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Sarin Technologies Ltd Annual Report 2011

Contents 1 Corporate Profile 2 Our Milestones 4 Chairman’s Statement10 Board of Directors13 Key Management15 Management’s Business, Operations & Financial Review22 Group Structure23 Corporate Information24 Financial Highlights25 Financial Contents

Galaxy™ 1000

Clarity From Every Angle

CorporateProfile

Sarin Technologies Ltd. Annual Report 2011

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Sarin Technologies Ltd. develops, manufactures, markets and sells precision technology products for the processing of diamonds and gemstones. Our products provide smart solutions for every stage and aspect of diamond design and manufacturing, from determining the optimal yield from a rough stone, through laser cutting of rough stones, measuring and analysing polished diamonds, inscription on polished diamonds to technology that assists sales in jewellery stores and on online jewellery web sites.

Our DiaMension™ family of products, including the newest version, the DiaMension™ HD (High Definition) already adopted by industry leaders worldwide, and DiaVision™ software are used in all leading gemmological institutes for the qualification and grading of a polished diamond’s proportions, in order to derive the Cut grade. In fact, DiaVision™ is the only proportion and Cut grading software which has been thoroughly evaluated by the GIA in an extensive testing program and has been found to be accurate in excess of 98% of the tested cases.

In 2009, we launched the revolutionary Galaxy™ family of internal inclusion mapping systems for rough diamonds. Today the family comprises the Galaxy™ 1000, followed, in 2010, by the Solaris™ 100 for small stones less than 2.5 carats in weight, in 2011 by the Galaxy™ 1000 HD for high definition scanning down to VVS level inclusions and the latest release, earlier this year, the Galaxy™ 1000 XL for stones up to 180 carats. All these products are based on the same revolutionary and unique technology that allows the automated, accurate and comprehensive assessment of an additional key aspect of the rough diamond – Clarity, so as to truly optimise the value of the derived polished diamond. There is still no other product or technology available which does what the Galaxy™ family does.

Our products currently provide the rough diamond manufacturing industry with technological solutions for four main areas:

(a) Planning the optimal utilisation of the rough stones in order to cut them so as to achieve the maximum yield and value, based on three (Carat weight, Cut quality and Clarity grade) of the four parameters (Carat, Cut, Clarity and Colour) by which a polished diamond’s value is determined, using the Galaxy™ family of inclusion mapping systems, the DiaExpert™ family of platforms (DiaExpert™, DiaExpert Nano™, DiaExpert™ XL, DiaExpert-Eye™, DiaScan™ S+, DiaMobile™ XL and DiaMark™ Z) and the Advisor™ software;

(b) Cutting and shaping rough stones using our Quazer™ II green-laser system and the Strategist™ setup station;

(c) Optimising the polishing of the rough diamond into the best possible polished diamond by real-time analysis of deviations from, and possible corrections to, the optimal polishing solution, including unique asymmetrical solutions to optimise weight (Carat) vs. proportion (Cut) tradeoffs using our Instructor™ software; and

(d) Measurement of two (Colour and Cut) of the four parameters of the final polished diamond in order to help determine the value of the diamond, based on the quality grades of its colour (using the Colibri™) and cut (using the DiaMension™ family of products and DiaVision™ software, as noted above).

We also provide services and products that aid in the sale of diamonds and jewellery in stores and online:

For inscribing on polished diamonds with distinct marks such as text, numerals and symbols, whether for branding, personalisation or simply recording the stone’s certificate number, we offer the DiaScribe™ system.

In December 2010 we acquired Light Performance Technology and derived from it the Sarin D-Light™, a system that enables the automatic accurate and quantified measurement of a polished diamond’s appearance:

• brilliance - how much light is reflected back through its crown;• fire - how much light is broken into colored splashes;• scintillation / sparkle - how pronounced the diamond sparkles; and• light symmetry - how symmetric is the diamond’s light play.

In November 2011 we acquired the D-See technology from which evolved the D-Loupe™ imaging system. The D-Loupe™ system creates innovative high-quality visual imagery so that a potential buyer of a polished diamond can virtually inspect it from multiple angles and magnifications, as if through a conventional loupe, and truly assess its Cut and Clarity, all without having the polished gem physically in hand.

We also offer the Diamond Assay Service (DAS), an online subscription service for anyone who trades polished diamonds. It helps ascertain whether a diamond is a real diamond (albeit without differentiating between a natural or synthetic stone and without identifying treatments), ascertains its geometric parameters and Cut grade, optionally issues printed reports and can propose possible solutions for re-cutting, so as to derive the optimal potential value of the stone.


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Our

2011

The American Gem Society Laboratory (“AGSL”) concludes an evaluation of the DiaMension™ HD (High Definition) and based on its superior performance in 3D modeling of polished diamonds, decides to augment their existing DiaMension™ systems with the newer HD model. In addition, it is agreed that AGSL, jointly with Sarin, will conduct a research program to develop an automatic Symmetry grading methodology based on measurements of the polished diamond’s properties, as provided by the DiaMension™ HD.

Galatea, a wholly owned subsidiary of Sarin, launches the Galaxy™ 1000 HD (High Definition) inclusion mapping system based on the same technology utilised in the Galaxy™ 1000 system, to offer customers, manufacturers and traders alike inclusion mapping with high definition down to VVS level.

Sarin Color Technologies Ltd., a wholly owned subsidiary of Sarin, debuts its light performance system, the Sarin D-Light™, which quantifies a polished diamond’s appearance by accurately measuring its light performance characteristics –

• brilliance - how much white light is reflected back;• fire - how much light is broken into coloured bursts; • sparkle - how intense are the diamond’s sudden flashes of light;

and• light symmetry – how symmetrical is the diamond’s light play.

Sarin launches the DiaMark™ HD system, complementing the DiaMension™ HD and Instructor™. The DiaMark™ HD is equipped with a super-fine laser, specifically designed for the diamond industry to Sarin’s specifications, which produces extremely fine markings, derived from the Instructor™ software. This allows the polisher to accurately execute the prescribed optimal polishing without necessitating the manual documentation of same or relying on memory, resulting in higher accuracy, better Cut grade and more value.

Sarin Color Technologies Ltd., a wholly owned subsidiary of Sarin, acquires the D-See technology, a revolutionary imaging method to capture realistic, accurate and objective imagery of a polished diamond, including its internal features. Derived from this technology, the D-Loupe™ system (to launch in 2012) enables the electronic transmission of comprehensive imagery from seller to buyer, providing a means to truly assess a polished diamond from a multitude of angles and at various magnifications without having it physically in hand.

2010

The Gemological Institute of America (GIA) concludes an in-depth comparison evaluation, between their internal methods to determine the Cut grade of a round brilliant diamond and Sarin’s new implementation of the Facetware® database in Sarin’s measuring systems, which shows highly compatible results between the two methods. In continuation to this achievement GIA also concluded an initial evaluation of the

DiaMension™ HD system and found it generates a high fidelity 3D model with improved precision for the measurement of polished diamonds. They thus commenced the phased upgrading of their existing DiaMension™ systems to the newer HD product.

Sarin launches the DiaExpert™ Nano 6.5 for the super fast processing (one minute total for modelling, planning and marking!) of small rough diamonds from 0.15 to 0.70 carats in weight. The previously introduced (2007) DiaExpert™ Nano processed smaller stones between 0.01 and 0.30 carats in weight. In response to market demand, Sarin launched an enhanced model, the Nano 6.5, which allows manufacturers to enjoy the proven benefits of the Nano - cost effective, high accuracy and very high productivity - on a much broader range of stones than previously possible.

Galatea, a wholly owned subsidiary of Sarin, launches the Solaris™ 100 inclusion mapping system especially designed for smaller rough diamonds, based on the same technology utilised in the Galaxy™ 1000 system, to offer customers, manufacturers and traders alike, who specialise in smaller sized rough diamonds, the same benefits of the Galaxy™ system, with higher resolution (better than VS1) and in a more cost-effective package.

Sarin launches the Strategist™ saw-plane planning system, providing the manufacturers with an accurate computerised planning tool, which utilises the rough stone’s three dimensional structure and the planned locations of the polished stones generated by the Advisor™, along with Galaxy™ or Solaris™ derived inclusion mapping data, to generate a safer and higher yield laser cutting plan. This tool integrates the rough planning, and, specifically, its saw-plane planning process, and the actual Quazer™ sawing process into a computer controlled and coordinated process, to help avoid sawing perils such as cracks, fissures, bubbles, etc.

Sarin Color Technologies Ltd., a wholly owned subsidiary of Sarin, acquires Light Performance Technology (LPT), a proven light performance system previously marketed by Overseas Diamonds Technology, to enable the automatic, independent and accurate measurement of a polished diamond’s appearance by assessing its light performance characteristics –brilliance, fire, scintillation / sparkle and symmetry.

2009

Galatea, a wholly owned subsidiary of Sarin, launches the Galaxy™ 1000 and 2000 systems for the automated inclusion (Clarity) charting of rough diamonds, furthering our support of the need for considering inclusions in the planning and production of diamonds (as offered by the DiaMark™ Z Eye, launched in 2007), and opens service centres in India and Israel, in which the technology is offered for use at a low carat-based fee. Initial system delivered to launch customer towards year’s end.

Sarin launches the Instructor™, a new software package that runs on our polished diamond measuring equipment (DiaMension™, DiaMension™ Lab Edition, DiaMension™ HD and DiaScan™ S+), for improving the yield and assuring the quality manufacturers can attain while polishing diamonds.

Sarin launches the DiaMension™ HD, an advanced high precision system, offering even more accurate 3D modelling for the measurement of polished and semi-polished diamonds. The precise 3D model allows

Milestones


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1992

The DiaMension™, a pioneering grading product for assessing the Cut of polished diamonds, is introduced. The product is an automated computerised product for assessing a diamond’s proportion, a key parameter in the grading of a diamond’s Cut. A significant advancement for the diamond industry, the DiaMension™ has changed the way polished diamonds are bought and sold by providing accurate means of measuring the proportion, thereby deriving the Cut grade.

1989

Our Company changes its name to Sarin Research, Development and Manufacture (1988) Limited.

1988

Our first product, the Robogem™, an automated production system for producing polished gemstones from rough gemstones, is launched. Robogem™ was sold in limited numbers to semi-precious gemstone manufacturers in Israel, Europe and the Far East (India and Myanmar).

8 NOVEMBER 1988Our Company is incorporated in Israel as a private company limited by shares under the Companies Ordinance (New Version) 1983 of Israel, under the name of Borimer Limited.

users to evaluate not only the diamond’s proportions, but also the stone’s symmetry – including “naturals”, facet misalignments, facet junctures, extra facets, and other fine cut and symmetry parameters.

2008

Sarin acquires 100% of the issued share capital of Galatea Ltd., which then becomes a wholly-owned subsidiary of the Company. At the time of the acquisition, Galatea was in the final testing stages of an automatic inclusion (Clarity) mapping system for rough diamonds.

Sarin acquires 23% of IDEX Online SA, an operator of a B2B polished diamond traders’ network, a web portal for news, analyses and polished diamond price indices and publisher of a leading trade magazine. Shortly after the acquisition, IDEX Online launches its polished diamond spot market.

2007

Sarin introduces DiaMark™-Z Eye for semi-automated inclusion (Clarity) charting of rough diamonds, supporting the need for considering inclusions in the planning and production of diamonds. Additionally, after evaluating the important market niche of small stone manufacturers, DiaExpert™ Nano, a unique product for the planning and marking of small stones, is launched.

2006

Sarin Color Technologies Ltd., a wholly owned subsidiary of Sarin, introduces Colibri™. Colibri™ is a state-of-the-art colour grading product for polished diamonds, which calculates and grades the colour of the diamond as well as its fluorescence.

The Group’s subsidiaries, GCI and Romedix, are renamed Sarin Color Technologies Ltd. and Sarin Polishing Technologies Ltd., respectively. New subsidiaries, Sarin Hong Kong Ltd. and SUSNY LLC, are established.

2005

Sarin launches the Quazer™ advanced green-laser system for sawing, cutting and shaping diamonds, establishing a new product line and climbing another rung on the ladder towards being a one-stop shop for the diamond manufacturing industry. We also introduce Facetware™, a software upgrade product for the Company’s DiaMension™, and DiaExpert™ product lines (and installed base), for the analysis of a polished stone’s cut grade based on light performance parameters, in cooperation with the Gemological Institute of America (GIA).

8 APRIL 2005Sarin Technologies Limited is listed on the Mainboard of the Singapore Exchange.

2004

Sarin Polishing Technologies Ltd. (formerly known as Romedix) purchases from a third party know-how and technology used in the development and manufacture of disposable polishing discs for diamonds and gemstones.

Sarin India is incorporated as a wholly owned subsidiary in India. Sarin India deals in the provision of presale, post-sale and technical support services to our Group’s customers in India, Sri Lanka, and neighbouring countries.

2001

Sarin acquires the entire share capital of Gran Computer Industries

(subsequently renamed to Sarin Colour Technologies Ltd.), a private company incorporated in Israel. The company develops, manufactures and markets devices for the identification and classification of a diamond’s colour.

2000

Sarin introduces the DiaMark™. This product allows the DiaExpert™ product to automatically inscribe, using laser markings on the rough stone’s surface, the optimal sawing plane that was suggested by the DiaExpert™ and accepted by the user.

1996

Sarin introduces the use of laser scanning in order to create three-dimensional concave modelling of rough stones. The ability to accurately complement our modelling with the rough stone’s concavities provides the user with a complete and accurate model of the rough stone. This feature is complementary to, and increases the effectiveness of, the DiaExpert™.

1995

Sarin develops the DiaExpert™, an automated computerised planning system for the maximum utilization of rough stones. The introduction of this new technology in the DiaExpert™ revolutionises the diamond manufacturing industry by introducing computer-based technology to substitute person-based expertise, and thus contributes to the geographic shift of the diamond industry to new centres of manufacture such as India, PRC and Russia.

1994

The Company is renamed Sarin Technologies Limited.


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Chairman’s Statement

Daniel Benjamin GlinertExecutive Chairman

Dear Fellow Shareholders,

Last year, in my message to you, I wrote that 2010 had been a record year and that it had demonstrated that the strategic changes implemented since 2009 had begun bearing fruit. I am very happy to be able to report to you this year that 2011 has again been a record year and has continued vindicating our strategic shift in business model to a mix of capital equipment sales and recurring revenue generating products and services.

This coming year, 2012, should see a continued aggressive rollout of our Galaxy™ family of products along with a strategic move into the polished diamond trade. Both of these directions should even further bolster our recurring revenue stream from value-added products and services to the diamond industry. The foundations for these planned growth drivers have been laid throughout 2011, as detailed below.

Significant EventsDuring 2011 our focus was on the continued rollout and complementing refinement of the Galaxy™ family of products. As planned, we added to the full range Galaxy™ 1000 (limited in size to 20 carats or so, depending on the actual stone’s geometry), Galaxy™ 2000 for the rough diamond trade (cannot be used for manufacturing) and Solaris™ 100 system for small stones less than 2.5 carats, three additional models:

• TheGalaxy™LR(LimitedRange)forstonesupto5carats;• The Galaxy™ HD (High Definition) for scanning stones down to the VVS

level of inclusions; and• The Galaxy™ XL (Extra Large) for scanning stones up to 180 carats in

weight. [Note: The latter was commercially launched in January 2012].

Also, as planned, we opened our fourth, fifth and sixth service centres in Russia, Namibia and South Africa, following those already operating in Israel, India (Surat) and Belgium since 2009. Our seventh service centre in Botswana and an unplanned eighth service centre in Mumbai were opened in March 2012, a bit behind schedule due to logistics and statutory complications. An additional service centre in the USA will most likely be opened upon our taking possession in early 2013 of our acquired offices in New York’s International Gem Tower office building, which is currently under construction. A service centre in China is not being contemplated at this time, as the geographic dispersion of customers, along with key customers planning on taking systems in-house, make one less necessary (and less viable).

“We are continuing our strategic move into the polished diamond trade, as we believe this industry segment holds substantial growth potential for the Group.”


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Sales of Galaxy™ systems to customers for use on an in-house basis, against an initial up-front payment and an ongoing usage fee based on actual utilisation, exceeded our expectations in 2011, and we expect them to further accelerate throughout 2012. As forecast, we more than doubled our installed base at the end of 2011, in comparison to year-end 2010, going from just over 20 installed systems at customers and in our service centres to well over 50 systems. We expect to have an installed base of some 100 systems by year-end 2012.

We are continuing our strategic move into the polished diamond trade, as we believe this industry segment holds substantial growth potential for the Group. We expect our new products and services, launching the first half of 2012, will significantly impact our Group’s product mix, sales and recurring revenue stream going forward, beginning more significantly in the second half of 2012.

Our move into this new market segment is based on three products and services:

• OurLightPerformanceproduct,theSarinD-Light™.Thedemand for more striking diamonds is a fundamental trend affecting the industry, especially in China’s rapidly expanding market. Light Performance parameters, which truly address how a diamond looks, and less its rarity, are becoming more and more accepted as simple-to-understand criteria:

• brilliance - how much light is reflected back through the diamond’s crown;• fire - how much light is broken into coloured

splashes;• scintillation / sparkle - how pronounced the diamond sparkles; and• light symmetry - how symmetric is the play of light returned from the diamond.

• Our D-Loupe™, a revolutionary imaging system forpolished diamonds. The D-Loupe™ captures multiple images of a polished diamond at a multitude of angles and varying magnifications, and generates a virtual three-dimensional video of the stone. It thus enables buyers to inspect a diamond offered for sale, including internal inclusions, as if with a virtual rendition of the traditional loupe, without having it physically in hand. We expect this will significantly simplify the buying process and reduce the costs involved for both buyer and seller.

• OurDiamondAssayService(DAS),anonlinesubscriptionservice that enables anyone who buys, sells or appraises polished diamonds, to verify a diamond’s geometric parameters and Cut grade, to help ascertain whether the diamond is real (albeit not whether natural or synthetic, nor if treated), and to issue printed reports relating to same, and propose possible re-cutting solutions, so as to derive the greatest possible potential value from the stone.

We also had other important developments in 2011. The American Gem Society Laboratory (“AGSL”) concluded an evaluation of the DiaMension™ HD (High Definition), and based on its superior accuracy, decided to augment their existing DiaMension™ systems with the newer HD model. Even more importantly, the AGSL announced its intent to conduct a research program in collaboration with Sarin to develop an automatic Symmetry grading methodology, based on measurements of the polished diamond’s properties, as provided by the DiaMension™ HD. This development is indicative of the overall refinement being

sought by the industry for the Cut grade, by complimenting it with the Symmetry data. As announced in January 2012, the Gemological Institute of America (GIA) has also tested Sarin’s DiaMension™ HD and has found that the system indeed has the necessary accuracy and repeatability to deliver accurate and repeatable Symmetry results.

Sarin also launched in 2011 the DiaMark™ HD system, complementing the DiaMension™ HD and Instructor™. The DiaMark™ HD is equipped with a super-fine laser, specifically designed for the diamond industry to Sarin’s specifications, which produces extremely fine markings, derived from the Instructor™ software. This allows the polisher to accurately execute the prescribed optimal polishing, without necessitating the manual documentation of same or relying on memory, resulting in higher accuracy, better Cut grade and more value.

Record Group Performance - Year in ReviewFor the year ended 31 December 2011, the Group reported record revenues of US$ 57.8 million, an increase of 26.6%, and record net profit of US$ 17.4 million, an increase of 56.3%, as compared to revenues of US$ 45.7 million and net profit of US$ 11.1 million, for the year ended 31 December 2010. This increase in revenues and net profit was attained without impairing our historic gross margin levels of 65%.

These increases are mostly attributed to the continued strong demand for all our products, as a result of the diamond industry’s continued expansion, in general, and adoption of our Galaxy™ family of products, in particular. The latter has also indirectly generated accelerated sales of our family of planning products and green laser products (the Strategist™ and Quazer™ II). Service centre revenues, per-use fees and the deliveries of over thirty Galaxy™ systems, contributed over 25% of revenues in FY2011. Indeed, the recurring revenue component of our Galaxy™ technology business model, continues to grow significantly, and constituted approximately half of our overall Galaxy™ related revenues for the year. We expect it to continue to contribute to the growth and stability of our revenue stream going forward, as the installed base grows. As mentioned, the accelerated deployment of these systems is a key goal for the coming year.

DividendThe Board of Directors has recommended that a final dividend be distributed for FY2011, from retained earnings from this year, of US cent 1.00 per ordinary share (approximately US$ 2.7 million), an increase of 33% over FY2010’s final dividend. This will bring total dividends for FY2011 to US cents 3.25 per ordinary share (approximately US$ 8.8 million in total), just over 50% of net profit for the period (an approximate yield of 5%), in excess of the formal dividend policy, adopted at the year’s outset, of US cent 1.00 per ordinary share paid every six months.

The Board of Directors has recommended to increase the dividend policy going forward by 25%, whereby a fixed dividend of US cents 1.25 per ordinary share will be paid every six months, subject to semi-annual Board approval, the Annual General Meeting’s approval and subject to business conditions, financial results, other pre-empting uses of funds, statutory and tax issues, etc.

Looking Ahead to 2012We expect the following industry trends to continue influencing our business:

a. The negative macro-economic data, which we had discussed in previous disclosures, indeed impacted the start of Q4 2011. However, towards the end of the quarter,

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Chairman’s Statement

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market uncertainty calmed somewhat. The economic data being reported of late from the United States (US) have been more positive. The latest data continue to show consumer spending increasing (including specific data for holiday season 2011 sales of diamond jewellery from retailers), housing starts on the rise and unemployment on the decline. Yet the economic recovery in the US, still the largest single market for diamond jewellery in the world, is far from complete. The growth in China remains robust and demand for luxury goods, in general, and diamond jewellery in particular, continues to expand, as covered in more detail in the next paragraph. The economies in Europe have remained the major issue causing concern for the global economic outlook, though some progress seems to have been made on steps to resolve the Euro zone crisis. Still, macro-economic uncertainties persist and may impair our business results.

b. The markets in China and India for diamond jewellery have continued to expand at rates estimated to have exceeded 20% in 2011, on the heels of 25% and 31% growth, respectively, in 2010, providing additional impetus to demand. Though the overall demand side for diamond jewellery remains strong, pricing has become an issue, due to the increases both in the price of gold and of polished diamonds. Indeed, data pertaining to market demand expansion are affected by the inflationary effect of these price increases and do not solely reflect expansion in carats sold. We expect demand from Asian markets, in general, and China and India, primarily, to continue to drive diamond jewellery expansion in 2012, though possibly at slower rates than previously forecast.

c. As previously published, rough and polished diamond prices, after exceptional increases in the first six months of 2011, had, indeed, reached a level of resistance by mid-year, and have since pulled back during the latest two quarters. Rough diamond prices have receded to a level which, for the most part, seems to have alleviated margin pressures on our manufacturing customers. However, polished diamond prices have become a hindrance to more rapid market expansion in true carat volume. This has been especially true in India, also impacted by the significant decrease in the Indian Rupee to US Dollar exchange rate (in which diamond prices are quoted).

d. We perceive the resolution of the impasse regarding Zimbabwe’s diamond resource, which was finally agreed upon (as reported in Q3 2011), and the substantial quantities of rough stones now entering the market as a positive development for the Group from a number of aspects:

1) It seems to be further driving rough diamond prices downwards. Although this downward trend was a somewhat dampening factor on our sales in early Q4 2011, due to the revaluing of rough stockpiles and the resultant restrictions on working capital credit lines, we believe that going into 2012 it is an overall positive development, as it contributes to relieving margin pressures on our manufacturing customers.

2) As the quality of Zimbabwean diamonds is generally accepted as being at the lower ends of the scale, this may also result in less expensive diamonds being available for consumers, an overall positive development.

3) Though the added value provided by our advanced

optimisation technologies (e.g., inclusion scanning and mapping) could be perceived as being of lesser importance on lower quality Zimbabwean rough goods, they remain the sole method available for effectively planning the higher-end goods from Zimbabwe, due to these stones’ natural attributes (e.g., mineral coatings).

4) We also believe that our technology can also significantly contribute to the early sorting of these goods, as there are wide variances in value, which can be substantially discerned using our scanning techniques.

5) Another positive outcome from these goods entering the market in substantial quantities, along with the expected production initialisation from Argyle’s new underground mine in western Australia later this year, could be the necessity, as per certain industry experts, for manufacturing capacity expansion, which could drive overall demand for our products.

e. Demand for the Galaxy™ product line (the Galaxy™ 1000, 2000, HD and XL family and the Solaris) continues to grow in all major industry centres with shipments in Q4 having been realised to India and Botswana. With deliveries in Q4 of eight systems to customers and our service centres in Surat, India and Israel, we have more than doubled our installed base this year, with well over 50 systems now deployed worldwide. The openings of our service centres in Mumbai and Botswana will only be achieved in Q1 2012, having, unfortunately, again been delayed from Q4, due to logistical issues. Galaxy™ usage has continued to grow quarter over quarter. Galaxy™-related revenues for the year ended December 31, 2011, were over 25% of sales, of which approximately half were of a recurring nature. We expect deliveries of Galaxy™ systems primarily to customers for on-site operations, but also to our service centres, to continue throughout 2012. We believe overall worldwide deployment should near 100 systems by this year’s end. Indirectly, this technology should also continue to contribute to other product sales, such as the sales of Strategist™ and Quazer™ II systems, as well as our extensive family of planning systems.

f. We are, as announced, continuing our strategic move into the polished diamond trade, as we believe this industry segment holds substantial growth potential for the Group. We expect our new products and services, launching in early and mid 2012, will significantly impact our Group’s product mix, sales and recurring revenue stream going forward, beginning more significantly in the second half of 2012. The debuting of our Light Performance product, the Sarin D-Light™ in Q3 2011 was followed by our acquisition of unique visualisation technology from DSee Imaging in Q4 2011. The DSee technology will be realised in the D-Loupe™, a revolutionary imaging system that captures imagery of a polished diamond, including its internal features, and enables the electronic transmission of same from seller to buyer. The D-Loupe™ enables buyers to view a diamond offered for sale, as if with a traditional loupe, from a multitude of angles and at varying magnifications, without having it physically in hand. We expect this will significantly simplify the buying process and reduce the costs involved for both buyer and seller. Both these products will advance polished diamond trading, in that all diamonds offered for sale may now be accompanied by stunning visual means of inspection. In addition, as reported, we have launched our Diamond



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Assay Service (DAS), an online subscription service that enables anyone who buys, sells or appraises polished diamonds, to help ascertain whether the diamond is real (albeit not whether natural or synthetic, nor if treated), ascertain its geometric parameters and Cut grade, issue printed reports relating to same and propose possible re-cutting solutions, so as to derive the greatest possible potential value from the stone.

We continue to focus our research and development initiatives on the following projects and expect our research and development expenses to increase, primarily due to our new products and services for the polished diamond trade, with other research and development expenses forecast to grow more in line with the expected expansion of our sales.

The Galaxy™ family of products: Refinement and development efforts will continue throughout 2012, as we enhance the Galaxy™ systems’ functionality from various aspects. Following the installation of our Galaxy™ HD (High Definition) system with enhanced resolution down to the VVS level, in our Israeli and Indian service centres in Q3 2011, we have now, as recently announced in early 2012, installed our Galaxy™ XL (Extra Large) systems in these two service centres, as well. The Galaxy™ XL system broadens the range of rough diamonds that can be scanned for internal inclusion mapping purposes from 15mm to more than double – 32mm. This will allow rough diamonds weighing up to 180 carats to be processed, thus allowing all but exceptionally large stones to be scanned and mapped for internal inclusions. As the automation and complexity of clarity grading continues to be of interest, we continue to strive towards a system for polished stones, though, being a complex proposition, it still requires considerable research and development.

Rough planning products: This line of products continues to be our primary contributor to revenue. Our share in this market remains dominant, as we benefit from the integration of our planning products and the Strategist™ and Quaser™ II laser cutting suite with the Galaxy™ family of products, which significantly enhance the planning and sawing processes with inclusion mapping data. In fact, we have been demonstrating remarkably superior planning results as more and more stones achieve significantly higher Clarity grades, with increased value to our customers, as can be seen from the video on our website at www.sarin.com. We will continue throughout 2012 to introduce further refinements to these systems and the Advisor™ software for even better optimisation of the profit realised by our customers, as well as hardware refinements to further improve the systems. We believe that continuing to find added value for all sizes and qualities of rough stones, especially for smaller and/or lower valued goods, will provide additional impetus for growth in these relatively non-penetrated markets.

Quazer™ II: The Quazer™ II has continued to sell at record levels, and we expect demand to continue strongly in 2012. We continue to add features to and enhance the Strategist™ setup station so as to further improve our green-laser cutting/shaping suite’s value proposition to our customers.

Facets polishing products: The Instructor™, DiaMension™ HD and DiaMark™ HD are the Group’s primary products for this industry segment. These products enable quality control personnel to audit the facet polishing process and finely mark on the semi-polished diamond the required corrections/refinements, so as to allow optimal execution of the faceting by the polishing personnel. We expect accelerated orders of these products in 2012. Further developments, primarily for automated Symmetry measuring, as initiated with the American Gem Society (AGS) and as just lately qualified by

the Gemological Institute of America (GIA), as well as with other industry leaders, will be a driver of additional business opportunities in 2012.

Sarin D-Light™: Following the debut of the Sarin D-Light™ Light Performance product in Q3 2011, development work has been focused on further enhancing this product with even better colour-sensitive imaging for improved light performance grading, as well as other software enhancements, so as to facilitate commercialisation in the first half of 2012. Our development plans for this product in 2012 are aimed at allowing retailers to use it proficiently in the modern retail environment as a selling tool.

D-Loupe™: Having just completed the acquisition of this new imaging technology in late 2011, we have been busy on many fronts, so as to allow its commercial launch in the first half of 2012, complementing the Sarin D-Light™ in the support of polished diamond trading. Our various efforts have included going from prototype system to commercially engineered product, integrating the imaging output into a secure web-accessible database, adopting the user interface for maximal ease-of-use, so as to allow fast and easy imaging and uploading of images by sellers and intuitive access to same by buyers.

DAS: Having undergone beta-testing at various retail shops in the north-eastern US during late Q3 and Q4 of 2011, the initial version of DAS was launched in early 2012. Additional software features will be developed and integrated into the DAS throughout 2012, including the introduction of Cloud-based services.

Sales and Marketing: Another issue which will also be at the forefront of our endeavours this year will be the establishment of the necessary sales infrastructure to expedite the launch and commercialisation of our polished diamond products and services, as detailed above (Sarin D-Light™, D-Loupe™ and DAS). On the business-to-business (B2B) level, we believe that the on sell-side, among the polished diamond manufacturers and wholesalers, we are well known and our strong brand will ease the promotion of these new offerings. However, on the buy-side, among the retailers and jewellers, we are less well known and we will need to establish the requisite presence, initially in the US and Far East (primarily Hong Kong and China). As we establish this necessary network, it will also serve to support our efforts vis-a-vis the brick and mortar retail outlets in the appropriate geographies.

AcknowledgementsTogether with my fellow directors, I would like to yet again thank our customers, suppliers, business partners, and most of all, our devoted employees and management team for their ongoing support and dedication to the Group, without which we would not have yet again attained the record performance of this past year. We believe that these valued relationships provide the basis by which we will continue in 2012 to revolutionise the diamond manufacturing industry and trade.

Yours Truly,

Daniel Benjamin GlinertExecutive Chairman


8 Sarin Technologies Ltd. Annual Report 2011

Seeing IS BelievingD-Loupe Imagery

High resolution realistic 3D views of a diamond

perfect stone

Sarin Technologies Ltd. Annual Report 2011Sarin Technologies Ltd. Annual Report 2011

D-Light ImageryAnalysis of a diamond’s brilliance,

sparkle and fire

included stone low-colored stone poorly cut stone

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Board of Directors

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DANIEL BENJAMIN GLINERTExecutive Director and Chairman of the Board

Daniel Benjamin Glinert is our Executive Director and has been the Chairman of the Board of the Group since 1999. He is also a Director in the Group’s subsidiaries, Sarin India, Sarin Color Technologies, Sarin Polishing Technologies, Sarin Hong Kong and Galatea. Mr. Glinert holds a bachelor’s degree in Computer Sciences (Cum Laude) from the Technion - Israel Institute of Technology. He has nearly 40 years experience in various high-technology industries (software, military, semiconductor and medical applications) in research, development and management positions in Israel and the USA. From 1972 to 1977, he served in the Israel Air Force and was honourably discharged with the rank of Major.

UZI LEVAMIExecutive Director and CEO

Uzi Levami has been CEO of the Group since February 2009 and an Executive Director since December 2008. He is also a Director in the Group’s subsidiaries, Sarin India, Sarin Color Technologies, Sarin Polishing Technologies, Sarin Hong Kong and Galatea. Mr. Levami completed his studies towards a master’s degree in Computer Sciences from the Weitzman Institute and holds a bachelor’s degree in Electrical Engineering (Cum Laude) from the Technion - Israel Institute of Technology. He is one of the original founders of Sarin and has a rich history of founding high-tech companies (Compulite Ltd., Shalev Computer Systems Ltd. and EquipNet Ltd., a start-up spin-off of Interhightech (1982) Ltd.). Mr. Levami most recently held the position of Director of Business Development at MKS Instruments Inc., a publicly-traded US company supplying in excess of $700M of capital equipment to the semiconductor industry, after the most recent company he founded, EquipNet Ltd., was acquired by MKS. From 1973 to 1980, he was a Major in the Israel Defence Forces and in 1992 was awarded the prestigious Israel Defence Award by then President Herzog.

AVRAHAM ESHEDExecutive Director

Avraham Eshed is an Executive Director of the Group, having been appointed in 2010. Prior to that he served as a Non-Executive Director, having been appointed to the Board in April 2006. Mr. Eshed has over 40 years of experience in the diamond and gemstone industries. He is the founder of Gemstar Ltd. and Eshed Diam Ltd., and serves as the President of both companies. Mr. Eshed is also a founding member of the International Colored Gemstone Association (ICA) where he served as a Director. He is President of the Israel Emerald Cutters Association and a Director in the Israel Diamond Manufacturers Association.

EYAL MASHIAHExecutive Director

Eyal Mashiah is an Executive Director of the Group and was appointed to the Board in 1994. He was appointed an Executive Director in December 2008. Mr. Mashiah is also a Director in the Group’s subsidiaries, Sarin India, Sarin Color Technologies, Sarin Polishing Technologies, Sarin Hong Kong and Galatea. He has nearly 30 years of experience in the diamond and gemstone industries. Mr. Mashiah is currently the Executive Director of Novel Collection Limited (formerly Biram Diamonds Limited), a leading fancy coloured diamond manufacturer and dealer. Prior to that, he was involved in the manufacturing, marketing and trading of precious gemstones at Icam-Gems Limited (1982 - 1983), at Algem Limited (1983 - 1987) and at Ramgem Limited (1987 - 2006).

EHUD HARELNon-Executive Director

Ehud Harel is a Non-Executive Director of the Group and was appointed to the Board in 2004. He has nearly 30 years experience in the gemstone industry, having dealt with the evaluation and purchase of rough stones as well as the wholesale and worldwide distribution of polished gemstones, since 1982. From 1979 to 1982, he was a mechanical engineer with the Israeli Navy.

HANOH STARKNon-Executive Director

Hanoh Stark has served on our Board since 1989 and was an Executive Director of the Group until January 2009. He studied Electrical Engineering at the Technion in Milan, Italy. Mr. Stark is a member of the Israeli Diamond & Colored Stone Bourse and also a member of ICA, the International Colored Gemstone Association. He has over 40 years of experience in the gemstone mining, manufacturing and trading industries, including in the development of technology-based aids and systems.

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Board of Directors

7CHAN KAM LOONIndependent Director

Chan Kam Loon is an Independent Director of the Group and was appointed to the Board in March 2005. He holds a degree in Accountancy from the London School of Economics and is a qualified Chartered Accountant with the Institute of Chartered Accountants in England and Wales. Mr. Chan currently runs his own management and consulting firm, Philip Chan Consulting Pte Ltd. From July 2001 to July 2004, he headed the Listings Function of the Markets Group at the Singapore Exchange. Before that Mr. Chan spent ten years in investment banking and in private equity funding within the ASEAN region. Mr. Chan was a member of the Singapore’s Accounting Standards Committee, Singapore Zhejiang Business Council and also Singapore Shandong Business Council. He is also a Non-Executive Independent Director of several other companies listed on the Singapore Exchange.

VALERIE ONG CHOO LINIndependent Director

Valerie Ong Choo Lin is an Independent Director of the Group and was appointed to the Board in March 2005. She graduated with a Bachelor of Law (Honours) from the National University of Singapore in 1987 and obtained a Master’s in Law (with Distinction) from the London School of Economics in 1991. Ms. Ong heads the Corporate Finance Practice at Rodyk & Davidson. She has been a practicing lawyer since 1988, specialising in corporate finance (including initial public offerings) and mergers and acquisitions. Ms. Ong is a member of the Singapore Income Tax Board of Review and an Independent Director of Chemical Industries (Far East) Limited (a company listed on the Mainboard of the Singapore Exchange).

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YEHEZKEL PINHAS BLUMIndependent Director

Yehezkel Pinhas Blum is an Independent Director of the Group and was appointed to the Board in March 2005. He holds a bachelor’s degree in Economics and Business Administration from the Bar-Ilan University in Ramat Gan, Israel. From 2003 until 2011, for four terms, Mr. Blum was a Member of the Board of the Israel Diamond Exchange in Ramat Gan, Israel and served during various periods in various capacities including Vice President and Chairman of the Finance and Legal Committees. He is now observing a mandatory two-year hiatus from Exchange Board participation. Prior to that Mr. Blum was Chairman of the Exchange’s Audit Committee and a lead Arbitrator in various mediations. He has over 25 years of diamond and gemstone manufacturing and trading experience. Prior to that, from 1980 to 1983, he was an economist with the United Mizrachi Bank Ltd and was responsible for managing the bank’s economic research unit and advising the bank’s management with regard to new investments and business opportunities.


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Key Management

UZI LEVAMI has been Chief Executive Officer of the Group since February 2009 and an Executive Director since December 2008. He is also a Director in the Group’s subsidiaries, Sarin India, Sarin Color Technologies, Sarin Polishing Technologies, Sarin Hong Kong and Galatea. Mr. Levami completed his studies towards a Master’s degree in Computer Sciences from the Weizmann Institute and holds a bachelor’s degree in Electrical Engineering, Cum Laude, from the Technion - Israel Institute of Technology. He is one of the original founders of Sarin and has a rich history of founding high-tech companies (Compulite Ltd., Shalev Computer Systems Ltd. and EquipNet Ltd., a start-up spin-off of Interhightech (1982) Ltd.). Mr. Levami most recently held the position of Director of Business Development at MKS Instruments Inc., a publicly-traded US company supplying in excess of $700M of capital equipment to the semiconductor industry, after the most recent company he founded, EquipNet Ltd., was acquired by MKS. From 1973 to 1980, he was a Major in the Israel Defence Forces and in 1992 was awarded the prestigious Israel Defence Award by then President Herzog.

DAVID SYDNEY BLOCK has been the Group’s Deputy CEO and VP Sales since June 2009. Mr. Block is responsible for overseeing the Group’s worldwide sales, market communications and customer technical support, including the network of distributors and subsidiaries. He is also a Director in the Group’s primary pre- and post-sales subsidiary in India, Sarin India. Prior to this appointment Mr. Block was the Chief Executive Officer of Sarin India from January 2006 in charge of overall management of the operations and business in Sarin India, responsible for 70% of the Group’s revenues and the management of over 100 employees. Before being assigned to Sarin India, Mr. Block was the Group’s Product Manager responsible for all the products aimed at the diamond manufacturing market. Prior to joining the Group, Mr. Block worked at several major Israeli high technology companies in the management of large-scale development projects, computer programming, quality assurance and technical writing positions. Mr. Block holds a bachelor’s degree in Computer Science from the Tel-Aviv-Jaffa Academic College in Israel.

WILLIAM L. (“BILL”) KESSLER has served as the Group’s Chief Financial Officer since May 2009 and has been responsible for Human Resources since 2011. He has over 20 years of corporate and Wall Street experience, working with publicly-traded and private companies in Israel and the United States. From July 2006 until May 2009, Mr. Kessler served as the Principal Finance and Accounting Officer (CFO) of XTL Biopharmaceuticals Ltd. (Nasdaq: XTLB; LSE: XTL and TASE: XTL) and was previously its Director of Finance since January 2006, having served as a financial consultant to XTL during 2005, when he spearheaded

the process of listing XTL for trading on the Nasdaq. From October 2003 until December 2005, he served as a financial consultant to Keryx Biopharmaceuticals, Inc. (Nasdaq: KERX), following the relocation of its headquarters to New York, after having served as their Controller in Israel from 2001 until September 2003. From 1996-2000, Mr. Kessler served as Chief Financial Officer for Interhightech (1982) Ltd. While on Wall Street, he worked as a research analyst at Wertheim Schroder & Co., covering media and entertainment companies. Mr. Kessler holds a bachelor’s degree, Magna Cum Laude, in Economics and Mathematics from Yeshiva University, and a Masters of Business Administration, from Columbia University.

ABRAHAM MEIR KERNER has served as the Group’s Vice President of Research and Development since March 2009 and as Chief Technological Officer since 2004. He is primarily responsible for developing our technological base and the development of new products. Mr. Kerner has been with the Group since 1995 and holds a bachelor’s degree in Electrical Engineering from the Technion - Israel Institute of Technology. Prior to 2004, Mr. Kerner was our R&D manager for nearly a decade. Prior to joining the Group, he accumulated 15 years of engineering experience and was involved for ten of those years in the development of precision motion control systems and accurate measuring machines for diamonds.

AKIVA CASPI has served as the Group’s Vice President of Marketing and New Business Development, since March 2009. Mr. Caspi is responsible for overseeing all aspects of marketing, including new product definition and product management. Prior to this, since January 2006, he was Vice President and Manager of the Manufacturing Market. Mr. Caspi holds a bachelor’s degree in Electronic Engineering from the Technion – Israel Institute of Technology. Prior to joining Sarin, he served as Director of Research & Development at the Gemological Institute of America (GIA), where he was responsible for integrating the new GIA cut system into optical scanning devices, Director of Marketing at Dialit, an Israeli company that develops, manufactures, and sells automatic polishing equipment, and Director of Technology for the Israel Diamond Institute, where he led the introduction of new technologies, such as optical scanning devices and improved laser technologies, to the diamond cutting industry.

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BEENITA MODI has been the Vice President of Sales, Sarin India, since 2010. Ms. Modi is responsible for all pre- and post – sale activities relating to the Group’s products in India. Ms. Modi has over ten years of experience in domestic Indian and international sales activities. Prior to this appointment, Ms. Modi had been employed by Sarin India since 2004, initially as a junior sales person, but over time with ever increasing managerial responsibilities. Prior to her employment with Sarin India, from 2001 through 2003 she was employed by Pyramid Exports in various positions pertaining to business administration, manufacturing administration and exports of cosmetics, skin care and personal care and perfumery products for international markets. She holds a Master of Business Administration degree (MBA) with distinction, having finished first in her class, from the Jamnalal Bajaj Institute of Management Studies (Mumbai University), with a specialisation in marketing. She also holds a master’s degree in Commerce from Mumbai University, also with distinction. Ms. Modi holds a bachelor’s degree in Commerce from K.P.B Hinduja College in Mumbai.

TARUNA MAHESHWARI has served as Vice President, Accounts and Operations of Sarin India since July 2009. Ms. Maheshwari has approximately 12 years of corporate accounting, finance and compliance experience, working with publicly-traded and private companies incorporated in India. From February 2004 until June 2009, she served as Head - Accounts and Finance at Dr. D.Y. Patil Group, a company specializing in higher education. From July 2000 until February 2004, Ms. Maheshwari served as Chief Manager – Accounts and Finance at HCC Info Tech Ltd., a subsidiary of Hindustan Group Plc. From 1998 to 2000, she served as Manager – Accounts and Finance for Henkel Chembond Surface Technologies Ltd. Ms. Maheshwari is a Chartered Accountant, with Gold Medal merit distinction. She holds a B.Com (Hons.) from Mohanlal Sukhadia University (Udaipur, India).


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Key Management

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YOSEF VAX has served as the Group’s Vice President for Operations since 2001 and Chief Operating Officer since March 2009. He is responsible for production, purchasing, logistics, quality control and administration at the Israeli parent company. He is an Electronics Practical Engineer, holding a degree from the Tel-Aviv College in Israel and is also a Certified Quality Manager from the A.L.D College for Certified Managers for Quality in Israel. Prior to joining the Group, Mr. Vax spent over 15 years in various quality control management and inspection positions, in charge of quality control processes, inspection of electronics, electro-optics, optics and mechanical sub-assemblies and components manufacturing and customer care.

RAN ZISKIND has been the General Manager of Galatea Ltd. since its founding in 2004, and was one of its founding visionaries. Mr. Ziskind is in charge of the production at Galatea as well as the Group’s service centre activities. He has approximately 12 years of experience in high-tech industries at various positions, from design engineer to management. Prior to co-founding Galatea, Mr. Ziskind served as the General Manager of Atomic Hydrogen Technologies Ltd., a company which develops equipment for the semiconductor industry. Prior to that, Mr. Ziskind served at Eureka, a company that did subcontracting of mechanical design services. At Eureka he held a plurality of positions, from Design Engineer to Project Manager. Mr. Ziskind is a graduate of the Mechanical Engineering program from Zur Teffen, an academic institute founded by the world renowned industrialist, Mr. Steff Wertheimer, and holds a bachelor’s degree in Chemistry and Management from the Open University of Israel.

ODED BEN SHMUEL has served as the General Manager of Sarin India, since 2010, and is in charge of the overall management of the operations and business in Sarin India. Since 2003, Mr. Ben Shmuel has held various positions in the Group. Most recently, he was the Group’s Product Manager of the green laser sawing and shaping system, the Quazer. Prior to that Mr. Ben Shmuel was a senior team-leader in the software development group of the Company. Mr. Ben Shmuel holds a bachelor’s degree in Economics and Management (Cum Laude) as well as a bachelor’s degree in Computer Science from the Academic College of Tel Aviv. Prior to joining the Group, Mr. Ben Shmuel worked at Elbit Systems, an Israeli high technology company, in the development of large-scale projects, with a focus on software development and field integration and deployment.

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Management’s Business, Operations &

Financial Review

Our business: adding value to yourDiamonds

The Diamond IndustryDiamonds have long been regarded as symbols of love, commitment and eternity. Consistent advertising campaigns by the diamond industry have successfully reinforced these notions among consumers. This retail market drives an industry of mining, processing, certification and trading, on which our Group capitalises.

Rough diamonds go through a series of planning, sawing (cutting), shaping (sometimes, if round, referred to as “bruting”), polishing (faceting) and fine-polishing processes to turn them into retail-ready polished diamonds. Traditionally, the rough diamonds were processed into polished ones manually by an elite group of skilled experts, mostly within families. Historically, this led to diamond processing activity being concentrated, after World War II, in Belgium, Israel and the USA.

We believe Sarin has revolutionised the diamond manufacturing industry by introducing computer-based technology to automate many of the processes of this highly concentrated expertise. This has, in turn, contributed to the migration of the manufacturing to lower-cost centres, primarily India, China and the southern African countries (South Africa and Botswana, primarily). The diamond cutting industry’s turnover was valued at approximately US$17.5 billion in 2010 (the latest full year for which data are available).

The cost of rough diamonds is extremely high and the manufacturers’ typical margins very low. Hence even single-digit percentage yield increases or cost savings translate into a significant impact on profits. Thus, the global diamond industry has proven eager to invest in yield-increasing or cost-saving technologies that have been proven to be reliable and efficient.

Similarly, because of the high value of polished diamonds, adhering to the established standards of quality, as measured by a diamond’s so-called four Cs (Carat, Colour, Clarity and Cut) is important. The results typically obtained from the manual grading inspection of a diamond often vary, depending on the expert conducting the evaluation. Thus, again, technology has evolved as a major contributor to the industry’s grading standardisation.

Our MarketsHistorically, the Group has focused on products and services for the assessment, optimal planning, sawing, cutting, shaping and polishing of rough diamonds for the wholesale trade and manufacturing segments of the diamond industry.

Traditionally, as noted above, the major rough diamond trading and manufacturing centres in the world have been in Israel and Belgium. Today, India is by far the leading manufacturing centre, accounting for over 90% of all stones manufactured worldwide (by count). China is still, by headcount, the second most important manufacturing centre globally, but the southern African countries are fast emerging as the next major manufacturing centre, due to legislation enacted and government incentives to develop the domestic polishing industry in these countries.


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Management’s Business, Operations &Financial Review

Over the next few years, we expect our sales and profits from the retail segment of the trade to grow, as we introduce new offerings to this market segment.

D-Light™

Sarin has a market presence in both established and emerging diamond manufacturing centres. A key development for us in 2004 was the establishment of Sarin India, our wholly-owned subsidiary. With operations in the key diamond processing centres of Mumbai and Surat, we now have full control over the business direction and marketing of our products in the key Indian market. In addition, in 2009, we inaugurated a service centre in Surat, which provides our customers in India with automated internal inclusion detection and mapping and laser cutting services. A second service centre in India in Mumbai was opened in the beginning of 2012.

The emerging diamond manufacturing centres of southern Africa represent strategic markets for our products with significant growth potential. Sarin has taken and is taking steps to strengthen its market presence in these emerging markets. The appointment of an agent in South Africa in 2005 was followed by expansion into Botswana in 2008 and the appointment of a dedicated agent in Namibia in early 2012. During 2011 service centres for automated internal inclusion detection and mapping, planning and sawing services were opened in South Africa and Namibia. A service centre in Botswana was opened in the beginning of 2012.

Over the next few years, we expect our sales to and profits from the wholesale


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and retail trade of polished diamonds to grow, as we are now targeting this industry segment as our primary market for strategic expansion. To this end we have initiated the following endeavours:

• LightPerformanceTechnology(LPT)–weacquiredLPTattheendof2010andbasedonitdevelopedourSarinD-Light™product for the objective quantified measurement of a diamond’s brilliance, fire, sparkle and light symmetry, which debuted at the Hong Kong Jewellery Show in September 2011.

• Realisticdiamondvisualisation–weacquiredtheDSeetechnologyattheendof2011andderivedtheD-Loupe™to capture realistic, accurate and objective imagery of a polished diamond, including its internal features. To be launched in the first half of 2012, the D-Loupe provides a means to truly assess a polished diamond from a multitude of angles and at various magnifications, without having it physically in hand, so as to simplify the transactions and reduce costs for both seller and buyer.

• DiamondAssayService(DAS)–launchedattheoffsetof2012,Sarin’sDiamondAssayServiceisanonlinesubscriptionservice that enables diamond wholesalers, jewellery retailers, appraisers and others who buy, sell or appraise polished diamonds, to verify whether a diamond is really a diamond (albeit without differentiating between natural or synthetic), ascertain its geometric parameters and Cut grade, issue printed reports relating to same and propose possible solutions for re-cutting and re-polishing so as to derive greater potential value.

• Inclusionmappingsystemforpolisheddiamonds-stillinresearchanddevelopment.

The business model which has been adopted for all the aforementioned products and services for the polished diamond trade is based on the model which has been successfully adopted for the Galaxy™ family of inclusion mapping systems – namely a mix of product sales and services generating both fixed and recurring revenue streams.

Sarin Products by Use and Client TypeUSE CLIENT SARIN PRODUCTS

Assist in evaluating rough diamonds Wholesaler/ Manufacturer

Galaxy™ 1000/ 2000, Solaris™ 100, Galaxy™ HD, Galaxy™ XL, DiaExpert™, DiaExpert™ Nano, DiaExpert™ XL, DiaExpert™ Eye, DiaScan™ S+, DiaMobile™ XL, Advisor™

Assist in the production & planning of unpolished diamonds into polished ones

Manufacturer

Galaxy ™ 1000, Solaris™ 100, Galaxy™ HD, Galaxy™ XL, DiaExpert™, DiaExpert™ Nano, DiaExpert™ XL, DiaExpert™ Eye, DiaScan™ S+, DiaMark™ Z, Advisor™

Assist in cutting unpolished diamonds Manufacturer Quazer™ II, Strategist™Assist in shaping unpolished diamonds Manufacturer Quazer™ IIAssist in optimally polishing diamonds for best Carat/Cut tradeoffs

Manufacturer DiaMension™ HD, Instructor™, DiaMark™ HD

Assist in evaluating diamond finishing ManufacturerDiaMension™, DiaMension™ HD, DiaScan™ S+, DiaVision™, Instructor™

Assist in evaluating polished diamond value according to the 4 Cs and light performance

Gemmological Laboratory / Wholesaler / Manufacturer

DiaMension, DiaMension™ HD,DiaScan™ S+, DiaVision™, Colibri™, D-Loupe™, DAS, Sarin D-Light™

Assist in polished diamond customisation such as lettering or graphics on the diamonds (e.g., certificate numbers, company logos, personalisation)

Retailer DiaScribe™

Assist in polished diamond online tradeManufacturer / Wholesaler / Retailer

D-Loupe™, Sarin D-Light™,

Intellectual PropertyThe products we develop are proprietary in nature. Hence, our ability to remain competitive in the market is dependent, in part, on our ability to protect our proprietary intellectual property (IP), in general, and our software, in particular. To facilitate the protection of these proprietary intellectual rights, we have registered several patents and trademarks in countries key to our business worldwide and several additional patent and trademark applications are in various registration phases. As is normal, several of our patents and trademarks have been disputed by other, competing, players in the industry. Subsequently to having been granted patents for our laser marking technology in India in 2008, we have initiated litigation against those of our competitors whom we believe have infringed these patents.

ObjectivesThe Group’s main objectives for 2012 and beyond are:

• ContinuetoleveragetheuniqueGalaxy™familyofproductsandservicestogenerateasteadilygrowingsourceofrecurring revenues;



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• Leverageourbrandtoestablishasignificantpresenceinthepolisheddiamondsegmentoftheindustryandbalanceour business more evenly between the rough diamond manufacturing and trading industry, which currently accounts for a predominant part of our business, and the polished diamond grading, trading and retail sales market, in which our presence is minimal; and

• Enhanceourkeycompetitiveadvantages,soastocontinueaddingvaluetoourshareholdersbygrowingourbusinessin terms of sales and profit.

StrategyTo realise these objectives, the Group plans to execute these strategies:

• FocustheGroup’sresearchanddevelopmentinitiativesonnewproductsandservicesforthepolisheddiamondtrade(while continuing to enhance our existing products for rough diamond yield and value optimisation; e.g., expansion of our capabilities regarding fancy shape diamonds);

• FocustheGroup’smarketingeffortsonthelaunchofnewproductsandserviceswhichcatertothepolisheddiamondtrade, such as the Sarin D-Light™, D-Loupe™, DAS, etc., for the wholesale (B2B) and retail (business-to-consumer – B2C) diamond market;

• ContinuetoaggressivelyrollouttheGalaxy™familyofproductsandservicesinexisting(primarilyIndia,IsraelandBelgium) and new markets (the southern African countries, Russia, China and the USA), so as to establish a significant entry barrier to competition when and as it evolves; and

• Continuetoincorporateotheruniqueproductsandservicesinourofferingsthatfacilitatethegenerationofhigh-margin recurring revenues.

Performance IndicatorsNon-financial IndicatorsWe use the following non-financial indicators to assess our Group’s performance year-on-year and against our competition’s performance:

INDICATOR PERFORMANCE

Estimated market share

We believe, given the synergy with the unique Galaxy™ family of products, that we have not only managed to retain a dominating market share of the rough diamond planning and polished diamond grading products in 2011, but have significantly increased our market share in key market segments. The fact that all other players in this industry are privately-held companies hampers our ability to collect and collate accurate sales data. Additionally, no well-known international analysts regularly cover our market for technological tools for the diamond industry, making accurate assessments even harder to substantiate.

Technological leadership

Our technological leadership, as measured by market acceptance of our new and enhanced products, as well as by our existing and newly registered patents worldwide, remains strong. No other company in our field holds a larger market share or broader portfolio of products (including patents and pending patents) for the diamond industry.

Brand strength

Our brand strength allows us to command premium prices for our products in a competitive market. Our brand strength also allows us to use our reputation and distribution channels to market and sell complementary products to our existing customers, as well as seek out new ones. We believe our brand continued to strengthen during the year in review and we intend to continue investing in strengthening our brand throughout 2012.

Product & service offering

During the year in review we announced and released several new products and enhancements for existing products which were favourably received in the market. We have plans to continue this strategy throughout 2012 and beyond, with the emphasis in 2012 being our advent into the polished diamond trade, where we believe our strong technological leadership and brand will enable us to favourably leverage our new offerings into a sizable market share..


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India 78%

Africa 8%

Europe 3%North America 2%Other 9%

Revenue by Geographic Segment

2011

Financial Indicators We use the following financial indicators to assess our Group’s performance year-on-year:

INDICATOR PERFORMANCE

Revenues

Revenues for FY2011 increased by 26.6% to a record US$ 57.8 million, as compared to US$ 45.7 million for FY2010. The increase was mostly attributed to broad demand for the Group’s products worldwide benefitting from the positive business environment and improved market conditions in 2011, as the demand for polished diamonds in China and India continued to expand at rates in excess of 20%. It was further bolstered by the continued dissemination of the Galaxy™ family of products and its integration with the Group’s other product offerings for rough diamond planning and cutting. Galaxy™-related sales, including service centres, customer usage fees and deliveries to customers were over 25% of revenues in FY2011, up from less than 15% for FY2010. The recurring revenue component of our Galaxy™ technology business model also continued to grow smartly and constituted around half of the overall Galaxy™ related revenues for FY2011, as compared to under 10% of our full year revenues in FY2010.

Gross Profit

Gross profit for FY2011 increased by 30.4% to US$38.3 million, as compared to US$29.4 million for FY2010. For FY2011, the Group recorded a gross profit margin of 66% as compared to a gross profit margin of 64% for FY2010, due primarily to the significantly higher sales volume in FY2011 as compared to FY2010 and also due to the recurring revenue contribution of the Galaxy™ business model. Gross profit included non-cash amortisation expenses related to the amortisation of the Galatea know-how and previously capitalised research and development costs of US$2.1 million in each of FY2011 and FY2010.

Profit From Operations

Profit from operations for FY2011 increased by 47.3% to a record US$21.3 million, as compared to US$ 14.4 million in FY2010. For FY2011, the Group recorded an operating margin of 36.8% as compared to an operating margin of 31.6% for FY2010. This improved profitability in FY2011 was a direct result of our improved business results and continued prudent Group fiscal spending policies.

Profit for the YearFor FY2011, the Group reported a record net profit of US$ 17.4 million, an increase of 56.3% compared to net profit of US$11.1 million for FY2010. For FY2011, the Group recorded a net profit margin of just over 30% as compared to net profit margin of 24% for FY2010.



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Operating Review

Opportunities

Market-driven Opportunities• The economic data being reported of late from the

United States (US), still the largest single market for diamond jewellery in the world have been more positive. The latest data continue to show consumer spending increasing, housing starts on the rise and unemployment down. We expect the recovery in the US to continue and to drive additional demand there for diamond jewellery.

• ThemarketsinChinaandIndiafordiamondjewelleryare continuing to expand at rates estimated to have exceeded 20% in 2011, on the heels of 25% and 31% growth, respectively, in 2010, providing additional impetus to demand. Indeed, not only does there seem to have been no slowing in this growth, but firsthand experience at trade shows and feedback from our customers indicate that the demand side remains strong. We expect strong demand from Asian markets, in general, and China and India, primarily, to continue to drive diamond jewellery market expansion in 2012.

• The African markets continue to emerge as majortrading and manufacturing centres, driven by incentives from and legislation by the relevant governments. We expect this trend to continue and to accelerate in 2012 and beyond. An example of this trend is the decision by De-Beers’ Diamond Trading Company (DTC) subsidiary to relocate from London to Gaborone, Botswana.

Company-driven Opportunities • Demand for the Galatea product lines (the Galaxy™

family) continues to grow in all major industry centres. With deliveries in 2011 of 34 systems to customers and our service centres, we have more than doubled our installed base this year, with a total of over 50 systems now deployed worldwide. Galaxy™ usage has continued to grow quarter over quarter with Galaxy™-related revenues for the year ended December 31, 2011, over 25% of sales, of which approximately half were of a recurring nature. We expect deliveries of Galaxy™ systems primarily to customers for on-site operations, but also to our service centres, to continue throughout 2012. We believe overall worldwide deployment should near 100 systems by this year’s end. Following the installation of our Galaxy™ HD (High Definition) system with enhanced resolution down to the VVS level, in our Israeli and Indian service centres in late 2011, we have now, as recently announced in early 2012, installed our Galaxy™ XL (Extra Large) systems in these two service centres, as well. The Galaxy™ XL system broadens the range of rough diamonds that can be scanned for internal inclusion mapping purposes from 15mm to more than double – 32mm. This will allow rough

diamonds weighing up to 180 carats to be processed, thus allowing, all but exceptionally large stones to be scanned and mapped for internal inclusions. These two latest enhancements to this product family provide additional impetus to our continued success, offering higher resolution and processing of larger stones, to specific market niches in need of same. Indirectly, this technology should also continue to contribute to other product sales, such as the accelerated sales of Strategist™ and Quazer™ II systems, as well as our extensive family of planning systems. In fact, we have been demonstrating remarkably superior planning results as more and more stones achieve significantly higher Clarity grades, with increased value to our customers, as can be seen from the video on our website at www.sarin.com.

• Weare,asannounced,continuingourstrategicmoveinto the polished diamond trade, as we believe this industry segment holds substantial growth potential for our Group. We expect our new products and services, launching in early 2012, will significantly impact our Group’s product mix, sales and recurring revenue stream going forward. The debuting of our Light Performance product, the Sarin D-Light™ in Q3 2011 was followed by our acquisition of unique visualisation technology from DSee Imaging in Q4 2011, which will be realised in the D-Loupe™, a revolutionary imaging system that captures imagery of a polished diamond, including its internal features, and enables the electronic transmission of same from seller to buyer. The D-Loupe™ will enable buyers to view a diamond offered for sale, as if with a traditional loupe, from a multitude of angles and at varying magnifications, without having it physically in hand. We expect this will significantly simplify the buying process and reduce the costs involved for both buyer and seller. In addition, as reported in early 2012, we have launched our Diamond Assay Service (DAS), an online subscription service that enables anyone who buys, sells or appraises polished diamonds, to verify a diamond’s geometric parameters and Cut grade, to help ascertain whether the diamond is real (albeit not whether natural or synthetic, nor if treated), and to issue printed reports relating to same, and propose possible re-cutting solutions, so as to derive the greatest possible potential value from the stone.

• TheInstructor™,DiaMension™HDandDiaMark™HDare the Group’s primary products for the facet polishing segment of the industry. These products enable quality control personnel to audit the facet polishing process and finely mark on the semi-polished diamond the required corrections/refinements, so as to allow optimal


21

execution of the faceting by the polishing personnel. Polished diamonds with Excellent Cut grades command a significant premium in the market, in general, and the far eastern market, in particular. We expect accelerated orders of these products in 2012. Further developments, primarily for automated symmetry measuring, as initiated with the American Gem Society (AGS), as announced, and other industry leaders, as well as for the more accurate analysis of non-round shapes, also offer significant market opportunities.

Risk Factors• Global economic uncertainties still persist, primarily

in the Eurozone, and are being exacerbated by the instability and sabre-rattling in Middle Eastern countries such as Syria and Iran.

• Pricesofroughdiamondscontinuetobesomewhatofa negative factor as the increase in polished diamond prices did not match that of rough diamond prices in the first half of 2011 (even given the subsequent retreat in the second half of the year). This factor may be further mitigated by the accelerated introduction of rough diamonds from Zimbabwe into the market, now that this issue has been resolved, as discussed elsewhere in the Annual Report.

• Our success and ability to compete are substantiallydependent on our proprietary technology. The steps that we have taken to protect our proprietary rights may not be adequate, and we might not be able to prevent others from using what we regard as our technology. If we have to resort to legal proceedings to enforce our proprietary rights, the proceedings could be costly, and we may not be able to recover our expenses.

• We may be subject to claims by others regardinginfringement of their proprietary technology. Litigation over intellectual property rights exists in the industry. In addition to our outstanding legal proceedings, we may in the future be subject to other claims.

• Aspartofourbusinessplan,weintendtodevelopnewproduct lines for new industry segments, new products in existing product lines and to expand our marketing and sales efforts in new and existing market segments and geographical areas. There is no assurance that such expansion plans will be commercially successful. If we fail to achieve a sufficient level of revenue or if we fail to manage our production costs effectively, we will not be able to recover our costs and our future financial position and performance may be materially and adversely affected.

• The location of the Company in Israel, and theconcentration of its research and development and manufacturing activities there, remains a geopolitical risk factor.

Financial Review

Cash FlowAs at December 31, 2011, cash and cash equivalents, restricted cash and investments increased to US$ 33.9 million from the US$ 28.3 million reported as of December 31, 2010, following the Group’s record profitability and

following the payment of a US $2.0 million final dividend in May 2011 for the fiscal year 2010 and the payment of US$ 6.1 million in interim dividends in September and December 2011.

Cash Management and LiquidityThroughout 2011 the Group maintained cash reserves higher than needed for the financing of ongoing operating activities. The policy dictated by the Board for the management of these cash surpluses is to invest them in low-risk short-term working currencies (primarily US Dollars, but also New Israeli Shekels and Indian Rupees) denominated interest-bearing instruments with high liquidity. Financial instruments held are classified as current assets. When the cash and investment (short-term deposits) balances are analysed and compared to the annual cash requirements needed for the financing of the ongoing business activities of the Group, one finds that the Group has strong liquidity.

Accounting PoliciesThe consolidated financial statements are prepared in accordance with the International Financial Reporting Standards - IFRS. The preparation of financial statements, in conformity with the IFRS, requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The financial statements are presented in United States Dollars, which is the Group’s functional currency, rounded to the nearest thousand. The accounting policies set out in our yearly financial reports have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently to all Group entities.

For more detailed information on our accounting policies and related explanations, please refer to our Consolidated Financial Statements.

Shareholder ReturnSarin is a profitable company. During FY2011 the Company earned US$ 17.4 million, equivalent to basic earnings per share of US cents 6.47 and fully diluted earnings per share of US cents 6.40.

For FY2011, the Group’s dividend policy provided for the distribution of US cent 1.0 on a semi-annual basis as a dividend to its shareholders. For 2011 the Company paid in September and December 2011 interim dividends of US cents 1.25 and 1.0 per share, respectively, around US$ 6.1 million, and will pay (subject to approval at the Annual General Meeting in April 2012) a final dividend totalling US cent 1.0 per share, around US$ 2.7 million, amounting to US$ 8.8 million in total for the year (just over 50% of net earnings).

The Board of Directors has recommended to increase the dividend policy by 50% going forward, whereby a fixed dividend of US cents 1.25 per share will be paid every six months, subject to semi-annual Board approval, the General Meeting’s approval at year’s end and subject to business conditions, financial results, other pre-empting uses of funds, statutory and tax issues, etc.


22

Galatea Limited1

Sarin Technologies India Private Limited2

Sarin Color Technologies Limited 3

Sarin Polishing Technologies Limited4

SUSNY LLC5

Sarin Hong Kong Limited6

IDEX Online SA7

1 Galatea Limited – The developer of a patent-pending technology, applicable to the fully automated detecting and mapping of internal inclusions in rough and polished diamonds (Galaxy™ family of products).

2 Sarin Technologies India Private Limited – The provision of pre- and post-sales and technical support for our Group’s products in India and Sri Lanka and such other territories as may be agreed by our Company and Sarin India from time to time. The operation of the service centres in India providing customers with inclusion detection and mapping for rough diamonds and laser sawing/cutting services.

3 Sarin Color Technologies Limited – The development, manufacture and marketing of instruments for assessing the colour of rough and polished diamonds. The development, manufacture and marketing of instruments for assessing the light performance of polished diamonds (Sarin D-Light™). The development, manufacture and marketing of instruments for the online visualisation of polished diamonds (D-Loupe™)

4 Sarin Polishing Technologies Limited – The development of disposable polishing discs for diamonds.

5 SUSNY LLC – An entity which acts as the Group’s representative in NY State, USA.

6 Sarin Hong Kong Limited – A holding company in Asia.

7 IDEX Online SA – A publisher of a leading trade magazine and an operator of a web portal for news, analyses and polished diamond price indexes, including a business-to-business (B2B) polished diamond trading e-commerce platform and a business-to-consumer (B2C) polished diamond website linked with e-Bay.

Group Structure

The following chart accurately depicts the Group’s structure at the time of this report.

100%

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100%

100%

100%

23%

Corporate Information

BOARD OF DIRECTORSDaniel Benjamin GlinertExecutive Director and Chairman of the Board

Uzi LevamiExecutive Director and Chief Executive Officer

Avraham EshedExecutive Director

Eyal MashiahExecutive Director

Ehud HarelNon-Executive Director

Hanoh StarkNon-Executive Director

Yehezkel Pinhas BlumIndependent Director

Chan Kam LoonIndependent Director

Valerie Ong Choo LinIndependent Director

AUDIT COMMITTEEChan Kam Loon - ChairpersonYehezkel Pinhas BlumValerie Ong Choo Lin

NOMINATING COMMITTEEValerie Ong Choo Lin - ChairpersonYehezkel Pinhas BlumChan Kam LoonDaniel Benjamin GlinertEyal Mashiah

REMUNERATION COMMITTEEYehezkel Pinhas Blum - ChairpersonChan Kam LoonValerie Ong Choo LinUzi LevamiEyal Mashiah

COMPANY SECRETARYAmir Jacob Zolty (Adv.)

REGISTERED OFFICESarin Technologies Limited7 Atir Yeda StreetKfar Saba 44643IsraelTel: 972-9-7903500Fax: 972-9-7903501www.sarin.comIsrael Registration Number: 51-133220-7

SHARE REGISTRARM&C Services Private Limited138 Robinson Road#17-00, The Corporate OfficeSingapore 068906

JOINT AUDITORSSomekh ChaikinCertified Public Accountants (Isr.)Member firm of KPMG InternationalKPMG Millennium Tower17 Ha’arba’a StreetTel Aviv 64739Israel

Partner-in-charge: Lior Caspi(appointed with effect from 1 January, 2008)

Chaikin, Cohen, Rubin and Co.Certified Public Accountants (Isr.)Kiriat Atidim Building No. 4P.O. Box 58143Tel Aviv 61580Israel

Partner-in-charge: Dan Aviram(appointed with effect from 1 January, 2007)

INTERNAL AUDITORDoron Cohen (CPA, CIA)Fahn Kanne Control Managemnt, Ltd.Subsidiary of Fahn Kanne and Co.Certified Public Accountants (Isr.)Member firm of Grant Thornton InternationalLevinstein Tower23 Menachem Begin RoadTel Aviv 66184Israel

PRINCIPAL BANKERSBank Leumi Le-Israel Limited.Bursa Business BranchPaz Towers5 Shoham StreetRamat Gan 52521Israel

Bank Igud (Union Bank of Israel)Ramat Gan Branch1 Jabotinsky StreetRamat Gan 52520Israel


23

Financial Highlights


24

(US$ '000) 2007 2008 2009 2010 2011Revenues 37,123 33,149 21,382 45,663 57,803 Gross Profit 24,402 21,130 12,479 29,350 38,281 Net Profit 8,010 1,594 1,528 11,111 17,366 Gross Profit Margin 65.7% 63.7% 58.4% 64.3% 66.2%Net Profit Margin 21.6% 4.8% 7.1% 24.3% 30.0%Cash and Investments (no debt) 25,270 12,010 20,863 28,270 33,946 EPS (US cents, fully diluted) 3.11 0.62 0.58 4.12 6.40 Dividend Per Share (US cents) 1.65 0.80 0.80 2.00 3.25

Financial Year Ended 31 December

Revenues (US$ ‘000)

Gross Profit Margin (%)

Gross Profit (US$ ‘000)

Net Profit Margin (%)

Net Profit (US$ ‘000)

Cash and Investments (US$ ‘000)

2007 2008 2009 2010 2011

2007 2008 2009 2010 2011

2007 2008 2009 2010 2011

2007 2008 2009 2010 2011

2007 2008 2009 2010 2011

2007 2008 2009 2010 2011

60,000

50,000

40,000

30,000

20,000

10,000

0

80

70

60

50

40

30

20

10

0

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

30

25

20

15

10

5

0

20,000

15,000

10,000

5,000

0

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

26 Corporate Governance Statement

34 Directors’ Report

37 Statement by Directors

38 Auditors’ Report

39 Consolidated Balance Sheets

40 Consolidated Statements of Comprehensive Income

41 Consolidated Statements of Changes in Shareholders’ Equity

42 Consolidated Statements of Cash Flows

43 Notes to the Consolidated Financial Statements

82 Shareholdings Statistics

84 Notice of Annual General Meeting

Proxy Form

Financial Contents

Corporate Governance Statement


26

Sarin’s shares were listed for trade on the SGX-ST on 8 April 2005

The Company’s corporate governance practices are described with specific reference to the Code.

BOARD OF DIRECTORS

Principle 1: Board’s Conduct of its Affairs

The Board of Directors of the Company (the “Board”) is entrusted with the responsibility for the overall management of our Company. The Board’s primary roles are to set the Company’s goals and policies and supervise the performance of the CEO’s duties. Among other things, the Board sets the Company’s goals and approves the Company’s action plans and budget (proposed by the Company’s management), reports to the Annual General Meeting about the state of the Company’s matters and about the Company’s business results, and discusses and resolves any matters which require the Board’s approval under any applicable law (including, without limitation, interested persons’ transactions) and/or under the guidelines set by the Board. In general any material issue concerning Sarin (e.g material research and development milestones, material market and/or business development issues, potential material transactions issues, etc.) is brought to the attention of the executive directors and to the Board in its entirety.

The Board meets regularly and in any event no less frequently than four times every calendar year. The Company’s Articles of Association (the “Articles”) and the Israeli Companies law allow the convening of the Board using conference calls or any other device allowing each director participating in such meeting to hear all the other directors participating in such meeting.

The directors are provided with written and oral guidance with regard to the performance of their duties as directors, prior to, and following their appointment as directors.

Principle 2: Board Composition and Guidance

As of the date of this report, the Board of Directors comprises nine directors, three of who are independent (two out of the three also qualify as “external directors”, under the Israeli law). The three independent directors joined the Board of Directors in March 2005, prior to the listing of the Company. On 28 April 2008 all of the directors retired from office and were re-appointed by the Company’s Annual General Meeting. On 11 December 2008 Mr. Aharon Shapira retired from his office as a non-executive director and Mr. Uzi Levami was appointed by the Company’s Board of Directors as an Executive Director in his stead. Mr. Levami’s appointment as an Executive Director was subsequently approved by the Company’s Annual General Meeting on 27 April 2009. Mr. Hanoh Stark retired from his position as an Executive Director in January 2009, but maintained his position as a Non-Executive Director. Mr. Avraham Eshed was appointed as an Executive Director in November 2010.

All of the current directors of the Company were re-elected for an additional three-year period, at the Company’s last Annual General Meeting on 27 April 2011.

The Nominating Committee reviews the independence of each independent director and applies the Code’s definition (as well as the definitions of the Israeli law) of what qualifies as an independent director in its review. Key information about the directors is detailed in the “Board of Directors” section of the annual report.

The directors of the Company in office at the date of this report are:

Executive Non-Executive Independent

Mr. Daniel Benjamin GlinertMr. Uzi LevamiMr. Avraham EshedMr. Eyal Mashiah

Mr. Ehud HarelMr. Hanoh Stark

Mr. Yehezkel Pinhas BlumMr. Chan Kam LoonMs. Valerie Ong Choo Lin

There are no permanent alternate directors (alternate directors have been appointed in the past only for specific meet-ings).

The Board draws from a broad spectrum of competencies and disciplines: from the diamond and gemstones industry, the high-tech industry, capital markets, legal, and management.


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Principle 3: Chairman and Chief Executive Officer

The Executive Chairman and the CEO of the Company are separate individuals. They are not related.

According to the resolution of the Board:

“The Company is of the view that a distinctive separation of responsibilities between the Chairman and the CEO will indeed ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making.

As the most senior executive in the Company, the CEO bears executive responsibility for the Company’s day-to-day business according to the policies set by the Board and subject to the Board’s directives, and works with the Board on strategic planning, business development and generally charting the growth of the Company.

The CEO shall report to the Executive Committee of the Board (comprised of the executive directors) on a continuous and frequent basis, and shall fluently consult with the Executive Committee regarding all matters of substance requiring their update, guidance and/or decision.

The Chairman bears responsibility for the proper functioning of the Board and the Board’s committees (and of the non-executive directors in particular), maintains on-going supervision over the management of the Company and over the flow of information from the Company’s management to the Board, and assists in promoting high standards of corporate governance and ensuring compliance with the Company’s guidelines of corporate governance.

The Chairman ensures that Board meetings are held when necessary and sets the Board meetings agenda in consultation with the CEO.

The Chairman ensures effective communication between the Board and the Company’s shareholders.”

Principle 4: Board Membership

According to the Articles, each director shall serve, unless the Annual General Meeting appointing him provides otherwise, until the third Annual General Meeting following the Annual General Meeting at which such director was appointed, or his earlier resignation or removal pursuant to the provisions of the Articles. A director who has completed his term of service or has been removed as aforesaid shall be eligible for re-election. The two directors who qualify as “external directors” may be removed from office only if they no longer qualify to serve as such, and may not serve more than nine years in the aggregate.

The Nominating Committee comprises five directors, a majority of who, including the Chairman, is independent. As at the date of this Report, the Nominating Committee members are:

Ms. Valerie Ong Choo Lin Mr. Chan Kam LoonMr. Yehezkel Pinhas BlumMr. Daniel Benjamin GlinertMr. Eyal Mashiah

(Chairperson and Independent Director) (Independent Director)(Independent Director)(Executive Director)(Executive Director)

Our Nominating Committee is responsible for the:

(a) re-nomination of directors (including independent directors of our Company) taking into consideration each director’s contribution and performance;

(b) determining on an annual basis whether or not a director is independent; and(c) deciding whether or not the members of the Board are able to and have been adequately carrying

out their duties as directors.

Key information about the directors is detailed in the “Board of Directors” section of the annual report.



28

Principle 5: Board Performance

Our Nominating Committee decides how the Board’s performance is to be evaluated and proposes objective performance criteria, subject to the approval of the Board, which address how the Board has enhanced long-term shareholder’s value. The performance evaluation also includes consideration of our share price performance over a five-year period vis-à-vis the Straits Times Index. The Board also implemented a process to be carried out by our Nominating Committee for assessing the effectiveness of the Board as a whole and for assessing the contribution of each individual director to the effectiveness of the Board.

Throughout 2011, the Board was convened five times (in addition, written resolutions were passed on two occasions).

The attendance (in person) of the directors in the Board meetings held in 2011 was as follows:

Board of Directors – 2011

Name of Director No. of Meetings Held Attendance

Mr. Daniel Benjamin Glinert 5 5

Mr. Uzi Levami 5 5

Mr. Eyal Mashiah 5 5

Mr. Avraham Eshed 5 5

Mr. Ehud Harel 5 5

Mr. Hanoh Stark 5 4

Mr. Yehezkel Pinhas Blum 5 5

Mr. Chan Kam Loon 5 5

Ms. Valerie Ong Choo Lin 5 5

Mr. Ilan Weismann - Alternate Director1 5 1

1 Mr. Ilan Weismann attended one meeting as an alternate director for Mr. Hanoh Stark.

The attendance of the directors in the audit committee meetings held in 2011 is as follows:

Audit Committee – 2011





The attendance of the directors in the Remuneration Committee meetings held in 2011 is as follows:

Remuneration Committee – 2011





Mr. Uzi Levami 1 1




29

The attendance of the directors in the Nominating Committee meetings held in 2011 is as follows:

Nominating Committee - 2011





Mr. Daniel Benjamin Glinert 0 0


Principle 6: Access to Information

The management of the Company provides the Board with interim and periodical (quarterly/annual) financial reports, budget control reports and additional financial and operational information. The Board has separate and independent access to senior management of the Company. Requests for information from the Board are dealt with promptly. The Board, acting through its Executive Committee is informed on all material events and transactions as and when they occur. Professional advisors may be appointed to advise the Board, or (in special circumstances – as provided by Israeli law) any of its members, if the Board or any individual member thereof needs independent professional advice.

The Company Secretary (who also serves as the Company’s legal counsel) attends all Board meetings and is responsible for ensuring that Board procedures are followed and for the recording of the minutes. Together with the management staff of the Company, the Company Secretary is responsible for compliance with the applicable laws, rules and regulations in this regard.

Principles 7, 8 & 9: Procedures for Developing Remuneration Policies, Level and Mix of Remuneration, and Disclosure of Remuneration

The Remuneration Committee comprises five directors, a majority of who, including the Chairman, is independent. As at the date of this report, the Remuneration Committee members are:

Mr. Yehezkel Pinhas BlumMr. Chan Kam LoonMs. Valerie Ong Choo LinMr. Eyal Mashiah Mr. Uzi Levami

(Chairman and Independent Director) (Independent Director)(Independent Director)(Executive Director)(Executive Director)

Our Remuneration Committee recommends to our Board of Directors a framework of remuneration for our directors and key executives, and recommends specific remuneration packages for each Executive Director. The recommendations of our Remuneration Committee concerning the remuneration of directors are submitted for endorsement by our Audit Committee and afterwards, by the entire Board of Directors and by the General Meeting. All aspects of directors’ remuneration, including but not limited to directors’ fees, salaries, allowances and bonuses, options and benefits in kind are dealt with by our Remuneration Committee. Each member of our Remuneration Committee shall abstain from voting on any resolutions in respect of his/her remuneration package. The remuneration of two of our independent directors, who are deemed also as “external directors” according to the provisions of the Israeli Companies Law (Mr. Yehezkel Pinhas Blum and Ms. Valerie Ong Choo Lin), is also subject to the limitations set by Israeli law.

Our Non-Executive Directors received for their services during 2011 participation fees – based on their actual participation in the meetings of the Board of Directors, the Audit Committee, the Nominating Committee and the Remuneration Committee amounting in the aggregate (for all three Non-Executive Directors) to less than S$35,000. The participation fees paid to our Non-Executive Directors are equal to the fees paid to our Independent Directors per meeting (which participation fees are subject to the limitations set by Israeli law - as aforesaid). Our Independent Directors received (in the aggregate) less than S$155,000 for their services in 2011 (the remuneration of our Independent Directors is comprised of annual fees and participation fees). The Executive Directors, one of who was also remunerated as Chief Executive Officer during 2011 received (together) approximately S$1,230,000 for their services. The remuneration arrangements of our Executive Directors include monetary performance based incentives (based on the Company’s results).



30

At the Annual General Meeting and Extraordinary General Meeting held on 27 April 2011, the Company granted options, under the Plan (as defined below) as follows:- 300,000 options to each executive director;- 250,000 options to each independent director;- 150,000 options to each non-executive director.

Such options were granted at a discount of 20% off the Market Price, with a two-year vesting period.

The remuneration (including performance based incentives, but excluding options) paid and accrued by us and our subsidiaries to each of our directors and our top five (in terms of amount of remuneration) employees (not being directors) for services rendered to us in all capacities during 2011, were as follows:

Name Position Remuneration Breakdown between Fixed Income and Performance Based Incentives

Fixed Income Performance Based Incentives

Mr. Daniel Benjamin Glinert Executive Director and Chairman

Band 1 55% 45%

Mr. Uzi Levami Executive Director and CEO Band 3 44% 56%

Mr. Avraham Eshed Executive Director Band 1 50% 50%

Mr. Eyal Mashiah Executive Director Band 1 50% 50%

Mr. Yehezkel Pinhas Blum Independent Director Band 1 100% ___

Mr. Philip Chan Independent Director Band 1 100% ___

Ms. Valerie Ong Choo Lin Independent Director Band 1 100% ___

Mr. Ehud Harel Non- Executive Director Band 1 100% ___

Mr. Hanoh Stark Non- Executive Director Band 1 100% ___

Mr. Oded Ben Shmuel Managing Director, Sarin India Band 2 66% 34%

Mr. David Sydney Block Deputy CEO and VP Sales Band 2 92% 8%Mr. Akiva Caspi VP Marketing and

New Business DevelopmentBand 2 94% 6%

Mr. Abraham Meir Kerner VP Research and Development Band 2 93% 7%

Mr. William L. (“Bill”) Kessler CFO Band 2 91% 9%

Notes:

Band 1: remuneration of up to S$ 250,000 per annum.

Band 2: remuneration of between S$ 250,001 to S$ 500,000 per annum.

Band 3: remuneration of between S$ 500,001 to S$ 750,000 per annum.

Any future arrangements concerning the remuneration of our directors shall be brought to the approval of our Remuneration Committee, Audit Committee, Board of Directors and General Meeting.

Any future arrangements concerning the remuneration of our key executives shall be brought to the review of the Remuneration Committee and Board of Directors.

Since its listing on the SGX-ST, the Company has been granting share options to its employees under its 2005 Share Option Plan (the “Plan”). The Plan is described in the Company’s prospectus and a copy thereof is attached to the said prospectus. The Board of Directors has set guidelines concerning, among other things, eligibility to receive share options (based on performance and time of service with the Company), vesting periods (typically over four years from the date of grant) and the minimum and maximum amounts of share options to be granted (based on seniority and expertise). So far, all share options granted under the Plan were granted either at a 20% discount off the Market Price (as such term is defined in the Plan) or at the Market Price. Further details with regard to the options granted by the Company may be found in the “Directors Report” section of the annual report.

Principle 10: Accountability

The Board is accountable to the Company’s shareholders. The Board provides the shareholders with periodical, and to the extent necessary and/or required – immediate, reports with regard to the business, financial and other aspects of the Company’s activities.



31

The management of the Company provides the Board in general, and the executive directors in particular, with management accounts regarding the Company’s performance. Such accounts are provided to the executive directors on an ongoing basis and to the directors on a periodical basis (and where needed - as warranted by the circumstances).

Principles 11, 12 & 13: Audit Committee, Internal Controls and Internal Audits

The Audit Committee comprises three directors, all of who, including the Chairman, are independent. As at the date of this Report, the Audit Committee members are:

Mr. Chan Kam LoonMr. Yehezkel Pinhas BlumMs. Valerie Ong Choo Lin

(Chairman and Independent Director) (Independent Director)(Independent Director)

The members of our Audit Committee possess vast and diverse accounting, financial and commercial expertise and experience. Mr. Chan Kam Loon has a degree in accountancy and is qualified as a chartered accountant with the Institute of Chartered Accountants in England and Wales, Mr. Yehezkel Pinhas Blum has a degree in economics and business administration and Ms. Ong heads the Corporate Finance practice in the Singapore law firm of Rodyk and Davidson. Each of them has more than twenty years’ financial/business experience. Further details with regard to expertise and experience of the members of our Audit Committee may be found in the “Board of Directors” section of the annual report.

Our Audit Committee assists our Board in discharging its responsibility to safeguard our assets, maintain adequate accounting records, and develop and maintain effective systems of internal control, with the overall objective of ensuring that our management creates and maintains an effective control environment in our Company, in consultation with the internal auditor. Under its terms of reference, our Audit Committee may seek any information it requires from any employee and all employees are directed to co-operate with any requests made by our Audit Committee. Our Audit Committee also provides a channel of communications between our Board, our management and our internal and external auditors on matters relating to audit.

The Audit Committee meets periodically and performs the following functions:

(a) review the scope and results of the audit and its cost effectiveness, and the independence and objectivity of the external auditors.

(b) review with the internal and external auditors the audit plan, their evaluation of the system of internal accounting controls, their letter to management and the management’s response;

(c) review the internal control procedures and recommend to the Board ways and means to ensure the adequacy of the Group’s Internal Control Procedures. Indeed, the Board is of the opinion, based on Audit Committee concurrence, that the internal control procedures addressing financial and compliance risks of the Group are adequate.

(d) review the quarterly and annual financial statements and balance sheet and profit and loss accounts and the Appendix 7.2 report thereon before submission to our Board for approval, ensuring the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance, and focusing in particular on changes in accounting policies and practices, major risk areas, significant adjustments resulting from the audit, compliance with accounting standards and compliance with the Listing Manual and any other relevant statutory or regulatory requirements;

(e) coordinate between the external auditors and our management, and review the assistance given by our management to the auditors, and discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss (in the absence of our management, where necessary);

(f) review and discuss with the external auditors any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on our Group's operating results or financial position, and our management’s response;



32

(g) consider the suitability of the external and internal auditors and recommend to the Board to appoint and re-appoint the internal and external auditors and matters relating to the resignation or dismissal of the auditors. Indeed, based on the review of the external auditors’ credentials and their registration with and reporting to the Public Company Accounting Oversight Board (PCAOB), a member of the International Forum of Independent Audit Regulators, independent of the accounting profession and directly responsible for the system of recurring inspection of accounting firms, the Board and the Audit Committee have confirmed the external auditors’ suitability and their ability to meet their audit obligations. The Board and the Audit Committee further satisfied themselves that the external audit firms possess the adequate resources, experience and expertise and that the audit engagement partners and the supervisory and professional staff assigned to the particular audit possess the necessary skills and experience required for such task;

(h) consider and recommend to the Board with regard to the fees of the internal and external auditors; the Group has paid to its external auditors an aggregate amount of US$ 192,000 for services rendered in 2011, as detailed below;

(i) review interested person transactions (if any) falling within the scope of Chapter 9 of the Listing Manual or within the scope of those interested persons transactions that require the approval of the audit committee pursuant to Israeli Companies Law;

(j) review potential conflicts of interest, if any;

(k) review the remuneration packages of employees who are related to our directors and/or substantial shareholders, if any;

(l) undertake such other reviews and projects as may be requested by our Board, and report to our Board its findings from time to time on matters arising and requiring the attention of our Audit Committee;

(m) generally undertake such other functions and duties as may be required by statute or the Listing Manual, or by such amendments as may be made thereto from time to time; and

(n) setting an arrangement by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.

Apart from the duties listed above, our Audit Committee communicates and reviews the findings of internal investigation into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any law, rule or regulation which has or is likely to have a material impact on our Company’s operating units and/or financial position.

The Group’s internal controls and systems are designed to provide reasonable assurance to the integrity and reliability of the financial information.

Based on the recommendations of the Audit Committee, the Board of Directors appointed, in August 2009, Mr. Doron Cohen, CPA, CIA, of Fahn Kanne Control Management, Ltd., subsidiary of Fahn Kanne and Co., Certified Public Accountants (Isr.) (Member firm of Grant Thornton International), as the internal auditor of the Group. The role of the internal auditor is to independently examine, among other things, whether our activities comply with the law and orderly business procedure. Our internal auditor submits his work plans to the prior approval of the Audit Committee and presents his findings to the Audit Committee and to the Board of Directors.

The external auditors of the Group are Somekh Chaikin Certified Public Accountants (Isr.), member firm of KPMG International (partner in charge Lior Caspi, appointed with effect 1 January 2008, four consecutive audits) and Chaikin, Cohen, Rubin and Company (partner in charge Dan Aviram, appointed with effect 1 January 2007, five consecutive audits). The Group engages a suitable auditing firm, BSR & Co., member firm of the KPMG network of independent member firms affiliated with KPMG International, for the audit of its significant foreign-incorporated subsidiary, namely Sarin Technologies India Private Ltd.

The Group has paid to its external auditors an aggregate amount of US$ 192,000 for services rendered in 2011, out of which amount, US$ 146,000 were paid as audit fees, US$ 38,000 were paid as tax fees and US$ 8,000 were paid for other services.

The Audit Committee confirms that it has undertaken a review of all non-audit services provided by the external auditors and is satisfied that such services should not, in the Audit Committee’s opinion, affect the independence of the external auditors.



33

Principles 14 & 15: Communication with Shareholders and Greater Shareholder Participation

The Group’s results are published through the SGXNET and news releases. The Company does not practice selective disclosure. Price sensitive information is first publicly released, either before the Company meets with any group of analysts or simultaneously with such meetings. Results and annual reports are announced or issued within the mandatory period.

All shareholders of the Company are provided with the annual report and notice of the convening of the Annual General Meeting. At the Annual General Meeting shareholders are given the opportunity to air their views and ask directors or management questions regarding the Company.

The Articles allow a member of the Company to appoint not more than two proxies to attend and vote instead of the member.

DEALINGS IN SECURITIES

The Company has adopted the recommendations of the SGX’s Best Practices Guide on Dealing in Securities in relation to its policy on the Company (with regard to the exercise of its share buy-back mandate), directors, officers and employees dealing in the Company’s shares.

MATERIAL CONTRACTS

Throughout the financial year under review the Company was not a party to any Material Contracts involving the Chief Executive Officer, directors or controlling shareholders.

INTERESTED PERSON TRANSACTIONS

All interested person transactions are considered and reviewed by the Board of Directors, and to the extent required by the Listing Manual and/or the Israeli Companies Law, also by the Audit Committee and the General Meeting

Our internal control procedures are designed to ensure that all interested person transactions, including interested person transactions involving companies related to our Company are conducted at arm’s length and on commercial terms.

Throughout the financial year under review the Company was not a party to any interested party transaction the financial scope of which exceeded S$100,000, except as noted below:

On September 3, 2011, the Company exercised its option to extend the lease of 224 square meters of office space in the Israeli Diamond Exchange building, from a company controlled by an interested party by additional 24 month period. The monthly rent during the option period is US$8,615 per month. The lessor may terminate the lease at any time on notice of five months to the Company.

Directors’ ReportFor the year ended 31 December 2011


34

Directors’ Report

We are pleased to submit this annual report to the shareholders of the Company together with the audited statements for the financial year ended 31 December 2011.

Directors

The Directors in office at the date of this report are as follows:

Daniel Benjamin Glinert, Chairman of the Board and Executive DirectorUzi Levami, Executive Director & Chief Executive Officer (CEO)Avraham Eshed, Executive DirectorEyal Mashiah, Executive Director

Ehud Harel, Non-Executive DirectorHanoh Stark, Non-Executive Director

Yehezkel Pinhas Blum, Independent DirectorChan Kam Loon, Independent DirectorValerie Ong Choo Lin, Independent Director

Directors’ Interests

According to the share register kept by the Company for the purposes of Sections 127 and 128 of the Israeli Companies Law, 5759-1999 (the “Law”), and according to the information provided to the Company by our directors, particulars of interests of directors who held office at the end of the financial year 2011 (the “Year”) in shares in the Company and in related corporations, other than wholly owned subsidiaries, are as follows:

Except as listed hereunder, none of our directors who held office at the end of the Year had any direct interest in the Company’s shares – neither at the beginning of the Year, nor at the end of the Year, nor as at 21 January 2012.

Shareholdings in which the director is deemed to have an interest

The Company As at 1 January 2011

As at 31 December 2011

As at 21 January 2012

Ordinary Shares of the Company of no par value each

Daniel Benjamin Glinert1,2 47,100,000 46,625,000 46,625,000

Avraham Eshed3 150,000 577,000 577,000

Ehud Harel4 99,830,000 99,830,000 99,830,000

Uzi Levami5,6 46,350,000 46,250,000 46,250,000

Eyal Mashiah7 1,200,000 1,200,000 1,200,000

Hanoh Stark8 100,180,000 100,180,000 100,180,000

Valerie Ong Choo Lin9 -- 250,000 250,000

¹ Daniel Benjamin Glinert is deemed a shareholder of the Company by virtue of his holdings (through D. Glinert Holdings Ltd.) of more than 20% of the issued share capital of Interhightech (1982) Ltd., by virtue of his indirect ownership of 350,000 shares held on his behalf by Eyal Khayat, Option Plan 2005 trustee and by virtue of his indirect ownership of 875,000 shares held on his behalf by UOB Kay Hian Pte.

² On December 28, 2011, Messr.s. Glinert and Levami (through his wholly owned holding company, U. Levami Holdings Ltd.), purchased off-market, 100,000 and 500,000 shares of the Company respectively from Interhightech (1982) Ltd., a company in which they are both controlling shareholders (“Interhightech”). The aggregate of the Company’s shares held by Interhightech and its controlling shareholders did not change, but the deemed shareholdings of Glinert and Levami were reduced, due to such transactions, even though their directly controlled personal holdings were actually increased.

³ Avraham Eshed is deemed a shareholder of the Company by virtue of his indirect ownership of 150,000 shares held on his behalf by Eyal Khayat Option Plan 2005 trustee and by virtue of his indirect ownership of 427,000 shares held on his behalf by Union Bank of Israel Ltd.

4 Ehud Harel is deemed a shareholder of the Company by virtue of his holdings (through Hargem Ltd.) of more than 20% of the issued share capital of Sarin Research and Development Ltd.

5 Uzi Levami is deemed a shareholder of the Company by virtue of his holdings (through U. Levami Holdings Ltd.) of more than 20% of the issued share capital of Interhightech (1982) Ltd., by virtue of his indirect ownership of 350,000 shares held on his behalf by Eyal Khayat, Option Plan 2005 trustee and by virtue of his indirect ownership of 500,000 shares held on his behalf by Bank Hapoalim Ltd.

6 See footnote [2] above.7 Eyal Mashiah is deemed a shareholder of the Company by virtue of his indirect ownership of 700,000 shares held on his behalf by Eyal Khayat Option Plan 2005 trustee

and by virtue of his indirect ownership of 500,000 shares held on his behalf by Bank Leumi Ltd. 8 Hanoh Stark is deemed a shareholder of the Company by virtue of his holdings (through Hanoh Stark Holdings Ltd.) of more than 20% of the issued share capital of

Sarin Research and Development Ltd. and by virtue of his indirect ownership of 350,000 shares held on his behalf by Eyal Khayat, Option Plan 2005 trustee.9 Valerie Ong Choo Lin is deemed a shareholder of the Company by virtue of her indirect ownership of 250,000 shares held on her behalf by Citibank Brokerage

(Singapore)


35


Shareholdings in which the director is deemed to have an interest

Related CorporationsAs at

1 January 2011As at

31 December 2011As at

21 January 2012Sarin Research and Development Ltd. Ordinary Shares of NIS 0.01 par value each, fully paid up

Hanoh Stark (Shares registered in the name of Hanoh Stark Holdings Ltd.)

32,689 32,689 32,689

Ehud Harel (Shares registered in the name of Hargem Ltd.) 34,051 34,051 34,051

Eyal Mashiah (Shares registered in the name of Ramgem Ltd.) 19,522 19,522 19,522

Avraham Eshed (Shares registered in the name of Gemstar Ltd.)

18,160 18,160 18,160

Interhightech (1982) Ltd. Ordinary Shares of NIS 0.01 par value each, fully paid up

Daniel Benjamin Glinert (Shares registered in the name of D. Glinert Holdings Ltd.)

9,893 9,893 9,893

Uzi Levami (Shares registered in the name of U. Levami Holdings Ltd.)

9,893 9,893 9,893

Outstanding options granted to directors under the Company’s 2005 Option Plan*

Name of Director Number of Options Granted and Outstanding

Daniel Benjamin GlinertUzi LevamiAvraham EshedEyal MashiahEhud HarelHanoh StarkYehezkel Pinhas Blum Chan Kam LoonValerie Ong Choo Lin

300,000300,000300,000300,000150,000150,000250,000500,000 250,000

* Note – Options which were granted to directors under the Company’s 2005 Option Plan and which were exercised thereafter are not included in the above table.

Except as disclosed in this report, no director who held office at the end of the Year had interests in shares or debentures of the Company or of related corporations, either at the later of the beginning of the Year or the commencement of his service as a director or at the end of the Year.

Except as disclosed in this report, the Company was not a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisitions of shares in or debentures of the Company or any other body corporate.

Since the end of the last financial year (2011), and except as disclosed in the Company’s audited financial statements for the Year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member or with a company in which he has a substantial interest.



36

Share Options

In 2005 the Company adopted a share option plan (the “Plan”), and since then granted options to employees and directors at no consideration. As of 31 December 2011, a total of 18,511,148 options have been granted under the Plan, with each option being exercisable into one ordinary share each (of no par value) in the capital of the Company. The options under the Plan were granted at an exercise price ranging between S$ 0.109 and S$ 0.66 per option (according to the date of grant). For the year ended 31 December 2011, the Company granted a total of 5,270,000 options under the Plan as detailed in the Company’s audited financial statements. As of 31 December 2011, there were 8,716,628 options outstanding under the Plan, and 6,656,135 options have been exercised under the Plan. The exercise period for options granted under Plan is six years from the date of grant, with a vesting period of up to four years. SGXNET announcements have been made on the dates of the various offers including details of the grant in accordance with the Listing Manual.

Audit Committee

The Audit Committee of the Company was established on 8 March 2005 by the Board of Directors and comprises three independent directors. The members of the Audit Committee are Mr. Chan Kam Loon (Chairperson), Mr. Yehezkel Pinhas Blum and Ms. Valerie Ong Choo Lin. The Audit Committee assists the Board in discharging its responsibility to safeguard the Group’s assets, maintains adequate accounting records, and develops and maintains effective systems of internal control, with the overall objective of ensuring that the management creates and maintains an effective control environment in the Group, in consultation with the internal and external auditors.

Auditors

The auditors, Somekh Chaikin, Certified Public Accountants (Isr.), Member firm of KPMG International, and Chaikin, Cohen, Rubin & Co., Certified Public Accountants (Isr.), have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors

Daniel Benjamin Glinert Uzi LevamiExecutive Director, Chairman of the Board Executive Director, CEO

Avraham Eshed Eyal MashiahExecutive Director Executive Director

Israel1 April 2012


37

Statement by Directors

In the opinion of the directors,

(a) the balance sheet of the Company and the consolidated financial statements of the Group as set out on pages 39 to 81 are drawn up so as to give a true and fair view of the Company and of the Group at 31 December 2011 and of the results of the business, changes in equity and cash flows of the Group for the financial year then ended; and

(b) as at the date of this statement, there are reasonable grounds to assume that the Group will be able to pay its debts as and when they fall due.

On behalf of the directors

Daniel Benjamin Glinert Uzi Levami Executive Director, Chairman of the Board Executive Director, CEO

Avraham Eshed Eyal MashiahExecutive Director Executive Director

1 April 2012


38

Auditors’ ReportTo the Shareholders of Sarin Technologies Ltd.

We have audited the accompanying consolidated statements of financial position of Sarin Technologies Ltd. and subsidiaries (hereinafter the “Company”) as at December 31, 2011 and 2010 and the consolidated statements of comprehensive income, statements of changes in shareholders’ equity and statements of cash flows, for each of the years ended on such dates. These financial statements are the responsibility of the Company’s Board of Directors and of its Management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor’s Performance) - 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the consolidated financial statements are free of material misstatement. An audit includes, examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Board of Directors and by Management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2011 and 2010 and their results of operations, changes in its shareholders’ equity and cash flows, for each of the years ended on such dates, in accordance with International Financial Reporting Standards (IFRS).

Somekh Chaikin Chaikin, Cohen, Rubin and CoCertified Public Accountants (Isr.) Certified Public AccountantsMember firm of KPMG International

Tel-Aviv, Israel Tel-Aviv, IsraelMarch 26, 2012 March 26, 2012

Consolidated Balance Sheets


39

2011 2010

Note US$ thousands US$ thousands

Assets

Property, plant and equipment 11 2,903 2,629

Intangible assets 12 9,521 9,687

Deferred tax assets 10 443 845

Total non-current assets 12,867 13,161

Inventories 14 6,264 4,762

Trade receivables 15 6,683 3,140

Other receivables 16 1,338 961

Short-term investments (bank deposits) 17 19,105 5,413

Restricted cash 27 485 --

Cash and cash equivalents 18 14,356 22,857

Total current assets 48,231 37,133

Total assets 61,098 50,294

Equity

Share capital* 19 -- --

Share premium and reserves 15,433 14,572

Dormant shares, at cost 19 (891) (53)

Retained earnings 33,661 24,366

Total equity 48,203 38,885

Liabilities

Long-term liabilities 23 652 968

Employee benefits 22 155 186

Total non-current liabilities 807 1,154

Trade payables 2,657 2,576

Other payables 21 6,977 5,292

Current tax payable 2,081 2,145

Warranty provision 25 373 242

Total current liabilities 12,088 10,255

Total liabilities 12,895 11,409

Total equity and liabilities 61,098 50,294

* No par value

The accompanying notes are an integral part of the consolidated financial statements.

as of December 31


40

Consolidated Statements of Comprehensive Incomefor the Years Ended December 31

2011 2010

Note US$ thousands US$ thousands

Revenue 7 57,803 45,663

Cost of sales (19,522) (16,313)

Gross profit 38,281 29,350

Research and development expenses (5,771) (5,246)

Sales and marketing expenses (7,401) (6,369)

General and administrative expenses (3,853) (3,305)

Profit from operations 21,256 14,430

Finance income 532 317

Finance expense (354) (335)

Net finance income (expense) 9 178 (18)

Share of loss of equity accounted investee 13 -- (563)

Profit before income tax 21,434 13,849

Income tax expense 10 (4,068) (2,738)

Profit for the year 17,366 11,111

Other comprehensive (expense) income Foreign currency translation differences for foreign operations

(334) 55

Total comprehensive income for the year ended 17,032 11,166

Earnings per share

Basic earnings per share (US cents) 20 6.47 4.19

Diluted earnings per share (US cents) 20 6.40 4.12



41

Consolidated Statements of Changes in Shareholders’ Equity

Sharecapital*

Sharepremium

and reservesTranslation

reserveRetained earnings

Treasuryshares Total

US$ thousands

Balance at January 1, 2010 -- 13,795 (28) 18,704 -- 32,471

Profit for the year ended December 31, 2010 -- -- -- 11,111 -- 11,111

Other comprehensive income for the year ended December 31, 2010 -- -- 55 -- -- 55

Share-based payment expenses -- 229 -- -- -- 229

Exercise of options -- 517 -- -- -- 517

Dividend paid -- -- -- (5,445) -- (5,445)

Dormant shares, at cost (126,000 shares) -- -- -- -- (53) (53)

Balance at December 31, 2010 -- 14,541 27 24,370 (53) 38,885

Profit for the year ended December 31, 2011 -- -- -- 17,366 -- 17,366

Other comprehensive (expense) for the year ended December 31, 2011 -- -- (334) -- -- (334)

Share-based payment expenses --

541 -- -- --

541

Exercise of options -- 658 -- -- -- 658

Dividend paid -- -- -- (8,075) -- (8,075)

Dormant shares, at cost (1,563,000 shares)

-- -- -- -- (838) (838)

Balance at December 31, 2011 -- 15,740 (307) 33,661 (891) 48,203

* No par value



Consolidated Statements of Cash Flowsfor the Years Ended December 31

2011 2010US$ thousands US$ thousands

Cash flows from operating activitiesProfit for the year 17,366 11,111

Adjustments for:Share-based payment expenses 541 229 Income tax expense 4,068 2,738 Depreciation of property, plant and equipment 1,172 981 Share of loss of equity accounted investee -- 563 Amortisation of intangible assets 2,074 2,478 Loss on sale or disposal of property, plant and equipment -- 267 Net finance (income) expense (178) 18

Changes in working capitalInventories (1,413) (1,838)Trade receivables (3,543) (1,814)Other receivables (377) 79 Trade payables 81 745 Other short and long term liabilities 1,073 444 Employee benefits (31) 141 Income tax paid (3,730) (1,695)

Net cash from operating activities 17,103 14,447

Cash flows from investing activitiesAcquisition of property, plant and equipment, net (1,535) (1,714)Acquisition of intellectual property (621) (390)Restricted cash (485) --Short-terms investments, net (13,692) 3,299 Capitalisation of R&D expenses (840) -- Interest received 615 211

Net cash (used in) from investing activities (16,558) 1,406

Cash flows used in financing activitiesProceeds from exercise of share options 658 517 Purchase of Company’s shares by the Company (838) (53)Receipt of long-term grants -- 59 Repayment of liability to the Office of the Chief Scientist (354) (199)Interest paid (354) (131)Dividends paid (8,075) (5,445)

Net cash used in financing activities (8,963) (5,252)

Net (decrease) increase in cash and cash equivalents (8,418) 10,601

Cash and cash equivalents at beginning of year 22,857 12,151 Effect of exchange rate fluctuations on cash and cash equivalents (83) 105 Cash and cash equivalents at end of year 14,356 22,857

Non cash activities:Acquisition of intellectual property on credit 346 225


43Sarin Technologies Ltd. Annual Report 2011

Notes to the Consolidated Financial Statements

Note 1 - General

A. Reporting Entity

Sarin Technologies Ltd. (hereinafter “Sarin” or the “Company”) is a company domiciled in Israel. The address of the Company’s registered office is 7 Atir Yeda Street, Kfar Saba 44643, Israel. The consolidated financial statements of the Company as at and for the year ended December 31, 2011 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates. The Company was incorporated on November 8, 1988. On April 8, 2005 the Company was admitted to the main board list of the Singapore Exchange Securities Trading Ltd.

B. Introduction

The Group is a worldwide leader in the development and manufacturing of advanced planning, evaluation and measurement systems for diamond and gemstone production. The Group’s products include diamond cut, colour and light performance grading tools, the GalaxyTM family of inclusion mapping systems, rough diamond optimisation systems, laser cutting and shaping systems, laser-marking and inscription machines and polished diamond visualisation systems. The Group’s systems have become an essential gemmology tool in every properly equipped gem lab, manufacturing plant and diamond appraisal business and are today considered essential items by many diamond wholesale dealers and retailers. The Group’s systems comprise various hardware technologies, including electro-optics, electronics, precision mechanics and lasers. At the heart of these systems is the computer software that implements three-dimensional modeling and volume / value optimisation using advanced mathematical algorithms, and overall system control (motion, image capture, laser functionality, etc.).

The Company owns a 100% interest in each of Galatea Ltd. (acquired in 2008), Sarin Color Technologies Ltd. and Sarin Polishing Technologies Ltd. each organised in Israel, Sarin Technologies India Private Ltd. (“Sarin India”), organised in India and Sarin Hong Kong Ltd., organised in Hong Kong. The Company also has a registered entity in New York, USA, for sales tax purposes. The Company also owns a 23% interest in IDEX Online SA, organised in Switzerland (acquired in 2008) (see Note 13).

These financial statements were authorised for issue by the directors on March 26, 2012.

Note 2 - Basis of Preparation

A. Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (hereinafter – IFRS). These standards and interpretations were adopted by the International Accounting Standards Board (IASB) and include international financial reporting standards and international accounting standards (IAS) along with the interpretations of these standards of the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee — IFRIC) or interpretations of the Standing Interpretations Committee (SIC), respectively.

B. Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the consolidated balance sheet:

• financial instruments, derivatives and other assets and liabilities measured at fair-value through profit or loss;

• defined benefit obligations are presented at present value (as calculated by an actuary);• investments in associates accounted for using the equity method; • inventory measured at the lower of cost or net realizable value;• deferred tax assets and liabilities; and • certain provisions are recognised according to the best possible estimate at the end of the reporting

period of the outflow required for settling the present obligation (when the value of time is material, the future cash flows are discounted at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability).



Note 2 - Basis of Preparation (cont'd)

C. Functional and presentation currency

These consolidated financial statements are presented in United States (US), dollars, or US$, which is the Group’s functional currency. The US dollar is the currency that represents the principal economic environment in which the Group operates. All financial information presented in US dollars has been rounded to the nearest thousand.

D. Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Certain accounting estimates used in the preparation of the Group’s consolidated financial statements may require management to make assumptions regarding circumstances and events that involve considerable uncertainty. Management prepares these estimates on the basis of past experience, known facts, external circumstances, and reasonable assumptions. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes:

Note 12 – measurement of amortisation of intangible assets Note 24 – measurement of share-based payments Notes 25 and 28 – warranty provisions and contingencies

E. Changes in accounting policies

As of January 1, 2011, the Group, in accordance with IFRS, changed its accounting policies in relation related party disclosures and financial instrument disclosures.

i. Related party disclosures

As from January 1, 2011 the Group applies IAS 24 (2009) Related Party Disclosures (hereinafter – “IAS 24 (2009)”). IAS 24 (2009) includes changes in the definition of a related party. IAS 24 (2009) was applied retrospectively. For the purpose of applying IAS 24 (2009) for the first time, the Group mapped its relationships with related parties. No new related parties have been identified according to the new definition and as a result of the mapping. For further information see Note 29 – Related Parties.

ii Financial instruments – amendments to disclosures

As from January 1, 2011 the Group applies the amendment to IFRS 7 Financial Instruments: Disclosures – Amendments to disclosures (hereinafter – “IFRS 7 Amendment”) – The IFRS 7 Amendment requires the addition of an explicit declaration that the interaction between the qualitative and quantitative disclosures enables the users of the financial statements to better assess the Company’s exposure to risks arising from financial instruments. Furthermore, the clause stating that quantitative disclosures are not required when the risk is immaterial was removed, and certain disclosure requirements regarding credit risk were amended while others were removed. The required disclosures are reflected in these financial statements. For further information see Note 26 – Financial Instruments.



Note 3 - Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities, except as explained in Note 2E, which addresses changes in accounting policies.

A. Basis of consolidation

i. Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power 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 currently are exercisable are taken into account.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.

ii. Business combinations

The Group implements the acquisition method to all business combinations. The acquisition date is the date on which the acquirer obtains control over the acquiree. Control is the power 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 are currently exercisable are taken into account. The Group exercises discretion in determining the acquisition date and whether control has been obtained. The Group recognizes goodwill at acquisition according to the fair value of the consideration transferred less the net amount of the identifiable assets acquired and the liabilities assumed. On the acquisition date the acquirer recognizes a contingent liability assumed in a business combination, if there is a present obligation resulting from past events and its fair value can be reliably measured. After the acquisition date, the Group recognizes changes in fair value of the contingent consideration classified as a financial liability in profit or loss. Changes in liabilities for contingent consideration in business combinations that occurred before January 1, 2010 will continue to be recognized in goodwill and will not be recognized in profit or loss.

iii. Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity.

Associates are accounted for using the equity method and are recognised initially at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

iv. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in these investments. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.



Note 3 - Significant Accounting Policies (cont’d)

B. Foreign currency

i. Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates as at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency as at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on translation are recognised in profit or loss.

ii Foreign operations

The assets and liabilities of foreign operations are translated to US dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to US dollars at the average exchange rate for the period. Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation reserve.

C. Financial instruments

i. Non-derivative financial assets

Initial recognition of financial assets

The Group initially recognises receivables and deposits on the date that they are originated. Non-derivative financial instruments comprise short-term investments, trade and other receivables and cash and cash equivalents.

Derecognition of financial assets

Financial assets are derecognised when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. See (ii) hereunder regarding the offset of financial assets and financial liabilities. The Group classifies its financial assets according to the following categories:

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition receivables are assessed for specific impairment. Receivables comprise trade and other receivables.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances available for immediate use and call deposits. Cash equivalents comprise short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value.




C. Financial instruments (cont'd)

ii. Non-derivative financial liabilities

Initial recognition of financial liabilities

Financial liabilities include trade and other short-term and long-term liabilities. These liabilities are recognised initially at fair value plus any directly attributable transaction costs.

Derecognition of financial liabilities

Financial liabilities are derecognised when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled. The Group has the following non-derivative financial liabilities: trade and other payables. Financial assets and liabilities are offset and the net amount is presented in the consolidated balance sheet when the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

iii. Share capital

Ordinary shares

Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity.

Dormant shares

When share capital recognised as equity is repurchased by the Group, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as dormant shares. When dormant shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus on the transaction is carried to share premium, whereas a deficit on the transaction is deducted from retained earnings.

D. Property, plant and equipment

i. Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the assets. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads. An asset is depreciated from the date it is ready for use, meaning the date it reaches the location and condition required for it to operate in the manner intended by management.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within operating expense in profit or loss.

ii. Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The cost of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.




D. Property, plant and equipment (cont'd)

iii. Depreciation

Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is the cost of the asset less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

The estimated useful lives for the current and comparative periods are as follows:

Machinery and office equipment 6-20%

Motor vehicles 15%

Demonstration equipment 12%-33%

Computers and computer equipment 15%-33%

Leasehold improvements Lower of estimated useful lives and the lease term

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

E. Intangible assets

i. Know-how

Acquired know-how is stated at cost less accumulated amortisation and impairment losses.

ii. Goodwill

Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in the statement of comprehensive income. Subsequently, goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee.

iii. Research and development

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognised in profit or loss when incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. An expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditures are recognised in profit or loss as incurred.

Capitalised development expenditures are measured at cost less accumulated amortisation and accumulated impairment losses.




E. Intangible assets (cont'd)

iv. Other intangible assets

Other intangible assets that are acquired by the Group and have limited useful lives are measured at cost less accumulated amortisation and impairment losses.

v. Subsequent expenditure

Subsequent expenditures are capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognised in profit or loss as incurred.

vi. Amortisation

Amortisation is a systematic allocation of the amortisable amount of an asset over its useful life. The amortisable amount is the cost of the asset less its residual value.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, from the date they are available for use, since this method most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Goodwill, having indefinite useful life, is not systematically amortised but is tested for impairment at least once a year. The estimated useful lives for the current and comparative periods are as follows:

Internally generated intangible assets are not systematically amortized until they are available for use, meaning are brought to the working condition for their intended use. Accordingly, these intangible assets, such as development costs, are tested for impairment at least once a year, until such date as they are available for use.

Intangible assets acquired in respect of subsidiary acquisition 6 years•Capitalised development expenditure 6 years •Know-how 6 years•

Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted, if appropriate.

F. Inventories

Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The cost of inventories is calculated based on the moving average costing method and includes expenditures incurred in acquiring the inventories and bringing them to their existing location and conditions. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of overhead based on normal operating capacity.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any allowance for write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any allowance for write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs, in an amount not higher than the write-down previously recorded.




G. Impairment

i. Non derivative financial assets

A financial asset not carried at fair value through profit or loss is assessed when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Group considers evidence of impairment for receivables at a specific asset and collective levels. All individually significant receivables are assessed for specific impairment. In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

ii. Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. The Group estimates the recoverable amount of goodwill and other intangible assets that are not yet available for use, on an annual basis, or more frequently if circumstances warrant.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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 the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”).

Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed.




G. Impairment (cont'd)

ii. Non-financial assets (cont'd)

In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. 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.

iii Investments in equity accounted affiliated companies

An investment in an affiliated company is tested for impairment when objective evidence indicates there has been impairment (as described in paragraph (i) above). Goodwill that forms part of the carrying amount of an investment in an affiliate is not recognised separately, and therefore is not tested for impairment separately. If objective evidence indicates that the value of the investment may have been impaired, the Group estimates the recoverable amount of the investment, which is the greater of its value in use and its net selling price.

In assessing value in use of an investment in an affiliated company, the Group estimates its share of the present value of estimated future cash flows that are expected to be generated by the affiliated company, including cash flows from operations of the affiliated company and the consideration from the final disposal of the investment, or the present value of the estimated future cash flows that are expected to be derived from dividends that will be received and from the final disposal.

An impairment loss is recognised when the carrying amount of the investment, after applying the equity method, exceeds its recoverable amount, and it is recognised in profit or loss. An impairment loss is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment in the affiliated company.

An impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of the investment after the impairment loss was recognised, and only to the extent that the investment’s carrying amount, after the reversal of the impairment loss, does not exceed the carrying amount of the investment that would have been determined by the equity method if no impairment loss had been recognised.

H. Employee benefits

i. Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension and savings plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.




H. Employee benefits (cont'd)

ii. Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit 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. Any unrecognised past service costs and the fair value of any plan assets are deducted. 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. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss.

The Group recognises all actuarial gains and losses arising from defined benefit plans directly in profit or loss as part of personnel expenses.

iii. Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. The Group recognises a liability and an expense for bonuses, which are based on agreements with employees and/or consultants and according to management decisions based on Group performance goals and on individual employee performance. The Group recognises a liability where contractually obliged or where there is a past practice that has created a constructive obligation.

iv. Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees and directors are recognised as an expense, with a corresponding increase in equity, over the period that the grantee unconditionally become entitled to the awards. The amount recognised as an expense in respect of share-based payment awards that are conditional upon meeting service and non-market performance conditions is adjusted to reflect the number of awards that are expected to vest, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.

I. Provisions

A provision is recognised if, as a result of past event, the Group has a legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. 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 the risks specific to the liability. The unwinding of the discount is recognised as a finance expense.

i. Warranties

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.




I. Provisions (cont'd)

ii. Legal claims

A provision for claims is recognised if, as a result of a past event, the Group has a present legal or constructive obligation and it is more likely than not that an outflow of economic benefits will be required to settle the obligation and the amount of obligation can be estimated reliably. When the value of time is material, the provision is measured at its present value.

J. Dividends

Dividends are recognised as a liability in the period in which they are declared.

K. Revenue

i. Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns and discounts. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. The timing of the transfers of risks and rewards varies depending on the individual terms of the contract of sale.

ii. Services

Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date.

L. Government grants

Grants from the Israeli Office of the Chief Scientist of the Ministry of Trade and Industry (“OCS”) in respect of research and development projects are accounted for as forgivable loans according to IAS 20. Grants received from the OCS are recognised as a liability according to their fair value on the date of their receipt, unless on that date it is reasonably certain that the amount received will not be refunded. The amount of the liability is reexamined each period, and any changes in the present value of the cash flows discounted at the original interest rate of the grant are recognised in profit or loss. The difference between the amount received and the fair value on the date of receiving the grant is recognised as a deduction of research and development expenses.

M. Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease, or on another systematic basis if it is more representative of the pattern of benefits to the lessee over time.

N. Finance income and expenses

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Interest income on bank deposits is accrued on a time apportioned basis on the principal outstanding and at the rate applicable.

Finance expenses comprise interest expense on borrowings, changes in the fair value of financial assets at fair value through profit or loss and impairment losses recognised on financial assets. All borrowing costs are recognised in profit or loss using the effective interest method.




N. Finance income and expenses (cont’d)

Foreign currency gains and losses are reported on a net basis as either financing income or financing expenses depending on whether the foreign currency movement was in a net gain or net loss position.

O. Income tax

Income tax expense comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income, in which case it is recognised in equity or in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted as at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, nor differences relating to investments in subsidiaries and affiliates to the extent they will probably not reverse in the foreseeable future. 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 tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised for unused tax losses, tax benefits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that is no longer probable that the related tax benefit will be realised.

The Group may be required to pay additional tax if a dividend is distributed by companies within the Group. This additional tax was not included in the financial statements, since it is the current practice of the Group companies not to distribute a dividend which creates an additional tax liability for the recipient. In such cases that a Group subsidiary is expected to distribute a dividend from profits involving additional tax for the Company, the Company will create a tax provision in respect to the additional tax it may be required to pay in respect of the dividend distribution. Additional taxes that arise from the distribution of dividends by the Company are recognised in profit or loss at the same time that the liability to pay the related dividend is recognised.

P. Earnings per 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 potentially dilutive ordinary shares, which comprise share options granted to employees, directors or other eligible parties.

Q. Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. Operating segments’ operating results are reviewed regularly by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Group operates in only one operating segment. See Note 6.




R. New standards and interpretations not yet adopted

Other than those standards adopted as explained in Note 2E, a number of new standards, amendments to standards and interpretations are not yet effective for the year ended December 31, 2011, and have not been applied in preparing these consolidated financial statements.

1. IFRS 9 (2010), Financial Instruments (hereinafter – IFRS 9 (2010)) – IFRS 9 (2010) is one of the stages in a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (hereinafter – IAS 39) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets and financial liabilities. In accordance with IFRS 9 (2010), there are two principal categories for measuring financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. In accordance with IFRS 9 (2010), an investment in a debt instrument will be measured at amortized cost if the objective of the entity’s business model is to hold assets in order to collect contractual cash flows and the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest. All other debt assets are measured at fair value through profit or loss. Furthermore, embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for classification using the principles above. In addition, investments in equity instruments are measured at fair value with changes in fair value being recognized in profit or loss. Nevertheless, IFRS 9 (2010) allows an entity on the initial recognition of an equity instrument not held for trading to elect irrevocably to present fair value changes in the equity instrument in other comprehensive income where no amount so recognized is ever classified to profit or loss at a later date. Dividends on equity instruments where revaluations are measured through other comprehensive income are recognized in profit or loss unless they clearly constitute a return on an initial investment.

IFRS 9 (2010) generally preserves the instructions regarding classification and measurement of financial liabilities that are provided in IAS 39. Nevertheless, unlike IAS 39, IFRS 9 (2010) requires as a rule that the amount of change in the fair value of financial liabilities designated at fair value through profit or loss, other than loan grant commitments and financial guarantee contracts, attributable to changes in the credit risk of the liability, be presented in other comprehensive income, with the remaining amount being included in profit or loss. However, if this requirement aggravates an accounting mismatch in profit or loss, then the whole fair value change is presented in profit or loss. Amounts thus recognized in other comprehensive income may never be reclassified to profit or loss at a later date. The new standard also eliminates the exception that allowed measuring at cost derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured. Such derivatives are to be measured at fair value.

IFRS 9 (2010) is effective for annual periods beginning on or after January 1, 2015 but may be applied earlier, subject to providing disclosure and at the same time adopting other IFRS amendments as specified in the Standard. IFRS 9 (2010) is to be applied retrospectively other than in a number of exceptions as indicated in the transitional provisions included in IFRS 9 (2010).

The Group has not yet commenced examining the effects of adopting the Standard on the financial statements.




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

2. A new suite of accounting standards on consolidation of financial statements, joint arrangements and disclosure of involvement with other entities

Presented hereunder are the new standards that were issued:

IFRS 10 Consolidated Financial Statements (hereinafter – IFRS 10). IFRS 10 replaces the requirements of IAS 27 Consolidated and Separate Financial Statements and the requirements of SIC-12 Consolidation – Special Purpose Entities with respect to the consolidation of financial statements, so that the requirements of IAS 27 will continue to be valid only for separate financial statements.

IFRS 10 introduces a new single control model for determining whether an investor controls an investee and should therefore consolidate it. This model is implemented with respect to all investees. According to the model, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with that investee, has the ability to affect those returns through its power over that investee and there is a link between power and returns.

Presented hereunder are certain key changes from the current consolidation guidance:

• IFRS 10 introduces a model that requires applying judgment and analyzing all therelevant facts and circumstances for determining who has control and is required to consolidate the investee.

• IFRS10introducesasinglecontrolmodelthatistobeappliedtoall investees,boththose presently in the scope of IAS 27 and those presently in the scope of SIC-12.

• De facto power should be considered when assessing control. This means that theexistence of de facto control could require consolidation.

• When assessing control, all substantive potential voting rights will be taken intoaccount, and not only potential voting rights that are currently exercisable. The structure, reasons for existence and conditions of potential voting rights should be considered.

• IFRS 10 provides guidance on the determination of whether a decision maker is acting as an agent or as a principal when assessing whether an investor controls an investee.

• IFRS 10 provides guidance on when an investor would assess power over portion of the investee (silos), that is over specified assets and liabilities or groups of assets and liabilities of the investee.

• IFRS 10 provides a definition of protective rights, while there is no such definition in existing IFRS.

• The exposure to risks and rewards of an investee does not on its own determine that the investor has control over an investee, rather it is one of the factor of control analysis.

IFRS 10 is applicable retrospectively (with a certain relief) for annual periods beginning on

or after January 1, 2013. Early adoption is permitted providing that disclosure is provided and that the entire new suite of standards is early adopted, meaning also the additional standards that were issued at the same time – IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Involvement with Other Entities, IAS 27 (2011) and IAS 28 (2011).

IFRS 12 Disclosure of Involvement with Other Entities (hereinafter – IFRS 12). IFRS 12 contains extensive disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and unconsolidated structured entities.

IFRS 12 is applicable for annual periods beginning on or after January 1, 2013. Early adoption is permitted providing that the entire new suite of standards is early adopted, meaning also the additional standards that were issued at the same time – IFRS 11 Joint Arrangements, IFRS 10 Consolidated Financial Statements, IAS 27 (2011) and IAS 28 (2011). Nevertheless, it is permitted to voluntarily provide the additional disclosures required by IFRS 12 prior to its adoption without early adopting the other standards.




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

In the opinion of the Group, the new standards will not have a material effect on the financial statements.

3. IFRS 13 Fair Value Measurement (hereinafter – IFRS 13). IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value. IFRS 13 applies to assets, liabilities and an entity’s own equity instruments that, under other IFRSs, are required or permitted to be measured at fair value or when disclosure of fair value is provided. Nevertheless, IFRS 13 does not apply to share based payment transactions within the scope of IFRS 2 Share-Based Payment and leasing transactions within the scope of IAS 17 Leases. IFRS 13 does not apply to measurements that are similar to but are not fair value (such as the measurement of the net realizable value of inventory, in accordance with IAS 2 Inventories, and the measurement of value in use, in accordance with IAS 36 Impairment of Assets). IFRS 13 is applicable prospectively for annual periods beginning on or after January 1, 2013. Earlier application is permitted with disclosure of that fact. The disclosure requirements of IFRS 13 need not be applied in comparative information for periods before initial application. The Group has started assessing the effects of adopting IFRS 13 on its financial statements.

4. Amendment to IAS 1, Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income (hereinafter – the IAS 1 Amendment). The IAS 1 Amendment changes the presentation of items of other comprehensive income (hereinafter – OCI) in the financial statements, so that items of OCI that may be reclassified to profit or loss in the future, would be presented separately from those that would never be reclassified to profit or loss. Additionally, the IAS 1 Amendment changes the title of the Statement of Comprehensive Income to Statement of Profit or Loss and Other Comprehensive Income. However, entities are still allowed to use other titles. The Amendment is effective for annual periods beginning on or after July 1, 2012. The amendment will be applied retrospectively. Early adoption is permitted providing that disclosure is provided.

5. Amendment to IAS 19, Employee Benefits (hereinafter – “the IAS 19 Amendment”). The IAS 19 Amendment introduces a number of changes to the accounting treatment of employee benefits. The key changes are as follows:

• The IAS 19 Amendment eliminates the possibility of postponing recognition of actuarialgains and losses, known as the “corridor method” and, in addition, eliminates the option of recognizing actuarial gains and losses directly in profit or loss. As a result, all actuarial gains and losses will be recognized immediately in equity through other comprehensive income.

• The IAS19Amendment requires immediate recognitionofpast service costs regardlessofwhether the benefits have vested or not.

• The calculation of net financing income or expense will be determined by applying thediscount rate used to measure the defined benefit obligation to the net defined benefit liability (asset). Accordingly, calculation of actuarial gains or losses will also change.

• TheIAS19Amendmentchangesthedefinitionsofshort-termemployeebenefitsandofotherlong term employee benefits, so that the distinction between the two will depend on when the entity expects the benefits to be wholly settled, rather than when settlement is due.

• TheIAS19Amendmentenhancesthedisclosurerequirementsfordefinedbenefitplans,inan effort to provide better information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans.

• ThedefinitionofterminationbenefitshasbeenclarifiedinaccordancewithIAS37,Provisions,Contingent Liabilities and Contingent Assets, so that termination benefits are recognized at the earlier of when the entity recognizes costs for a restructuring that includes the payment of termination benefits, and when the entity can no longer withdraw the offer of the termination benefits.




R. New standards and interpretations not yet adopted (cont’d)

The IAS 19 Amendment is applicable retrospectively (excluding certain exceptions stated in the IAS 19 Amendment) for annual periods beginning on or after January 1, 2013. Early adoption is permitted providing that disclosure is provided. The Group has started assessing the effects of adopting the Amendment on its financial statements, with no intention of early adoption.

Note 4 - Determination of Fair Values

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

A. Property, plant and equipment

The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly. The fair value of items of property, plant and equipment is based on the market approach and cost approaches using quoted market prices for similar items when available and replacement cost when appropriate.

B. Intangible assets

The fair value of patents and trademarks acquired in a business combination [or otherwise] is based on the discounted estimated royalty payments that have been avoided as a result of the patent or trademark being owned. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.

C. Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.

D. Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

E. Share-based payment transactions

The fair value of the options granted is measured using a lattice based valuation, taking into account the terms and conditions upon which the options were granted.

Measurement inputs include share price on measurement date, expected volatility, expected employee turnover rate, employee exercise behaviour, risk free interest rate and expected dividend.

Note 5 - Financial Risk Management

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board’s policy is to maintain a strong capital base, so as to maintain investor and market confidence and to sustain future development of the business. The Group has exposure to the following risks from its use of financial instruments:

• credit risk;• liquidity risk; and• market risk



Note 5 - Financial Risk Management (cont'd)

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group’s Audit Committee oversees how management complies with the Group’s risk management policies and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group does not require collateral in respect of financial assets. The Group has established credit limits for customers and monitors their balances regularly. Cash and deposits are placed with banks and financial institutions, which are regulated.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk, particularly in deteriorating economic circumstances.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

At the balance sheet date, cash and cash equivalents and short-term investments were mainly held with two banks in Israel, thereby exposing the Group to significant concentrations of credit risk. However, management considers that the credit rating of the banks reduces the risk to the Group to an acceptable level. The fair values of cash and cash equivalents, trade and other receivables, short-term investments, trade and other payables and short term bank loans are not materially different from their carrying amounts because of the immediate or short-term maturity of these instruments.

In addition, the Group’s policy is to provide financial guarantees only to wholly-owned subsidiaries. At December 31, 2011 and 2010, no guarantees were outstanding.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, by investing in bank deposits only, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.



Note 5 - Financial Risk Management (cont'd)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. This is achieved by not investing in equities and by investing in either US dollars, New Israeli Shekel (NIS) and Indian Rupees quoted financial assets only, in ratios which reflect the exposure of the Group to these currencies.

The Group is exposed to currency risk on sales and expenses that are denominated in a currency other than the respective functional currencies of Group entities. The Group is mainly exposed to movement in exchange rates of the US dollar in relation to the NIS with regard to salaries paid in NIS and with respect to services provided in India by Sarin India.

The Group’s exposure to market risk for changes in interest rates relates primarily to cash and cash equivalents and short-term investments. The Group manages this risk by holding cash and cash equivalents in NIS designated for the payments of expenses in NIS.

Note 6 - Operating Segments

The Group is a worldwide leader in the development, manufacturing, marketing and sale of precision technology products for the planning, processing, evaluation and measurement of diamonds and gems. India is the principal market for these products. In accordance with IFRS 8, the Group determines and presents operating segments based on the information that is provided internally to the CEO, who is the Group’s chief operating decision maker. The measurement of operating segment results is generally consistent with the presentation of the Group’s Consolidated Statements of Comprehensive Income. The Group operates in only one operating segment. Presented below are revenues broken out by geographic distribution (India, Europe, Africa, Europe, India, North America and Other). The majority of the Group’s non-current assets are located in Israel.

Revenues

India Africa EuropeNorth

America Other1 Consolidated

US$ thousands

2011 44,976 4,400 1,804 1,052 5,571 57,803

2010 36,037 2,394 1,588 890 4,754 45,663

1 Other revenues represent sales to the rest of the world. For the years ended December 31, 2011 and 2010, revenue in Israel was of US$ 2,487 thousand and US$ 1,626 thousand, respectively, and is included in other revenues.

Information on the assets of each geographical segment is detailed below. The information includes non-current assets data, of which the depreciated cost of property, plant and equipment is allocated to each of the geographical segments and the intangible assets amortized cost is not allocated to the geographical segments.

Property, plant and equipment

India Africa EuropeNorth

America Other Consolidated

US$ thousands

December 31, 2011 1,269 2 9 3 1,620 2,903

December 31, 2010 1,040 18 17 5 1,549 2,629



Note 7 - Revenue

Composition

Year ended December 31

2011 2010

US$ thousands US$ thousands

Revenue from sale of products 48,823 39,668

Revenue from maintenance and services 8,980 5,995

57,803 45,663

Note 8 - Profit from Operations

Profit from operations is after expenses detailed below:

A. Personnel expenses


2011 2010


Salaries and allowances 11,149 9,737

Defined benefit retirement plan expense (see Note 22) 90 138

Share-based payment transactions (see Note 24) 541 229

11,780 10,104

B. Other operating expenses include


2011 2010


Amortisation of intangible assets 2,074 2,478

Depreciation of property, plant and equipment 1,172 981

Allowance for (write-back of) doubtful trade receivables 76 (18)

Warranty provision 134 127

Note 9 - Net Finance Income (Expense)


2011 2010


Interest income on financial assets and bank deposit 615 211 Interest expenses* (354) (334)Net foreign exchange (loss) gain (83) 105

178 (18)

*See also Note 23.



Note 10 - Income Tax

A. Details regarding the tax environment of the Group

i. Tax rates applicable to income not derived from approved enterprises

On July 25, 2005 the Israeli parliament, the Knesset passed the Law for the Amendment of the Income Tax Ordinance (No. 147 and Temporary Order) – 2005 (“Amendment 147”). Amendment 147 provided for a gradual reduction in the corporate tax rate from 26% in 2009 to 25% from 2010 onwards. Furthermore, as from 2010, upon reduction of the corporate tax rate to 25%, real capital gains were subject to tax of 25%.

On July 14, 2009, the Law for Economic Efficiency (Legislative Amendments for Implementation of the Economic Plan for the years 2009 and 2010), 2009, was passed by the Knesset, which provided, among other things, an additional gradual reduction in the corporate tax rate to 18% in 2016 and thereafter. Pursuant to the said amendments, the corporate tax rates applicable in the 2009 tax year and thereafter are as follows: in the 2009 tax year – 26%, in the 2010 tax year – 25%, in the 2011 tax year – 24%, in the 2012 tax year – 23%, in the 2013 tax year – 22%, in the 2014 tax year – 21%, in the 2015 tax year – 20% and in the 2016 tax year and thereafter the applicable corporate tax rate will be 18%.

On December 5, 2011 the Knesset approved the Law to Change the Tax Burden (Legislative Amendments) – 2011. According to the law the tax reduction that was provided in the Economic Efficiency Law, as aforementioned, will be cancelled and the corporate tax rate will be 25% as from 2012. This law does not have an influence on the Group’s taxes on income.

The foreign subsidiaries are taxed according to tax rules in their jurisdictions.

On February 4, 2010 Amendment 174 to the Income Tax Ordinance – Temporary Order for Tax Years 2007, 2008 and 2009 was published in the Official Gazette (hereinafter – “the Temporary Order”). In accordance with the Temporary Order, Israeli Accounting Standard No. 29 regarding the adoption of International Financial Reporting Standards (IFRS) (hereinafter – “Standard 29”) shall not apply when determining the taxable income for the 2007-2009 tax years even if it was applied when preparing the financial statements. On February 12, 2012 Amendment 188 to the Income Tax Ordinance was published, according to which the Temporary Order was amended, in a way that Standard 29 shall not apply when determining the taxable income for 2010 and 2011.

ii. Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969

The Company currently qualifies as an “Industrial Company” under the above law. As such, it is entitled to certain tax benefits, mainly the right to deduct share issuance costs for tax purposes in the event of a public offering, and to amortise know-how acquired from third parties.

iii. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (hereafter - “the Law”)

The Company has been granted “Approved Enterprise” status in respect of part of its property, plant and equipment under the Law, according to programs that were approved in 1994 (“first program”) and 2002 (“second program”) and the status of a “Beneficiary Enterprise” in respect of 2005 (“third program”) and 2007 (“fourth program”) (collectively the “Enterprises”). Income of the Company derived from the Enterprises is tax-exempt for a period of two years and is subject to a reduced tax rate of 25% for an additional five years. The seven-year period of benefits commences in the year during which the Enterprise first generates taxable income, provided that 14 years have not elapsed since the year in which the approval was granted, and 12 years have not elapsed since the year in which the Enterprise was put into operation.



Note 10 - Income Tax (cont'd)

A. Details regarding the tax environment of the Group (cont'd)

iii. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (hereafter - “the Law”) (cont'd)

The first program was enacted in 1999, the second program was enacted in 2002, the third program was enacted in 2005 and the fourth program was enacted in 2007. Dividends distributed to Israeli shareholders from the “Approved and Beneficiary Enterprise” income will be liable to a 15% withholding tax rate. The last year of benefits relating to the first program was 2005, to the second program was 2008, to the third program was 2011 and to the fourth program is 2013. In the event of distribution of cash dividends from tax-exempt income attributed to the Enterprises, the reduced tax rate of 25% in respect of the amount distributed would have to be paid.

A wholly-owned subsidiary of the Company submitted a request in 2009 to be granted “Beneficiary Enterprise” status in accordance with the Law. The operations of the subsidiary are located in Priority Area A. The Company had requested that 2009 be elected as the base year. Under the Law the subsidiary can elect either one of two tracks: i) that the income generated by the “Beneficiary Enterprise” is exempt from income tax over a period of 10 years or ii) that the income generated by the “Beneficiary Enterprise” is taxed at a reduced rate of 11.5% over a period of 10 years with additional tax benefits related to the distribution of dividends. In the event of distribution of cash dividends from tax-exempt income attributed to the “Beneficiary Enterprise,” the reduced tax rate of 25% in respect of the amount distributed would have to be paid under track one, however, not under track two.

The wholly-owned subsidiary has determined the track in which income generated by the “Beneficiary Enterprise” is taxed at a reduced rate of 11.5% over a period of 10 years, with additional tax benefits related to the distribution of dividends.

The benefits from the Company’s investment programs are dependent upon the Company fulfilling the conditions stipulated by the Law and the regulations published there under, as well as the criteria set forth in the approval for the specific investment in the Company’s Enterprises.

If the Company does not comply with these conditions, the tax benefits may be cancelled, and the Company may be required to refund the amount of the cancelled benefits, with the addition of linkage differences and interest.

Deferred tax balances as at December 31, 2011 and 2010 are calculated in accordance with the tax rates specified in the aforementioned amendment.

iv. Amendment to the Law for the Encouragement of Capital Investments – 1959

On December 29, 2010 the Knesset approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments – 1959 (hereinafter – “the Amendment to the Law”). The Amendment to the Law was published in the Official Gazette on January 6, 2011. The Amendment to the Law is effective from January 1, 2011 and its provisions will apply to Preferred Income derived or accrued in 2011 and thereafter by a Preferred Enterprise, per the definition of these terms in the Amendment to the Law. Companies can choose to not be included in the scope of the Amendment to the Law and to stay in the scope of the law before its amendment until the end of the existing benefits period. The 2012 tax year is the last year companies can choose as the year of election, providing that the minimum qualifying investment began in 2010.




A. Details regarding the tax environment of the Group (cont'd)

iv. Amendment to the Law for the Encouragement of Capital Investments – 1959 (cont'd) The Amendment to the Law provides that only companies in Development Area A will be entitled

to the grants track and that they will be entitled to receive benefits under this track and under the tax benefits track at the same time. In addition, the existing tax benefit tracks were eliminated (the tax exempt track, the “Ireland” track and the “Strategic” track) and two new tax tracks were introduced in their place, a Preferred Enterprise and a Special Preferred Enterprise, which mainly provide a uniform and reduced tax rate for all the company’s income entitled to benefits, such as: for a Preferred Enterprise – in the 2011-2012 tax years – a tax rate of 10% for Development Area A and of 15% for the rest of the country, in the 2013-2014 tax years – a tax rate of 7% for Development Area A and of 12.5% for the rest of the country, and as from the 2015 tax year – 6% for Development Area A and 12% for the rest of the country. Furthermore, an enterprise that meets the definition of a Special Preferred Enterprise is entitled to benefits for a period of 10 consecutive years and a reduced tax rate of 5% if it is located in Development Area A or of 8% if it is located in a different area.

The Amendment to the Law also provides that no tax will apply to a dividend distributed out of Preferred Income to a shareholder that is an Israeli company, for both the distributing company and the shareholder. A tax rate of 15% shall continue to apply to a dividend distributed out of Preferred Income to an individual shareholder or foreign resident, subject to double taxation prevention treaties, which means that there is no change from the existing law. Furthermore, the Amendment to the Law provides relief with respect to tax paid on a dividend received by an Israeli company from profits of an approved/alternative/beneficiary enterprise that accrued in the benefits period according to the version of the law before its amendment, if the company distributing the dividend notifies the tax authorities by June 30, 2015 that it is applying the provisions of the Amendment to the Law and the dividend is distributed after the date of the notice.

The Company and one of its wholly owned subsidiaries met the conditions provided in the Amendment to the Law for the Encouragement of Capital Investments for inclusion in the scope of the tax benefits track. The Company and its subsidiary implemented the Amendment to the Law as from the 2011 tax year. Deferred taxes were computed accordingly.

v. Final tax assessments

The Company has received final tax assessments (including assessments which are considered final under the tax laws) for all tax years up to December 31, 2006. The Company’s wholly owned Israeli consolidated subsidiaries have received final tax assessments (including assessments which are considered final under the tax laws) for all tax years up to December 31, 2007. Sarin India received final tax assessments for all fiscal tax years through March 31, 2009.

B. Composition of income tax expense


2011 2010


Current tax expense 3,880 3,149

Deferred tax credit 455 (76)

Prior years tax (267) (335)

Total income tax expense 4,068 2,738




C. Reconciliation of effective tax rate


2011 2010


Profit for the year 17,366 11,111

Income tax expense 4,068 2,738

Profit before income tax expense 21,434 13,849

Income tax using Israel tax rate of 2011 – 24% (2010 - 25%) 5,144 3,462

Non-deductible expenses 623 640

Neutralisation of tax calculated in respect of the Company’s

share in profits of equity accounted investees -- 140

Current year tax losses and benefits for which deferred taxes

were not created 54 83

Different tax rate of foreign subsidiaries 171 144

Effects of lower tax rates arising from “Approved and

Beneficiary Enterprise” status (2,982) (1,172)

Utilisation of tax losses and benefits from prior years for

which deferred taxes were not created -- (274)

Taxes in respect of previous years (267) (335)

Difference between income tax rate and deferred tax rate 633 214

Effect of exchange rate between dollars and NIS 688 (343)

Changes in tax rates used for the computation of deferred taxes -- 198

Other differences 4 (19)

4,068 2,738

D. Deferred tax assets

Deferred taxes are calculated according to the tax rate anticipated to be in effect on the date of reversal. Recognised deferred tax assets are attributable to the following:

As at December 31

2011 2010


Other payables and employee benefits 90 88

Allowance for doubtful receivables 46 31

Know-how (414) (218)

Research and development expenses 461 585

Other 260 359

Total 443 845




D. Deferred tax assets (cont'd)

For the years ended December 31, 2011 and 2010, deferred tax assets in respect of tax losses in the amount of US$ 5.8 million and US$ 5.9 million, respectively, have not been recognised. Those tax losses are available for offsetting against future taxable income of the Company’s Israeli subsidiaries subject to compliance with the relevant tax regulations. Deferred tax assets have not been recognised in respect of these tax losses because it is not probable that future taxable profits will be available against which the Group can utilise the benefits. The tax losses do not expire under current tax legislation.

As at December 31, 2011 a deferred tax liability for temporary differences in the amount of US$ 3.9 million (2010 - US$ 2.6 million) related to an investment in a subsidiary was not recognised because the Group controls whether the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future.

As at December 31, 2011 a deferred tax asset for temporary differences in the amount of US$ 8.4 million (2010 – US$ 9.1 million) related to investments in a subsidiary and in an equity accounted investee were not recognized because the Group is satisfied that it will not be incurred in the foreseeable future.

Note 11 - Property, Plant and Equipment

Machineryand office

equipmentComputers and

equipmentDemonstration

equipmentMotor

vehiclesLeasehold

improvements Total

US$ thousands

Cost

Balance at January 1, 2010 782 1,870 86 1,340* 365 4,443 Additions 437 261 102 758 156 1,714 Disposals (76) (484) (25) (102) (7) (694)

Balance at December 31, 2010 1,143 1,647 163 1,996 514 5,463 Additions 155 506 -- 777 97 1,535 Disposals (67) (158) (1) (19) (8) (253)

Balance at December 31, 2011 1,231 1,995 162 2,754 603 6,745

Depreciation

Balance at January 1, 2010 592 1,007 44 510* 127 2,280 Depreciation 223 346 24 313 75 981 Disposals (74) (286) (25) (36) (6) (427)

Balance at December 31, 2010 741 1,067 43 787 196 2,834 Depreciation 288 267 29 517 71 1,172 Disposals (67) (82) (1) (12) (2) (164)

Balance at December 31, 2011 962 1,252 71 1,292 265 3,842

Carrying amounts At January 1, 2010 190 863 42 830 238 2,163

At December 31, 2010 402 580 120 1,209 318 2,629

At January 1, 2011 402 580 120 1,209 318 2,629

At December 31 , 2011 269 743 91 1,462 338 2,903

* Reclassified



Note 12 - Intangible Assets

DevelopmentcostsGoodwill Know-how Total

US$ thousands

Cost

Balance at January 1, 2010 407 1,565 12,841 14,813

Adjustment of goodwill (1) (72) -- -- (72)

Other acquisitions(2) -- -- 615 615

Balance at December 31, 2010 335 1,565 13,456 15,356

Adjustment of goodwill (1) 327 -- -- 327

Other acquisitions (2) (3) -- -- 741 741

Internally developed (2) (3) -- -- 840 840

Balance at December 31, 2011 662 1,565 15,037 17,264

Amortisation

Balance at January 1, 2010 -- 196 2,995 3,191

Amortisation for the year(4) -- 250 2,228 2,478

Balance at December 31, 2010 -- 446 5,223 5,669

Amortisation for the year(4) -- 250 1,824 2,074

Balance at December 31, 2011 -- 696 7,047 7,743

Carrying amount

At January 1, 2010 407 1,369 9,846 11,622

At December 31, 2010 335 1,119 8,233 9,687

At January 1, 2011 335 1,119 8,233 9,687

At December 31, 2011 662 869 7,990 9,521

(1) The adjustment of goodwill derives from a change in the contingent liability in a business combination before January 1, 2010. See also

Note 23. (2) On December 2, 2010, the Group acquired the Light Performance Technology (“LPT”) and some inventory from Overseas Diamonds

Technologies NV (“ODT”) and affiliates. Under the terms of the transaction, a wholly owned subsidiary of the Company paid US$ 650

thousand in cash (US$ 425 thousand in December 2010, with the remainder paid in the first quarter of 2011), with additional contingent

consideration due in the form of royalties for a period of up to 14 years. (3) On November 9, 2011, the Group acquired the DSEE technology from DSee Imaging Ltd. Under the terms of the transaction, a wholly

owned subsidiary of the Company paid US$ 741 thousand in cash (US$ 350 thousand in November 2011, with the remainder to be paid in

the first half of 2012), with additional contingent consideration due in the form of royalties for a period of not less than 7 years and up

to the life of the patents, capped at US$10 million. The purchase price of US$ 741 thousand was recorded to intangible assets. (4) See also Note 3E(vi)



Note 13 - Investment in Equity Accounted Investee

In the first half of 2008, the Company acquired 23% of IDEX Online SA (“IDEX”) which was in the process of launching a revolutionary internet B2B spot market trading platform for rough diamonds – Guaranteed Diamond Transactions, for a cash consideration of US$ 3.5 million.

For the year ended December 31, 2009, the Group reviewed its investment in IDEX. As a result of remaining uncertainties related to the execution of its business plan, the Company recorded an impairment charge in the amount of US$ 0.4 million which led to a total loss from equity accounted investee of US$ 0.7 million for the year ended December 31, 2009. For the year ended December 31, 2010, the Group further reviewed its investment in IDEX. As a result of continued uncertainties related to the execution of IDEX’s business plan and continued negative operating cash flow, the Group wrote-off its remaining investment of US$ 0.3 million in IDEX which led to a total loss from equity accounted investee of US$ 0.6 million for the year ended December 31, 2010.

Note 14 - Inventories

As at December 31

2011 2010


Raw materials and consumables 4,348 3,456

Work in progress 1,210 737

Finished goods 706 569

6,264 4,762

In 2011 the write-down of inventories to net realisable value amounted to US$ 205 thousand (2010 - nil).

Note 15 - Trade Receivables

As at December 31

2011 2010


Trade receivables 6,998 3,382

Allowance for doubtful receivables (315) (242)

6,683 3,140

The Group’s exposure to credit and currency risks related to trade receivables is disclosed in Note 26.



Note 16 - Other Receivables

As at December 31

2011 2010


Institutions 485 79 Customs deposit 79 182 Advances to suppliers 206 164 Prepaid expenses 397 392 Other 171 144

1,338 961

The Group’s exposure to credit and currency risks losses related to other receivables is disclosed in Note 26.

Note 17 - Short-Term Investments

As at December 31

2011 2010


Bank deposits (initial period three months or greater) 19,105 5,413

Bank deposits have weighted average interest rates of 1.98% at December 31, 2011 (December 31, 2010 – 0.79%).

Note 18 - Cash and Cash Equivalents

As at December 31

2011 2010


Bank balances 8,257 5,565

Bank deposits 6,099 17,292

14,356 22,857

Bank deposits have weighted average interest rates of 2.78% at December 31, 2011 (December 31, 2010 – 1.68%). The Group’s exposure to interest rate risk is disclosed in Note 26.



Note 19 – Share Capital – The Company

As at December 31

2011 2010

Number of shares

Authorised:

Ordinary shares of no par value 2,000,000,000 2,000,000,000

Issued and fully paid:

Ordinary shares of no par value 270,944,360 267,274,837

Dormant shares (out of the issued and fully paid share capital):

Ordinary shares of no par value 1,689,000 126,000

On October 21, 2010, the Company’s shareholders approved a share buyback mandate of up to 10% of the Company’s then issued and fully paid up shares. On April 27, 2011, the Company’s shareholders renewed the share buyback mandate of up to 10% of the Company’s then issued and fully paid up shares. Under the share buyback mandate, share buybacks may be made, at any time and from time to time up to the earliest of: (a) the date on which the next annual general meeting of the Company is held or required by law to be held; (b) the date on which the authority conferred by the share buyback mandate is revoked or varied by the Company in general meeting; or (c) the date on which share buybacks are carried out to the full extent mandated.

For the years ended December 31, 2011 and 2010, the Company purchased 1,563,000 and 126,000 shares, respectively, at a cost of US$ 838 thousand and US$ 53 thousand, respectively. In accordance with Israeli Companies Law, Company shares that have been acquired and are held by the Company are dormant shares as long as they are held by the Company, and as such they do not bear any rights until they are transferred to a third party.

For the years ended December 31, 2011 and 2010, the Company paid dividends in the amount of US$ 8.1 million and US$ 5.4 million, respectively, amounting to US cents 3.00 and US cents 2.05 per share, respectively. For the years ended December 31, 2011 and 2010, 3,669,523 and 2,986,612 ordinary shares, respectively, were issued upon exercise of options for cash (see also Note 24.)

Note 20 - Earnings Per Share

Basic earnings per share

The calculation of basic earnings per share for the year ended December 31, 2011 was based on the profit attributable to ordinary shareholders of US$ 17,366 thousand (2010 - US$ 11,111 thousand) and a weighted average number of ordinary shares outstanding of 268,540,808 (2010 - 265,475,499), calculated as follows:

2011 2010

Issued ordinary shares at January 1 267,148,837 264,288,225

Effect of share options exercised 1,391,971 1,187,274

Weighted average number of ordinary shares at December 31 268,540,808 265,475,499



Note 20 - Earnings Per Share (cont'd)

Diluted earnings per share

The calculation of diluted earnings per share at December 31, 2011 was based on profit attributable to ordinary shareholders of US$ 17,366 thousand (2010 - US$ 11,111 thousand) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 271,459,323 (2010 - 269,996,787), calculated as follows:

2011 2010

Weighted average number of ordinary shares (basic) 268,540,808 265,475,499

Effect of share options on issue 2,918,515 4,521,288

Weighted average number of ordinary shares (diluted)

at December 31 271,459,323 269,996,787

The average market value of the Company’s ordinary shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period that the options were outstanding.

Note 21 - Other Payables

As at December 31

2011 2010


Employees and related institutions 2,446 2,412

Advances from customers 1,421 1,049

Office of Chief Scientist 808 215

Galatea Ltd. former shareholders 297 --

Accrued expenses 576 657

Prepaid income 1,304 762

Amounts payable to related parties 125 197

6,977 5,292

The Group’s exposure to currency and liquidity risk related to other payables are disclosed in Note 26. See also Note 29 - Related Parties

Note 22 - Employee Benefits

A. Defined benefit plan

Israeli labour laws and agreements require the Group to pay severance pay to dismissed or retiring employees (and those leaving their employment under certain other circumstances). The calculation of the severance pay liability was made in accordance with labour agreements in force and based on salary components, which, in management’s opinion, create entitlement to severance pay.



Note 22 - Employee Benefits (cont’d)

A. Defined benefit plan (cont’d)

The Group’s severance pay liabilities to its Israeli employees are funded partially by regular deposits with recognised pension and severance pay funds in the employees’ names and by purchase of insurance policies.

Employee benefits consist of the following:

As at December 31

2011 2010


Present value of the obligation 823 1,008

Fair value of assets 668 822

Recognised liability for defined benefit obligation 155 186

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

Expense recognised in the statements of comprehensive income


2011 2010


Current service costs 6 30

Interest on obligation 44 47

Expected return on assets (39) (45)

Actuarial losses 79 106

90 138

The expenses are classified as personnel expenses, see also note 8A.

Movement in present value of the defined benefit obligation

As at December 31

2011 2010


Defined benefit obligation at January 1 1,008 777

Funded benefits paid (116) --

Unfunded benefits paid (38) --

Current service and interest costs 50 135

Actuarial (gains) losses (81) 96

Defined benefit obligation at December 31 823 1,008



Note 22- Employee Benefits (cont’d)

A. Defined benefit plan (cont’d)

Movement in the assets

As at December 31

2011 2010


Fair value of the assets at January 1 822 732

Contributions paid 5 5

Expected return on assets 39 45

Actuarial (losses) gains (145) 3

Change in employee classification -- (13)

Funded benefits paid (38) --

Other (15) 50

Fair value of the assets at December 31 668 822

Principal actuarial assumptions:

2011 2010

Discount rate as of December 31 (1) 1.76% 1.38%

Expected return on plan assets as of January 1 (2) 3.00% 3.00%

Future salary nominal increases (3) 3.00% 3.00%

Assumptions regarding future mortality are based on published statistics and mortality tables.

(1) 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.

(2) The rate of growth of the separate plan assets is assumed to be 3.0% p.a. This reflects 4.0% expected market return after the deduction of 1.0% management fees.

(3) Based on management assessment.

B. Defined contribution plan

The Group provides post-employment benefits under which it pays fixed sums into a provident fund in respect of employee savings plans. The amounts deposited in the year ended December 31, 2011 amounted to US$ 304 thousand (2010 - US$ 246 thousand) and are recognised as personnel expenses in profit or loss. The Group expects a moderate increase in deposits for 2012. In addition, the Group has a defined contribution plan for employees who are subject to Section 14 of the Severance Pay Law – 1963.



Note 23 – Long-Term Liabilities

As at December 31

2011 2010


Office of Chief Scientist 374 753

Galatea Ltd. former shareholders 278 215

652 968

For the year ended December 31, 2010, the subsidiary received US$ 59 thousand from the OCS. For the years ended December 31, 2011 and 2010, the total liability of royalties to the OCS was updated in the amount of approximately a US$ 0.2 million increase and US$ 0.1 million decrease, respectively, as a result of an updated forecast (see also Note 21).

For the year ended December 31, 2011, the liabilities representing contingent consideration to former shareholders of Galatea Ltd. (acquired in 2008) was increased in the amount of approximately US$ 0.4 million, as a result of an updated forecast. For the year ended December 31, 2010, the other long term liabilities representing contingent consideration to former shareholders of Galatea Ltd. was reduced in the amount of approximately US$0.1 million, as a result of an updated forecast. A business combination agreement may allow for adjustments to the cost of the combination that are contingent on one or more future events. If the future events do not occur or the estimate needs to be revised, the cost of the business combination shall be adjusted accordingly. Therefore, for the years ended December 31, 2011 and 2010, goodwill was adjusted accordingly and there was no impact on the consolidated statement of comprehensive income (see also Note 12 and Note 21), except for interest expenses in the amount of $33 thousand and $66 thousand for the years ended December 31, 2011 and 2010, respectively, that derive from the passing of time.

Note 24 - Share-Based Payments

In March 2005 the Company adopted a share option plan to allot options to directors, and employees of the Company and its subsidiaries (the “2005 Plan”). The aggregate number of ordinary shares which may be granted as options on any date, when added to the number of shares issued and issuable in respect of all options granted under all of the Company’s Plans then in force shall not exceed 15% of the issued share capital of the Company on the date preceding the date of the relevant grant.

Ordinary shares which shall be issued by the Company pursuant to exercise of options granted under the 2005 Plan, entitle their holders with any and all rights attached to the Company’s ordinary shares, inter alia, the right to receive dividends, the right to participate in the distribution of the Company’s assets upon liquidation, voting rights in the Company’s General Meetings (provided that as long as the ordinary shares are being held by the trustee, such voting rights will be exercised by the trustee, according to instructions provided by the holders, and if no such instructions are provided – as per the trustee’s discretion).

Currently, the vesting periods of the options granted under the 2005 Plan range from one year following the date of grant (as such term is defined in the 2005 Plan) and up to four years following the date of grant (the said range may vary, inter alia, due to the exercise price of the options granted, which exercise price may be the Market Price (as such term is defined in the 2005 Plan) of the Company’s share, or a discount therefrom of up to 20% thereon). A total of 18,511,148 options have been granted under the 2005 Plan of which there are currently 8,716,628 outstanding and 6,656,135 options have been exercised to date (with the balance having been forfeited).

The said options shall expire at the end of six years commencing on the date of grant (or any earlier date, if such was mentioned in the grant instrument) or on cessation of employment, at the earlier of the two. Unexercised vested options can generally be exercised within 90 days of cessation of employment.



Note 24 - Share-Based Payments (cont´d)

The Income Tax Authorities have recognised the 2005 Plan as a “share allotment through a trustee” plan according to Section 102 to the Tax Ordinance using the “capital gain track.” As a result, the benefit to the Israeli employee from the option plan shall be either classified as ordinary income or capital gain, all in accordance with the provisions of Section 102(b)(3) to the Tax Ordinance.

During the year ended December 31, 2011, the Company granted 5,270,000 options under the 2005 Plan to employees and directors with vesting conditions of two to four years and a contractual life of six years. During the year ended December 31, 2010, the Company granted 260,000 options under the 2005 Plan to employees with vesting conditions of two to four years and a contractual life of six years. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

As at December 31

2011 2010Weighted

average exercise price in US cents

per share

Weighted average exercise price in US cents

per shareOptions Options

Outstanding at January 1 21.4 7,296,151 18.4 10,057,763

Granted 36.6 5,270,000 38.2 260,000

Forfeited 30.3 (180,000) 36.2 (35,000)

Exercised 17.9 (3,669,523) 17.1 (2,986,612)

Outstanding at December 31 31.6 8,716,628 21.4 7,296,151

The number of share options vested at December 31, 2011 and 2010 was 2,374,128 and 5,143,651, respectively. The weighted average share price at the date of exercise for share options exercised in 2011 was US cents 58 (2010 - US cents 46).

The Company measured the fair value of the share options granted using a lattice based valuation model. The following assumptions under this method were used for the share options granted during the years ended December 31, 2011 and 2010: weighted average expected volatility of: 77.4% and 80.2%, respectively; weighted average risk-free interest rates (in US dollar terms) of 2.0% and 1.9%, respectively; dividend yield of 5.0% and 5.0%, respectively. The weighted average fair value of the share options granted during the years ended December 31, 2011 and 2010 using the model was US cents 27.1 and US cents 26.8 per share option, respectively.

The average share price in 2011 was US cents 58 (2010 - US cents 44).

The following table summarizes information about stock options outstanding at December 31, 2011:

Options outstanding Option exercisable

Range ofexercise pricesUS cents pershare

NumberOutstanding

Weighted-average

remainingcontractuallife (years)

Weighted-averageexercise

priceUS cents

NumberExercisable

Weighted-averageexercise

priceUS cents

8.4 - 22.3 2,106,628 3.2 13.3 1,274,128 13.9

33.8 - 34.6 3,375,000 4.7 33.9 375,000 34.4

38.4 - 39.6 2,510,000 5.2 38.6 -- --

46.1 - 50.7 725,000 2.6 49.3 725,000 49.3

8,716,628 4.1 31.6 2,374,128 27.9



Note 24 - Share-Based Payments (cont´d)

The expenses derived from share-based payment transactions are as follows:


2011 2010


Cost of sales 33 25

Research and development expenses 86 54

Sales and marketing expenses 153 60

General and administrative expenses 269 90

541 229

Note 25 - Warranty Provision

The provision for warranty relates mainly to product sales during the years ended December 31, 2011 and 2010. The provision is based on estimates made from historical warranty data associated with similar products and services. The Group expects to incur the liability over the next year.

The movement in the warranty provision is as follows:

As at December 31

2011 2010


Balance at the beginning of the year 242 115

Provisions used during the year (526) (165)

Provisions made during the year 657 292

Balance at the end of the year 373 242

Note 26 - Financial Instruments

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Carrying amount

2011 2010


Short-term investments 19,105 5,413

Trade receivables 6,683 3,140

Cash and cash equivalents 14,356 22,857

40,144 31,410



Note 26 - Financial Instruments (cont´d)

Exposure to credit risk (cont´d)

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

Carrying amount

2011 2010


India 5,617 2,452

Europe 63 97

North America 164 41

Africa 186 52

Other 653 498

6,683 3,140

Impairment losses

The aging of trade receivables at the reporting date was:

Gross Impairment Gross Impairment

2011 2011 2010 2010

US$ thousands US$ thousands US$ thousands US$ thousands

Not past due 5,955 -- 2,116 --

Past due 0-30 days 353 -- 721 --

Past due 31-90 days 345 -- 112 --

More than 90 days 345 (315) 433 (242)

6,998 (315) 3,382 (242)

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

2011 2010


Balance at January 1 242 260

Impairment loss (gain) recognised 73 (18)

Balance at December 31 315 242




Exposure to currency risk

The Group’s exposure to foreign currency risk was as follows based on notional amounts translated into US$ thousands as at December 31, 2011 and 2010:

December 31, 2011 December 31, 2010

NIS Rupee Euro NIS Rupee Euro

Cash and cash equivalents 4,593 2,159 4 6,318 1,419 --

Trade receivables 499 855 -- 308 573 --

Other receivables 918 247 -- 574 234 31

Trade payables (1,766) -- (24) (1,750) (100) (20)

Other payables (3,641) (1,771) -- (3,146) (1,433) --

Net balance sheet exposure 603 1,490 (20) 2,304 693 11

The following significant exchange rates applied during the year:

Average rate As at December 31

2011 2010 2011 2010

NIS 1 3.578 3.733 3.821 3.549

Rupee 1 46.94 45.76 53.27 44.81

The Group is mainly exposed to movement in exchange rates of the US dollar in relation to the NIS with regards to employee compensation and other expenses paid in NIS. Management expects that the Group expenses in NIS for 2012 will be approximately US$12 million, primarily related to employee compensation. For the year ended December 31, 2011, the Group maintained its portion of cash and cash equivalents held in NIS (equivalent to US$ 4.6 million at December 31, 2011 (US$ 6.3 million in 2010)) to match its anticipated NIS linked expenses.

Currency riskLoss in US$ thousands

(statement of comprehensive income)

Decrease of 5% 370

Decrease of 10% 740

Decrease of 15% 1,110

Interest rate risk

The Group’s exposure to market risk for changes in interest rates relates primarily to cash and cash equivalents and short-term investments.

Cash and cash equivalents, restricted cash and short-term investments at December 31, 2011 amounted to US$ 33.9 million. Due to the short-term nature of these instruments and due to the low level of market interest rates, management believes that there is no material exposure to interest rate risk in 2012.




Fair values

The fair values of cash and cash equivalents, trade and other receivables, short-term investments, trade and other payables are not materially different from their carrying amounts because of the immediate or short-term maturity of these instruments.

Note 27 - Commitments

A. Operating lease commitments

The total future minimum lease payments of the Group, under non-cancellable operating leases in respect of properties and motor vehicles, are payable as follows:

As at December 31

2011 2010


Payable within:

1 year 685 535

2 to 3 years 555 320

1,240 855

During the year ended December 31, 2011, US$ 823 thousand was recognised as an expense in the statement of comprehensive income in respect of operating leases (2010 - US$807 thousand).

B. The Group is committed to pay royalties at the rate of 3%-3.5% to the OCS on sales proceeds from products for which it received grants up to an amount not exceeding the grants received (linked to the exchange rate of the US dollar). The total grants received, net of royalties paid to the OCS, excluding Galatea, was approximately US$1.1 million through December 31, 2011. As the technology related to these grants was not successful, it is probable that these royalties will not be paid and therefore no liability was recorded. The total grants received by Galatea Ltd. were approximately US$1.6 million through December 31, 2011. The Group has recognised a liability in the Consolidated Balance Sheets in the amount of US$1.2 million to reflect the fair-value associated with the expected royalty payments (See Note 21 and Note 23).

C. A subsidiary of the Company is committed to pay royalties on net sales of diamond polishing discs. As no net sales were realised as of December 31, 2011, no royalties have yet been paid. Under the terms of the agreement, the subsidiary shall pay royalties, if any, of up to 2% on net sales through December 31, 2014.

E. On December 2, 2010, a subsidiary of the Company acquired LPT. Under the terms of the agreement, the subsidiary may be required to pay additional contingent consideration due in the form of royalties for a period of up to 14 years based on net sales as defined in the agreement. See Note 12.

F. On November 9, 2011, a subsidiary of the Company acquired the DSee technology. Under the terms of the agreement, the subsidiary may be required to pay additional contingent consideration due in the form of royalties for a period of not less than 7 years and up to the life of the patents, capped at US$10 million. See Note 12.

G. On November 24, 2011, a subsidiary of the Company acquired certain early stage technology related to diamond scanning. Under the terms of the agreement, if the technology is commercialized by the subsidiary it may be required to pay additional contingent consideration due in the form of a license fee based on the commercial use of the technology by the subsidiary as defined in the agreement, in an amount of up to US$ 2 million.




80

Note 27 - Commitments (cont'd)

H. On June 30, 2011, the Group entered into an agreement with Extell GT, LLC to acquire approximately 500 square meters of office space at a cost of approximately US$ 5 million in the new International Gem Tower now being constructed in New York City on 47th Street (Diamond Way). Under the terms of the agreement, Sarin made an initial deposit in July 2011 in the form of a letter of credit, with additional payments to be made through closing, expected in late 2012. The restricted cash as at December 31, 2011 of US$ 485 thousand relates to the letter of credit provided by the Company.

I. On October 19, 2011, Sarin India entered into a memorandum of understanding (“MOU”) for the purchase of a plot of land measuring approximately 2,400 square meters for approximately US$ 2.2 million in Surat, India. Funding will be from Sarin India’s own resources and available bank financing. The MOU is subject to the satisfactory fulfilment of closing obligations by the parties. Closing is expected to take place in April 2012.

J. See Note 29 for contractual obligations to related parties.

Note 28 - Contingencies

The Group is currently a party to a number of civil litigations in various jurisdictions in which we do business. The various litigations include patent and intellectual property infringement litigations, initiated by us or third-parties, a previous distributor litigation, and an employee compensation lawsuit. Based on the opinions of our legal counsels, we do not believe our exposure to these disputed claims will have a material impact neither on our business nor on our financial position or results of operation.

Note 29 - Related Parties

There were the following significant related party transactions between the Group and parties which are subject to common control or common significant influence during the year carried out in the normal course of business on terms agreed between the parties.

Remuneration of key management personnel


2011 2010


Remuneration of key management personnel and directors

Fixed income-based 598 495

Share-based payments 221 78

Other performance based incentives 509 504

1,328 1,077

Pursuant to an Annual General Meeting and an Extraordinary General Meeting of the Company’s shareholders held on April 27, 2011, nine directors (including the CEO) were granted 2,250,000 options to purchase ordinary shares of the Company, exercisable upon the payment of S$0.50 per share (at a 20% discount of the then Market Price – as such term is defined in the 2005 Plan). The fair value of the options granted was US$0.287 per share at the grant date. These options will vest upon two years from the grant date.



Note 29 - Related Parties (cont'd)

Other related party transactions

On September 3, 2009, the Company leased 224 square meters of office space in the Israeli Diamond Exchange building, from a company controlled by Mr. Avraham Eshed, an Executive Director of the Company. The initial lease was for a period of 24 months. In September 2011, the lease was subsequently extended by the Company for an additional 24 month period. The monthly rent during the initial six month period was US$4,855 per month and during the subsequent 18 month period was US$ 7,832 per month. The monthly rent during additional 24 month period is US$8,615 per month. The lessor may terminate the lease at any time on notice of five months to the Company. For the years ended December 31, 2011 and 2010, the annual rent paid was approximately US$ 97 thousand and US$ 85 thousand, respectively.

Note 30 - Group Entities

The following subsidiaries have been included in the consolidated financial statements:

Effective equityinterest held bythe Group as at

December 312011 and 2010

Place ofIncorporation

%

Galatea Ltd. Israel 100%

Sarin Color Technologies Ltd. Israel 100%

Sarin Polishing Technologies Ltd. Israel 100%

Sarin Technologies India Private Ltd. India 100%

Sarin Hong Kong Ltd. Hong Kong 100%

SUSNY LLC New York State 100%

Note 31 – Subsequent Events

The Board of Directors recommended, on February 12, 2012, a dividend of US cent 1.0 per share for the year ended December 31, 2011. Pursuant to the approval of the AGM of the Company’s shareholders in April 2012, the Company expects to pay a US$ 2.7 million dividend on May 17, 2012, with Books Closure Date on May 4, 2012.

On February 13, 2012, the Company granted 2,250,000 options to employees to purchase ordinary shares at an exercise price of S$ 0.66, with vesting conditions of two to four years and a contractual life of six years.


Shareholdings StatisticsAs at 12 March 2011

Issued and fully paid-up - 271,536,904No. of Treasury Shares - 1,689,000Class of shares - ordinary shares of no par value Voting rights - on a show of hands, by written ballot or by any other means : 1 vote for each ordinary share

ANALYSIS OF SHAREHOLDINGS

Range of Shareholdings No. of Shareholders % No. of Shares %

1 - 999 7 1.22 791 0.00

1,000 - 10,000 350 60.97 1,856,579 0.68

10,001 - 1,000,000 203 35.37 13,948,500 5.14

1,000,001 and above 14 2.44 255,731,034 94.18

574 100.00 271,536,904 100.00

Shareholdings Held in Hands of Public

Based on information available to the Company as at 12 March 2012, approximately 33.66% of the issued ordinary shares of the Company are held by the public and therefore, Rule 723 of the Listing Manual issued by Singapore Exchange Securities Trading Limited is complied with.

TOP 20 SHAREHOLDERS

No. Name of Shareholder No. of Shares %**

1 Sarin Research & Development Ltd 99,830,000 36.99 2 Interhightech (1982) Ltd 45,400,000 16.82 3 HSBC (Singapore) Nominees Pte Ltd 30,606,135 11.34 4 Citibank Nominees Singapore Pte Ltd 17,490,000 6.48 5 DBS Nominees Pte Ltd 16,455,893 6.10 6 Asdew Acquisitions Pte Ltd 13,123,000 4.86 7 Eyal Avraham Khayat 7,428,262 2.75 8 DBSN Services Pte Ltd 7,126,579 2.64 9 Raffles Nominees (Pte) Ltd 7,104,000 2.63

10 Maybank Kim Eng Securities Pte Ltd 4,140,029 1.53 11 UOB Kay Hian Pte Ltd 2,381,000 0.88 12 CIMB Securities (S) Pte Ltd 2,242,000 0.83 13 OCBC Securities Private Ltd 1,204,136 0.45 14 Soh Cheng Lin 1,200,000 0.44 15 Chang Wei Chian Benjamin 1,000,000 0.37 16 Lim Mui Swan 800,000 0.30 17 BNP Paribas Securities Services 503,000 0.19 18 Khoo Wooi Chee 487,000 0.18 19 Phillip Securities Pte Ltd 332,000 0.12 20 CYL Investments Limited 320,000 0.12

259,173,034 96.02

** The percentage of issued ordinary shares is calculated based on the number of issued ordinary shares of the company as at 12 March 2012, excluding 1,689,000 ordinary shares held as treasury shares as at that date.


Shareholdings StatisticsAs at 12 March 2012

SUBSTANTIAL SHAREHOLDERS

Direct Interest Deemed Interest

Name No. of Shares %* No. of Shares %*

Sarin Research & Development Ltd. 99,830,000 36.99 -- --

Interhightech (1982) Ltd. 45,400,000 16.82 -- --

Hanoh Stark 1 -- -- 100,180,000 37.12

Ehud Harel 2 -- -- 99,830,000 36.99

Daniel Benjamin Glinert 3 -- -- 46,625,000 17.28

Aharon Shapira 4 -- -- 45,400,000 16.82

Gilad Moran 5 -- -- 45,400,000 16.82

Uzi Levami 6 -- -- 46,250,000 17.14

Chartered Asset Management Pte. Ltd.7 -- -- 15,686,000 5.81

Capital Growth Investments Pte. Ltd.7 -- -- 15,686,000 5.81

Colin Lee Yung-Shih7 -- -- 15,686,000 5.81

Low Siew Kheng7 -- -- 15,686,000 5.81

Fisher Funds Management Ltd. 8 -- -- 13,574,000 5.03

*The percentage of issued ordinary shares is calculated based on the number 269,847,904 of issued ordinary shares of the company as at 12 March 2012, excluding 1,689,000 ordinary shares held as dormant shares as at that date.

1 Hanoh Stark is deemed interested in the shares by virtue of his holdings (through Hanoh Stark Holdings Ltd.) of more than 20% of the issued share capital of Sarin Research and Development Ltd. and by virtue of his indirect ownership of 350,000 shares held on his behalf by Eyal Khayat trustee 2005 Option Plan.

2 Ehud Harel is deemed interested in the shares by virtue of his holdings (through Hargem Ltd.) of more than 20% of the issued share capital of Sarin Research and Development Ltd.

3 Daniel Benjamin Glinert is deemed interested in the shares by virtue of: (i) his holdings (through D. Glinert Holdings Ltd.) of more than 20% of the issued share capital of Interhightech (1982) Ltd.; (ii) his indirect ownership of 875,000 Shares held on his behalf by UOB Kay Hian Pte. Ltd; and (iii) by virtue of his indirect ownership of 350,000 shares held on his behalf by Eyal Khayat trustee 2005 Option Plan.

4 Aharon Shapira is deemed interested in the shares by virtue of his holdings (through A. Shapira 2000 Systems Ltd.) of more than 20% of the issued share capital of Interhightech (1982) Ltd.

5 Gilad Moran is deemed interested in the shares by virtue of his holdings (through Moran Hightech Ltd.) of more than 20% of the issued share capital of Interhightech (1982) Ltd.

6 Uzi Levami is deemed interested in the shares by virtue of: (i) his holdings (through U. Levami Holdings, Ltd.) of more than 20% of the issued share capital of Interhightech (1982) Ltd.; (ii) his indirect ownership of 500,000 shares held on his behalf by Bank Hapoalim Ltd.; and (iii) by virtue of his indirect ownership of 350,000 shares held on his behalf by Eyal Khayat trustee 2005 Option Plan.

7 Chartered Asset Management Pte. Ltd. notified the Company that it, as well, as its associates, Capital Growth Investments Pte. Ltd., Mr. Colin Lee Yung-Shih and Ms. Low Siew Kheng, are deemed interested in the shares as investment managers acting for various funds and clients.

8 Fisher Funds Management Ltd. notified the Company that it is deemed interested in the shares as an investment manager acting for various funds and clients.

Directors’ Interests in Shares of the Company

Name of DirectorShareholdings in the name of the Director

Shareholdings in which the Director is deemed to have an interest

As at 1 January

2011

As at 31 December

2011

As at 21 January

2012

As at 1 January

2011

As at 31 December

2011

As at 21 January

2012

1. Daniel Benjamin Glinert -- -- -- 47,100,000 46,625,000 46,625,000

2. Avraham Eshed -- -- -- 150,000 577,000 577,000

3. Ehud Harel -- -- -- 99,830,000 99,830,000 99,830,000

4. Uzi Levami -- -- -- 46,350,000 46,250,000 46,250,000

5. Eyal Mashiah -- -- -- 1,200,000 1,200,000 1,200,000

6. Hanoh Stark -- -- -- 100,180,000 100,180,000 100,180,000

7. Valerie Ong Choo Lin -- -- -- -- 250,000 250,000


NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of the Company will be held at the offices of Eyal Khayat, Zolty, Neiger & Co., Law Offices, 9 Hamenofim Street, Eleventh Floor Herzliya Pituach, Israel [See Explanatory Note (a)] on the 24th day of April 2012 at 10:00 AM Israel time (3:00 PM Singapore time) to transact the following business:-

Ordinary Business

1. To receive and consider the audited accounts for the year ended 31 December 2011 and the reports of the directors and auditors thereon.

2. To declare a final dividend of US cent 1.00 (gross) per share less tax (as applicable) for the year ended 31 December 2011.

3. To approve directors’ fees of up to US$1,250,000 for the year ending 31 December 2012 (for the year ended on 31 December 2011: US$1,000,000) [See Explanatory Note (b)].

4. To re-appoint Somekh Chaikin Certified Public Accountants (Isr.), Member firm of KPMG International and Chaikin, Cohen & Rubin, Certified Public Accountants (Isr.) as external auditors and to authorise the Directors to fix their remuneration.

Special Business

5. To consider and, if thought fit, to pass the following shareholders’ resolutions with or without amendments [see Explanatory Note (c)]:-

5.1 Authority to issue shares

That authority be given to the directors to issue and allot shares in the Company whether by way of rights, bonus or otherwise (including but not limited to the issue and allotment of shares at any time, whether during the continuance of such authority or thereafter, pursuant to offers, agreements or options made or granted by the Company while this authority remains in force) by the directors, or otherwise disposal of shares (including making and granting offers, agreements and options which would or might require shares to be issued, allotted or otherwise disposed of, whether during the continuance of such authority or thereafter) by the Directors at any time to such persons (whether or not such persons are shareholders), upon such terms and conditions and for such purposes as the directors may in their absolute discretion deem fit PROVIDED THAT:

(i) the aggregate number of shares to be issued pursuant to such authority shall not exceed 50% of the issued shares in the capital of the Company (as calculated in accordance with paragraph (ii) below), of which the aggregate number of shares and convertible securities issued other than on a pro rata basis to existing shareholders must not be more than 20% of the total issued shares in the capital of the Company;

(ii) (subject to such calculation as may be prescribed by the Singapore Exchange Securities Trading Limited) for the purpose of determining the aggregate number of shares that may be issued under paragraph (i) above, the total number of issued shares shall be based on the number of issued shares in the capital of the Company at the time this resolution is passed after adjusting for new shares arising from the conversion or exercise of convertible securities or new shares arising from exercising share options or vesting of share awards outstanding or subsisting at the time this resolution is passed and any subsequent bonus issue, consolidation or subdivision of the Company’s shares;

(iii) unless revoked or varied by the Company in a general meeting, such authority shall continue in full force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier. [See Explanatory Note (d)]

Notice of Annual General Meeting



5.2 Authority to offer and grant options and issue shares pursuant to the Sarin Technologies Ltd 2005 Share Option Plan

That the directors of the Company be and are hereby authorised to offer and grant options in accordance with the provisions of the Sarin Technologies Ltd 2005 Share Option Plan (the “Plan”) and to allot and issue from time to time such number of shares in the capital of the Company as may be required to be issued pursuant to the exercise of options under the Plan provided always that the aggregate number of such shares to be issued pursuant to the Plan and any other share option schemes of the Company for the time being in force shall not exceed 15% of the issued shares in the capital of the Company from time to time; and offer and grant options with exercise price (as defined in the Plan) set at a discount to the market price (as defined in the Plan) provided that such discount shall not exceed the maximum discount allowed under the Plan. [See Explanatory Note (e)]

6. To transact any other business which may properly be transacted at an Annual General Meeting.

BY ORDER OF THE BOARD

AMIR JACOB ZOLTYCompany Secretary

Israel1 April 2012

Proxies :-

A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy need not be a member of the Company.

An instrument appointing a proxy must be deposited at the office of the Company’s main offices in Israel or at the Singapore Share Transfer Agent at 138 Robinson Road #17-00 The Corporate Office Singapore 068906 not less than 24 hours before the time fixed for the meeting.


Explanatory Notes :-

(a) Singapore shareholders who wish to take part in the Annual General Meeting from Singapore may do so by attending at the Boardroom at Level 30, Six Battery Road, Singapore 049909 at 15:00 (3:00 PM) Singapore time on said day (April 24, 2012). The persons attending the said video/audio conference will be able to pose questions to the Company and to comment on the Company’s reports. It should be noted, however, that only persons who shall actually attend the Annual General Meeting in Israel (whether in person or via proxy) may vote in the Annual General Meeting.

(b) The director fees requested for 2011 (US$ 1,000,000) were, in reality, exceeded by US$ 100,000 and tallied US$ 1,100,000, as the net profits for the 2011 exceeded the Board’s expectations, and thus the incentive-related

compensation to the CEO and executive directors exceeded the Board’s expectations as requested at last year’s AGM. The fees requested for 2012 reflect reserve for incentive-related compensation for the CEO and executive directors based on commercial goals now set for the coming year, which incentive-related compensation shall be paid upon and subject to reaching those goals.

(c) A shareholders’ resolution shall be deemed adopted if approved by the holders of a majority of the voting power represented at the meeting in person or by proxy and voting thereon.

(d) The shareholders’ resolution set out in item 5.1 above, if passed, will empower the directors from the date of the above meeting until the date of the next Annual General Meeting, to issue shares in the Company. The maximum number of shares which the directors may issue under this resolution shall not exceed the quantum set out in this resolution.

(e) The shareholders’ resolution set out in item 5.2 above, if passed, will empower the directors to offer and grant options and to allot and issue shares in the capital of the Company pursuant to the exercise of the options under the Plan.


SARIN TECHNOLOGIES LTD. (Incorporated in Israel)Israel Registration No. 51 1332207

PROXY FORM

I/We ______________________________________________________, NRIC/Passport no. ___________________________________ of _____________________________________________________________________________________________________________

being a member/members of Sarin Technologies Ltd. (the “Company”), hereby appoint

Address Address NRIC/Passport No. No. of Shares

and/or (delete as appropriate)

Name Address NRIC/Passport No. No. of Shares

as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, to demand a poll at the Annual General Meeting of the Company to be held at the offices of Eyal Khayat, Zolty, Neiger & Co., Law Offices, 9 Hamenofim Street, Eleventh Floor. Herzliya Pituach, Israel on 24 April 2012 at 10:00 AM Israel time (3:00 PM Singapore time) and at any adjournment thereof.

Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for or against the resolutions as set out in the Notice of Annual General Meeting. In the absence of specific directions, the proxy/proxies will vote or abstain as he/they may think fit, as he/they will on any other matters arising at the Annual General Meeting.

No. Resolution For Against

1 Adoption of reports and accounts

2 Declaration of final dividend for the year ended 31 December 2011

3 Approval of directors’ fees

4Re-appointment of Somekh Chaikin Certified Public Accountants (Isr.), Member firm of KPMG International and Chaikin, Cohen, Rubin and Gilboa, Certified Public Accountants (Isr.) as external auditors

5.1 Authority to issue shares

5.2Authority to grant options and issue shares pursuant to the Sarin Technologies Ltd 2005 Share Option Plan

Dated this _____ day of ________________ 2012

___________________________________________Signature(s) of Member(s) or Common SealImportant: Please Read Notes Overleaf

Total Number of Shares Held

Notes

1 Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register, you should insert that number. If you have shares registered in your name in the Register of Members of the Company, you should insert that number. If you have shares entered against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the aggregate number. If no number is inserted, this form of proxy will be deemed to relate to all the shares held by you.

2 A member entitled to attend and vote at a meeting of the Company is entitled to appoint not more than two proxies to attend and vote on his behalf. A proxy need not be a member of the Company.

3 The instrument appointing a proxy or proxies must be deposited either at the offices of the Company in 7 Atir Yeda Street (2nd Floor), Kfar Saba, Israel or at the office of the Company’s Singapore Share Transfer Agent at 138 Robinson Road #17-00 The Corporate Office Singapore 068906 not less than 24 hours before the time appointed for holding the meeting.

4 Where a member appoints more than one proxy, he shall specify the number of shares to be represented by each proxy, failing which, the first named proxy may be treated as representing 100% of the shareholding and any second named proxy as an alternate to the first named.

5 The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a company or other body corporate, it must be executed under its common seal or stamp or under the hand of its duly authorised agent or attorney on behalf of the corporation.

6 Where an instrument appointing a proxy or proxies is signed on behalf of the appointor by an attorney or other authority, the power of attorney or authority or a notarially certified copy thereof must be lodged with the instrument of proxy, failing which the instrument of proxy may be treated as invalid.

7 A company or other body corporate which is a member may authorize, by resolution of its directors or any other managing body, such person as it thinks fit to act as its representative at the meeting.

8 The Company shall be entitled to reject an instrument of proxy which is incomplete, improperly completed, illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified on the instrument of proxy. In addition, in the case of shares entered in the Depository Register, the Company may reject an instrument of proxy if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 24 hours before the time appointed for holding the meeting, as certified by The Central Depository (Pte) Limited to the Company.

7 Atir Yeda Street, Kfar Saba 44643, Israel • T +972 - 9 - 7903500 • F +972 - 9 - 7903501 • www.sarin.com

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