                 #                       #                       #
                                                (Unaudited) (Unaudited) (Unaudited) (Unaudited)  (Audited)   (Audited)


Outstanding at the beginning of the period       2,066,374     0.902     2,141,359     0.905     2,141,359     0.905
Forfeited during the period                       60,166       1.603      16,666       1.084      59,818       0.944
Exercised during the period                       269,541      0.956      10,000       1.270      15,167       1.127
Granted during the period                         625,000      1.526         -           -           -           -
Outstanding at the end of period                 2,361,667     1.043     2,114,693     0.902     2,066,374     0.902

Exercisable at the end of period                 1,586,888     0.988     1,173,631     0.87      1,460,471     0.873



The fair value of services received in return for share options granted is based
on the fair value of share options granted, measured using a Monte Carlo model,
with the following inputs:


                        Number of    Vesting   Contractual  Risk free   Expected  Exercise      Share  Fair value  at
Date of grant             options    periods     life of    interest   volatility    price      price    grant date
                                     (years)     options      rate
                                                                %           %          #          #           #


30st December, 2004 -   1,405,205      3 - 4         10       2.76 -      34.07 -     0.85 -     0.89 -     0.42 - 
31st December, 2005                                           4.41        76.15        1.2       1.23       0.62

1st January, 2007 -       625,000      0 -  3        10       4.59 -      28.91 -     1.35 -     1.35 -     0.49 - 
30th June, 2007                                               5.11        56.34       1.56       1.56       0.64





Note 9 - Share-based payments (cont'd)



Risk free interest rate is based on US government bond.



The expected volatility is based on the historic volatility (calculated based on
the weighted average remaining life of the share options), adjusted for any
expected changes to future volatility due to publicly available information.



The expenses derived from equity settled share based payment transactions are as
follow:


                                                                                                   Year ended
                                                                  Six months ended 30th June     31st December
                                                                     2007            2006             2006
                                                                    US$'000         US$'000         US$'000
                                                                  (Unaudited)     (Unaudited)      (Audited)


Cost of revenues                                                            5              13              27
Research and development expenses                                          41              38              76
Selling and marketing expenses                                             21              47              96
General and administrative expenses                                       540             115             184

                                                                          607             213             383



Note 10 - Financial Income/Expenses


A.        Financial expenses
                                                                                                   Year ended
                                                                  Six months ended 30th June     31st December
                                                                     2007            2006             2006
                                                                    US$'000         US$'000         US$'000
                                                                  (Unaudited)     (Unaudited)      (Audited)


Interest payable on short-term bank loans                                 127              89             144
Bank fees and others                                                       79              42             141

Total financial expenses                                                  206             131             285




B.        Financial income
                                                                                                   Year ended
                                                                  Six months ended 30th June     31st December
                                                                     2007            2006             2006
                                                                    US$'000         US$'000         US$'000
                                                                  (Unaudited)     (Unaudited)      (Audited)


Interest receivable, primarily from bank deposits                         118             352              627
Foreign currency exchange gains, net                                       97             470              621

Total financial income                                                    215             822            1,248



Note 11 - Explanation of transition to IFRSs



As stated in note 1(a), these are the Group's first interim consolidated
financial statements for part of the period covered by the first IFRS annual
consolidated financial statements prepared in accordance with IFRSs.



The accounting policies in Note 2 have been applied in preparing the interim
consolidated financial statements for the six months ended 30 June 2007, the
comparative information for the six months ended 30 June 2006, the financial
statements for the year ended 31 December 2006 and the preparation of an opening
IFRS balance sheet at 1 January 2006 (the Group's date of transition).



In preparing its opening IFRS balance sheet, comparative information for the six
months ended 30 June 2006 and financial statements for the year ended 31
December 2006, the Group has adjusted amounts reported previously in financial
statements prepared in accordance with previous GAAP.



An explanation of how the transition from previous GAAP to IFRSs has affected
the Group's financial position and financial performance is set out in the
following tables and the notes that accompany the tables.



Note 11 - Explanation of transition to IFRSs (cont'd)



A.        Reconciliation of equity
                                     1 January, 2006             30 June, 2006               31 December, 2006
                                               Effect of                   Effect of                   Effect of
                                     Previous  transition        Previous  transition        Previous  transition
                              Note   GAAP      to IFRS   IFRSs   GAAP      to IFRS   IFRSs   GAAP      to IFRS  IFRSs
                                     U.S.$'000                   U.S.$'000                   U.S.$'000


Assets
Property, plant and equipment        ** 1,647  -        1,647    ** 1,818  -        1,818    ** 2,272  -        2,272
Intangible assets                    2,688     (282)    2,406    2,491     (212)    2,279    3,842     (150)    3,692
Deferred tax assets                  -         506      506      -         536      536      -         557      557
Total non-current assets             4,335     224      4,559    4,309     324      4,633    6,114     407      6,521

Inventories                          ** 1,724  -        1,724    ** 2,151  -        2,151    ** 2,864  -        2,864
Trade and other receivables          ** 9,723  (224)    9,499    7,999     (324)    7,675    10,933    (407)    10,526
Deposits                             -         -        -        -         -        -        12,500    -        12,500
Cash and cash equivalents            17,625    -        17,625   18,523    -        18,523   8,667     -        8,667
Total current assets                           (224)    28,848   28,673    (324)    28,349   34,964    (407)    34,557

Total assets                         33,407    -        33,407   32,982    -        32,982   41,078    -        41,078



*          Restated - The Company has performed a restatement for the six months
ended 30th June 2006.  The effect on the balance sheet and on profit and loss is
to increase share premium and general and administrative expenses by $94
thousand.


**        Reclassified. - The Company reclassified monitoring systems from
inventories to fixed assets.


Note 11 - Explanation of transition to IFRSs (cont'd)


A.        Reconciliation of equity (cont'd)

                                     1 January, 2006            30 June, 2006               31 December, 2006
                                              Effect of                  Effect of                  Effect of
                                     Previous transition        Previous transition        Previous transition
                              Note   GAAP     to IFRS   IFRSs   GAAP     to IFRS   IFRSs   GAAP     to IFRS  IFRSs
                                     U.S.$'000                  U.S.$'000                  U.S.$'000


Liabilities
Employee benefits                    300     (113)     187      394     (106)     288      441     (135)     306
Total non-current liabilities        300     (113)     187      394     (106)     288      441     (135)     306

Bank overdraft                       404      -        404      419      -        419      654      -        654
Loans and borrowings                 3,697    -        3,697    350      -        350      3,374    -        3,374
Trade and other payables             4,425    -        4,425    5,453    -        5,453    7,501    -        7,501
Total current liabilities            8,526    -        8,526    6,222    -        6,222    11,529   -        11,529
Total liabilities                    8,826   (113)     8,713    6,616   (106)     6,510    11,970  (135)     11,835
Minority interest                    93      (93)      -        118     (118)     -        104     (104)     -
                                     8,919   (206)     8,713    6,734   (224)     6,510    12,074  (239)     11,835
Equity
Share capital                        69       -        69       69       -        69       69       -        69
Share premium                        18,385   -        18,385   18,410   -        18,410   18,414   -        18,414
Reserves                             123      399      522     (*) 217   518      735      265      640      905
Retained earnings                    5,911   (286)     5,625    7,552   (412)     7,140    10,256  (505)     9,751
Total equity attributable to
 equity holders of the company       24,488   113      24,601   26,248   106      26,354   29,004   135      29,139

Minority interest                    -        93       93       -        118      118      -        104      104
Total equity                         24,488   206      24,694   26,248   224      26,472   29,004   239      29,243

Total equity and liabilities         33,407   -        33,407   32,982   -        32,982   41,078   -        41,078


Note 11 - Explanation of transition to IFRSs (cont'd)



B.        Reconciliation of profit
                                              For the six months ended                For the year ended
                                                    30 June, 2006                      31 December, 2006
                                          Previous     Effect of                           Effect of
                                            GAAP      transition               Previous    transition
                                                          to                                   to
                           Note          Restated(*)     IFRS        IFRSs       GAAP         IFRS       IFRSs
                                        US$'000                             US$'000


Revenue                                    11,962                    11,962      26,834                  26,834
Cost of revenues                           (3,890)          (13)     (3,903)     (9,086)        (27)     (9,113)

Gross profit                                8,072           (13)      8,059      17,748         (27)     17,721

Research and
 development
 expenses                                  (2,094)          (38)     (2,132)     (4,098)        (76)     (4,174)
Selling and
 marketing
 expenses                                  (2,663)          (48)     (2,711)     (5,450)        (97)     (5,547)
General and
 administrative
 expenses                                  (2,162)          (27)     (2,189)     (4,189)        (19)     (4,208)
Other income, net                               -           178         178           -          206        206

Operating profit                            1,153           (52)      1,205       4,011         (13)      3,998
Financial income                              854             -         854       1,248           -       1,248
Financial expenses                           (163)            -        (163)       (285)          -        (285)
Net finance costs                             691             -         691         963           -         963
Other income,net                              178          (178)          -         206        (206)          -

Profit before
 income tax
 expense                                    2,022          (126)      1,896       5,180        (219)      4,961

Income tax
 expense                                     (356)            -        (356)       (824)          -        (824)

Profit for the
 period                                     1,666          (126)      1,540       4,356        (219)      4,137

Attributable to:
Equity holder of
 the company                                1,641          (126)      1,515       4,345        (219)      4,126
Minority interest                              25             -          25          11           -          11

Profit for the
 period                                     1,666          (126)      1,540       4,356        (219)      4,137

Basic earnings
 per share (in
 U.S. dollars)                               0.08         (0.01)       0.07        0.20       (0.01)       0.19

Diluted earnings
 per share
 (in U.S. dollars)                           0.07             -        0.07        0.19       (0.01)       0.18


            (*)  Restated - see Note 11(A)


Note 11 - Explanation of transition to IFRSs (cont'd)


Notes to the reconciliation of equity


C.        Summary of significant differences between IFRS and Israeli GAAP


1.         Employee benefits


Under Israeli GAAP, the Group recorded liabilities for the severance pay on an
undiscounted basis as if it was payable at the balance sheet date. Under IFRS,
these liabilities are accounted as defined benefit plans (as more fully
described in Note 8).


Under Israeli GAAP, certain deposits related to severance pay in central funds
to manage the Group's exposure in respect of certain employee liability were
deducted from the liability. The income in respect of these assets was also
deducted from the employee benefit expenses.


The effect on the balance sheet is to decrease liabilities for Employee benefits
by $ 113 thousand at 1st January, 2006 by $106 thousand at 30th June 2006 and by
$ 135 thousand at 31st December, 2006. The effect on the profit and loss for the
six months ended 30th June 2006 and the year ended 31st December, 2006 are to
increase cost of general and administrative expenses by $7 thousand and a
decrease of $22 thousand, respectively.



2.         Share-based payment transactions


Under Israeli GAAP, all share-based payments granted after 15 March, 2005 that
have not yet vested by the effective date of the Standard (1st January, 2006)
should be applied.


Under IFRS, all share-based payments granted after 7th November, 2002 that have
not yet vested by the transition date of the company (1st January, 2006) should
be applied.


The Company changed its method of valuation for share-based awards (B&S model)
and thus used the Monte-Carlo valuation method which is more accurate as the B&S
model do not allow for the use of dynamic assumptions about interest rates,
expected volatility, exercise behavior etc. Instead, a single input must be used
for each of these assumptions. Because of the limitations of closed-form models,
statement IFRS-2 indicates that the use of a more complex lattice model such as
binominal trees or Monte Carlo lattice based model that will take into account
employee exercise patterns based on changes in the company's stock price and
other variables, and allow for the use of other dynamic assumptions, may result
in a better valuation of the typical employee stock option when the data
necessary to perform the calculations are available.


The effect on the balance sheet is to increase equity for reserves by $399
thousand at 1st January, 2006, by $518 thousand at 30th June, 2006 and by $640
thousand at 31st December, 2006.


The effect on the profit and loss for the six months ended 30th June, 2006 and
the year ended 31st December, 2006 are to increase cost of revenues, research
and development expenses, selling and marketing expenses and general and
administrative expenses by $119 and $241 thousand, respectively.


Note 11 - Explanation of transition to IFRSs (cont'd)


Notes to the reconciliation of equity


C.        Summary of significant differences between IFRS and Israeli GAAP
(cont'd)


3.         Gains on sale of property, plant and equipment

Gains on sale of property and equipment are classified under Israeli GAAP as
other income outside the operating results.  Under IFRS, such gains are
classified as other gains within the operating results.


4.         Classifications in accordance with IFRS

The following items have been reclassified:


a.         Provisions have been separated from other payables and employee
benefits.

b.         Deferred Tax have been separated from other receivables



5.         Minority Interest


Under Israeli GAAP, the share of minority shareholders in the net assets of
subsidiary is presented as "Minority Interests" in the consolidated balance
sheet. Also the minority interests are presented in the statement of operations.


Under IFRS, the "Minority interests" is presented in the consolidated balance
sheet as a separate component in the equity.


Note 11 - Explanation of transition to IFRSs (cont'd)


6.         The effect of the above adjustments on retained earnings is as
follow:


                                                              1st January      30th June        31st December
                                                              2006             2006             2006
                                                              US$'000          US$'000          US$'000
                                              Note            (Audited)        (Unaudited)      (Audited)

Employee benefits                                             113               106              135
Equity-settled share-based
 payment transactions                                         (399)            (518)            (640)

Total adjustment to
 retained earnings                                            (286)            (412)            (505)



D.        Explanation of material adjustments to the cash flow statement


Bank overdrafts of $419,thousand at 30th June, 2006 and $654,thousand at 31st
December, 2006 that are repayable on demand and form an integral part of the
Group's cash management were classified as financing cash flows under previous
GAAP and are reclassified as cash and cash equivalents under IFRSs. There are no
other material differences between the cash flow statement presented under IFRSs
and the cash flow statement presented under previous GAAP.



 Note 12 - Commitments and Contingent Liabilities


(a)        The Group has given guarantees to the banks totaling, as at 31st
December 2006, US$ 842 thousand.


In 2005 a lawsuit was filed in the US, state of Tennessee, against Pro Tech by
Satellite Tracking of People, LLC., alleging an infringement of it's US patent
6,405,213. The lawsuit did not indicate any specific damages or amounts.


On 29 August 2006 the court granted a stay of proceedings pending re-examination
of the patent by the United States Patent Office.


(c)        In August 2005, the Company has entered into an operating lease
agreement. Under the provisions of the Lease Agreement the Company has leased
office and storage space and additional parking spaces, for an approximate
monthly rental fee of US$ 23,102. The lease period is 5 years and the Company
has an option to extend it for an additional 5 year period. The Lease Agreement
includes certain options to lease additional space in the building. The Company
has an option to terminate the Lease Agreement prior to the end of the 5 year
lease period, by payment of a penalty, which is determined as a function of the
time left on the lease. The Company's maximum aggregate liability under the
Lease Agreement is limited to US$ 323,428.


Note 13 - Subsequent Events


On July 24, 2007, HomeFree Inc. was added as a defendant (together with another
company SM-Tek, Inc.) to a lawsuit that was filed by Willie E. Stacey and Carol
Daily, Administrators of the Estate of William T. Stacey, against Thomas J.
Mabry & Associates (Mabry health care & rehabilitation Center) on January 12,
2007, in the United States Circuit Court for Jackson County, Tennessee.


The Company believes it has a valid defense against its participation in this
lawsuit and against the material allegations made against it. The Company
intends to vigorously defend itself against this lawsuit. The Company is unable
to predict the outcome of this lawsuit at this time.


Independently from the aforementioned lawsuit all of the Company's products are
covered by a comprehensive Product Liability Insurance policy.


                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

IR DGGGLGDFGNZG

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