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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Technoplast | LSE:TNP | London | Ordinary Share | IL0005410118 | ORD ILS1.0 |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.00 | - |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
RNS Number:2519X Technoplast Industries Ld 01 April 2004 TECHNOPLAST INDUSTRIES LIMITED FINANCIAL STATEMENTS 31st DECEMBER 2003 AUDITED TECHNOPLAST INDUSTRIES LIMITED FINANCIAL STATEMENT AS AT 31st DECEMBER 2003 TABLE OF CONTENTS Page Management Discussion and Analysis A - M Auditors Report 2 Consolidated Profit and Loss Accounts 3 Consolidated Statement of Recognised Gains and Losses 3 Consolidated Balance Sheets 4 Consolidated Cash Flows Statements 5 - 6 Notes to the Financial Statements 7 - 42 Management Discussion and Analysis for the year ended 31 December 2003 We take pleasure in presenting the consolidated financial statements of Technoplast Industries Limited for the year ended 31st December 2003 (hereinafter - "the period under report"). The term "Company" as used in this report refers to the parent company, Technoplast Industries Ltd. and the term " Group" refers to the consolidation of the Company and its subsidiaries. The term "the period" refers to the results of operations for the year ended 31 December 2003, whereas the term "quarter" refers to the results of operations for the three-month period ended 31st December 2003. We present below a description of the main events that occurred during the period under report. * On 16 March 2004, the board of directors of the Company approved the sale of all of the shares and rights of the Company in SMS to a third party, in return for the cancellation of the Company's guarantee of the debts of SMS to a certain bank (the guarantee was for an amount of U.S.$ 400 thousand) and in return for an amount equal to 15% of the annual net income of SMS in excess of NIS 3 million, relative tothe shares being sold, but not to exceed an aggregate amount of NIS 650 thousand, linked to the Israeli Consumer Price Index, over a period of 60 months. The sale of the shares to the third party is subject to receipt of the approval of the creditor banks, by no later than 15 May 2004. In the event that such approval is not forthcoming and/or the Company's guarantee is not cancelled by 15 May 2004, the Company has the right, until 31 May 2004, to demand the return of all of its rights and shares of SMS. If no demand is made for the return of the rights and shares, they shall remain the possession of the third party. In accordance with the approval of the sale of the shares, the activity of the subsidiary, SMS, is presented separately from the activity of the Company in the consolidated statement of profit and loss in an item entitled "Loss from discontinued operations". The assets of SMS are presented in the consolidated balance sheet as "Assets attributed to discontinued operations" and its liabilities are presented as "Liabilities attributed to discontinued operations". The discontinued operations generated a loss in the consolidated income statement of NIS 16.6 million during 2003 (NIS 11.5 million during the quarter). As a result of the sale of the rights in the subsidiary, the Company expects to report a gain of NIS 9 million in 2004. * The recovery plan which the Company started implementing in the fourth quarter of 2001 continues to bear fruit. This year's results showed that the trend toward improvement in results of current operations which the Company exhibited in 2002 continued in 2003 as well. - The implementation of the resolution of the board of directors from October2002 to transfer the operations of the Barkan plant to the plant in Migdal Ha'emek and to transfer the equipment from the Barkan plant to Migdal Ha'emek in order to consolidate the production framework and save costs contributed to the improvement in the Company's gross profit and to the reduction in the Company's operating loss of 2003. - The increasing trend in Company sales which began in the third quarter of 2002 continued during the year under report as well. The increase in sales of self-manufactured products offset the decrease in sales to ZAG. The increase in sales turnover also continued in the fourth quarter of the year, compared with the previous quarter. Company sales during the fourth quarter of the year amounted to NIS 33.3 million, an increase of 50.1% over the third quarter of the year, and an increase of 36% over the same quarter last year. - The Company showed an improvement in its gross profit margin which reached 15% for the fourth quarter, compared with an average gross profit margin of 10% for the first three quarters of the year and a gross profit margin of 10% for 2002. * Company sales in 2003 totalled NIS 97.4 million, compared with NIS 93.7 million in 2002 and NIS93.8 million in 2001. * We present below condensed income statement data for 2003, compared with results of operations in 2002 and 2001, in NIS millions: 2003 2002 2001 Sales 97.4 93.7 93.8 Gross profit 11.2 7.3 (0.8) Operating loss before financing (10.0) (13.6) (22.6) Operating loss after financing (12.9) (15.8) (29.0) * For 2003, the Group had a consolidated loss of NIS 37.3 million, compared with NIS 16.8 million during 2002, and a loss of NIS 34.8 million in 2001. * The financial results were adversely affected by a number of events occurring during the second quarter of the year and by the loss from discontinued operations, as follows: - A decrease in the volume of operations during the second quarter of the year due to a reduction in the orders from ZAG and Home Depot, which caused a gross loss in the second quarter and an increase in the operating loss for the same period. - Non-recurring expenses in an amount of NIS 2.1 million which resulted from the shutting down of the Barkan plant. - Based on the company valuation commissioned by the Company from an external appraiser, and adopted by the Company's board of directors for purposes of theexpected merger with Kidron (details of which are presented below), the Company updated its implementation of Standard No. 15 of the Israeli Accounting Standards Board regarding the decline in value of assets and recorded a provision for a decline in value of NIS 6.9 million during the second quarter of the year. - During 2003, the Company recorded a loss from discontinued operations in an amount of NIS 16.6 million, compared with a loss of NIS 0.5 million in 2002, and a loss of NIS 3 million in 2001. Excluding these non-recurring expenses, the Group's loss for the period amounted to NIS 11.7 million, compared with NIS 16.3 million in 2002 and NIS 31.8 million in 2001. * As at 31st December 2003, the Group had ashareholders' deficit amounting to NIS 15.5 million and a working capital deficit amounting to NIS 44.1 million. The Group has accumulated losses as at 31st December 2003 amounting to NIS 102 million. The Group finished the year ended 31st December 2003 with a negative cash flow from operations amounting to NIS 4.5 million and the quarter with a positive cash flow from operations amounting to NIS 1.4 million. Notwithstanding the above, the Company is continuing to implement the reorganization plan it commenced upon toward the end of 2001 and is continuing negotiations with its banks. Company Management estimates that implementation of the reorganization plan and/ or successful conclusion of negotiations with its banks and/or the closing of the agreement with Kidron and/or an influx of cash to the Company, will allow it to continue its business operations in a regular manner and with a sound cash flow. If the aforementioned plans are not brought to fruition, there is a doubt as to whether the Group can continue to operate as a "going concern" and, therefore, may not be able to dispose of its assets and repay its liabilities during the normal course of its business. The financial statements do not contain any adjustments to the value or classification of assets or liabilities that may be necessary should the Company not be able to continue operating as a "going concern". Further to the agreement in principle, signed on 29 June 2003, a final agreement was signed on 31 August 2003 and amended on 14 September 2003 and on 13 November 2003 with Kidron Management and Holdings Company (1961) Ltd. on its behalf and on behalf of others (hereinafter - "Kidron"), whereby Kidron will transfer to the Company, by means of a merger, all the shares of Kidron Plastics Ltd. (a company active in importing and marketing raw materials for the plastics industry), in return for an allotment of shares in the Company which will grant Kidron and Michael and Sigal Zsus 75% of the issued and outstanding shares (fully diluted) of the Company. Michael Zsus directly and through a wholly-controlled subsidiary, controls 90% of Kidron. In addition, Kidron was granted an option to purchase additional shares in return for an amount of U.S.$ 500 thousand. The percentage of Kidron's holdings in the Company was determined on the basis of a valuation performed by an external expert. Consummation of the transaction is subject to a number of pre-conditions and to obtaining the necessary approvals under law, including the approval of the general shareholders meeting of the Company. On 22 December 2003, the general shareholders meeting of the Company approved the allotment of shares to Kidron. On 24 February 2004, the general shareholders meeting approved the extension for the consummation of the agreement for the allotment of shares to Kidron until 31 March 2004, and empowered the Company's board of directors to sign an agreement with Kidron for an additional 45 day extension. In the past few days, Kidron has asked the Company to come to an arrangement with the Company's creditors. Reaching such arrangement is Kidron's pre-condition for consummation of the merger with the Company. On 31March 2004, the Company's board of directors passed a resolution whereby it extended the date for the closing of the transaction until 15 May 2004 and whereby it agreed to enter into an arrangement with its creditors, as requested by Kidron, on condition and subject to receipt from Kidron, by no later than 4 April 2004, of the following: a. A written waiver of all of the pre-conditions for the closing of the transaction, except for the following pre-conditions: - Reaching an arrangement between the Company and its creditors (including the tax authorities, banks, and suppliers) to the complete satisfaction of Kidron. Kidron agrees that this item shall be deemed to have been fulfilled on the date arrangement with the creditors is approved (in accordance with an agreed-upon request to be submitted by the Company) by the court authorized to do so, with regard to all of the Company's creditors, except for the income tax authorities. - The required approval of the Tel Aviv Stock Exchange. - The approval of the tax authorities of the merger, in accordance with article 103(T) of the Israeli Income Tax Ordinance. - The approval of the Israel Investment Center. These waivers will in no way prejudice any of the rights of Kidron and/or the Company. b. A commitment to realize the option to invest U.S.$ 500 thousand in cash in the shares of the Company, on the date of the closing, whether by Kidron or by assignment of the rights to any third party. c. A loan in a cash amount of U.S.$ 100 thousand, to be considered as a payment on account of the realization of the option mentioned in the preceding paragraph. In the event the option is not exercised, the loan shall be repaid within 90 days. d. A commitment to close the transaction within 7 days of the fulfillment of the pre-conditions detailed in paragraph "a" above, but no later than 15 May 2004, subject to fulfillment of the aforementioned conditions by that date. * The Kidron Group operates through subsidiaries in Israel and Europe in a variety of areas related to the manufacture and supply of raw materials and other inputs to industry. * On 1 February 2004, the C.E.O. of the Company, Mr. Daniel Stern, concluded his employment with the Company. To the best of the knowledge of Company Management, his departure does not involve circumstances that should be brought to the knowledge of the Company's investors. On 11January 2004, 1,468,750 option warrants expired out of a total of 2,350,000 warrants that had previously been allotted to Dekel HaGalil Ltd., a company wholly-owned by Mr. Daniel Stern. Dekel Ha'Galil still has 881,250 option warrants which are exercisable into 881,250 shares of the Company. As of 2 January 2004, Mr. Moshe Katz has been serving as the new C.E.O. of the Company. * On 15 June 2003, Mrs. Orna Patishi resigned from the Company's board of directors, and Mr. AviadShachar was appointed to serve in her stead. * On 22 May 2003, Mr. Yoel Feldshow, a public director, resigned from the Company's board of directors, and on 31 August, Mrs. Bilha Sova was appointed to serve as an external director of the Company. The Group and its Business Environment General The Company is an industrial concern engaged in the manufacture of injection-moulded and pressed plastic products. The Company has an active plant in Migdal Ha'emek. Developments in Group activity The Company is continuing its efforts to develop new products and markets with the goal of reducing its dependency on ZAG. In 2002, 2002, and 2003, sales to ZAG comprised 53%, 45%, and 38% of total Company sales, respectively. Subsidiaries, associated undertakings and other companies AFIC Printing Products Ltd. (hereafter - "AFIC") The Company holds 25.1% of AFIC's shares. AFIC is engaged in the production and marketing of cartridges for printers and cash registers. At the end of 2001, the Company set up a provision to write off the entire investment in AFIC, in an amount NIS 1.1 million. There was a significant increase of AFIC activity during 2002, and the company made the transition from loss to profit. This trend continued during 2003. Sales of AFIC during 2003 totalled NIS 24.5 million, compared with NIS 20.9 million during the same period of last year. Net earnings for the period amounted to NIS 2.3 million, compared with NIS 1.6 million during the same period last year. The company's shareholders' equity as at 31st December 2003 amounted to NIS 6.2 million, compared with NIS 3.8 million during the current year. On 27 March, 2003, Itamar Patishi and Moshe Katz were appointed as directors in AFIC. In view of the above appointments, Company management decided to cancel the reserve for decline in value set up in the past in respect of the investment in AFIC and to include its investment in AFIC in the financial statements on the equity basis. As at 31st December 2003, the Company recorded its investment in AFIC at an amount of NIS 1.5 million, 25.1% of the shareholders' equity of AFIC at that date. CD Anywhere Innovative Storage Solutions Ltd. (hereafter - "CD") In September 2001, the Company sold its investment in CD for an amount of U.S.$ 350 thousand (at cost), of which it received half (an amount of NIS 0.6 million). The second half has not yet been paid, therefore, on 28th August 2003, theCompany filed suit in the Netanya Magistrates Court against Amir Levit and others to recoup the balance of the debt. Financial Position (consolidated) 31st December 2003 31st December2002 % of balance % of balance NIS'000 sheet NIS'000 sheet Total balance sheet 143,076 169,372 Current assets 29,352 20% 34,846 21% Investments 1,578 1% - 0% Tangible assets 56,356 39% 73,395 43% Assets attributable to discontinued operations 55,790 39% 61,131 36% Current liabilities 73,498 51% 64,592 38% Long-term liabilities 14,051 10% 23,138 14% Liabilities attributable to discontinued operations 71,037 50% 59,817 36% Shareholders' funds (capital deficit) (15,510) (11%) 21,825 12% The explanations below pertain to the changes in the consolidated balance sheet which took place during the reporting period. Current assets decreased during the period under report by approximately NIS 5.5 million. This decrease resulted from a decrease of NIS 6 million in trade accounts receivable, a reduction of NIS 0.5 million in the Company's inventory, offset by the increase of NIS 0.5 million in other debit balances. The NIS 17 million decrease in tangible fixed assets derived mainly from depreciation for the period in an amount of NIS 8.4 million, plus the reserve for decline in value of NIS 6.9 million, sales of fixed assets, the depreciated value of which amounted to NIS 2.9 million, less purchases of fixed assets in an amount of NIS 1.2 million. Current liabilities increased by approximately NIS 8.9 million, as a result of the increase of NIS 10.9 million in short-term credit from banking institutions, of which NIS 6.5 million were loans originally granted for the long-term. Since the Company is in arrears regarding payment of these loans, and the banks are entitled to demand immediate repayment of the entire balance of the loans, they were presented as short-term loans. These amounts were offset by a decrease of NIS 2 million in trade and other accounts payable. The NIS 9 million decrease in long-term liabilities derived from loans amounting to NIS 6.5 million that were originally classified as long-term but were now presented as short-term, from the net repayment of loans during the period, and from the erosion of foreign currency-linked loans. The NIS 37.3 million decrease in shareholders' funds derived from the loss for the period under report. Results of consolidated annual operations Year Ended 31st December, 2003 2002 NIS'000 % of sales NIS'000 % of sales % change from '02 - '03 Turnover 97,412 - 93,706 - 4% Gross profit 11,189 11% 7,334 8% 53% Operating loss (9,989) (10%) (13,597) (15%) (27%) Financing expenses (2,884) (3%) (2,112) (2%) 37% Operating loss after financing (12,873) (13%) (15,709) (17%) (18%) Other expenses, net (8,448) (9%) (591) (1%) (1480%) Taxes on income -- -- (33) -- (100%) Share of group in profits of associated 574 1% -- -- 100% undertaking Loss on discontinued operations (16,588) (11%) (497) 1% 2251% Loss for the year (37,335) (33%) (16,830) (18%) (90%) Results of operations for the three month periods ended as indicated (consolidated): 31 December 2003 30 September 2003 30 June 2003 31 March 2003 31 December 2002 NIS'000 % of NIS'000 % of NIS'000 % of NIS'000 % of NIS'000 % of sales sales sales sales sales Turnover 33,341 22,076 16,656 25,339 24,500 Gross profit (loss) 5,064 15% 2,802 13% (813) (5%) 4,136 16% 2,759 11% Selling and marketing expenses 4,281 13% 3,180 14% 2,873 17% 3,436 14% 3,985 16% General and administrative 2,574 8% 1,304 6% 1,981 12% 1,549 6% 1,990 8% expenses Operating loss (1,791) (5%) (1,682) (8%) (5,667) (34%) (849) (3%) (3,216) (13%) Financing income (expenses) (205) (1%) (2,887) (13%) 1,206 7% (998) (4%) (637) (3%) Operating loss after financing (1,996) (6%) (4,569) (21%) (4,461) (27%) (1,847) (7%) (3,853) (16%) Other expenses (256) (1%) (818) 4% (8,192) (49%) 819 3% (240) (1%) (Taxes) benefit on income ---- -- -- -- -- -- -- -- -- Loss after taxes (2,252) (7%) (5,387) (24%) (12,653) (76%) (1,028) (4%) (4,093) (17%) Share of group in profits (loss) 132 1%164 (1%) 136 (1%) 142 1% -- -- of associated undertaking Loss from continued operations (2,120) (6%) (5,223) (24%) (12,517) (75%) (886) (3%) (4,093) (17%) Loss from discontinued (11,471) (34%) (2,968) (13%) (1,479) (9%) (671) (3%) (2,708) (11%) operations Loss for the period (13,591) (41%) (8,191) (37%) (13,996) (84%) (1,557) (6%) (6,802) (28%) Analysis of the results of consolidated operations for the year ended 31st December 2003 Turnover Group sales during the 2003 increased by NIS 3.7 million (4%) compared with sales 2002, and totalled NIS 97.4 million for the year. The declining trend in Company sales not only stopped, but was even reversed starting in the third quarter of 2002, as a result of the increase in sales of self-manufactured products, which offset the decrease in sales to ZAG. Group sales in the fourth quarter of the year totaledNIS 33.3 million, an increase of NIS 8.8 million (36%), compared with the fourth quarter of last year. Gross profit The trend toward increased gross profit continued in 2003. Consolidated gross profit during the period increased from NIS 7.3 million (8% of sales during the same period last year), to NIS 11.2 million (11% of sales). The improvement in gross profit derived from the increase in sales turnover, from an improvement in the product mix, and from the efficiency measures being implemented as part of the rehabilitation plan. The gross profit in the fourth quarter amounted to NIS 5 million (15% of sales), compared with gross profit of NIS 2.8 million (11% of sales) in the same quarter last year. The improvement in gross profit derived from an increase in sales turnover of Company products, and from the improvement in the sales prices of self-manufactured products, which was achieved notwithstanding the sharp increase in the prices raw materials commencing in 2003. Operating loss The operating loss for 2003 decreased to NIS 10 million (10% of sales), compared with NIS 13.6 million in 2002 (15% of sales). The increase in gross profit and the decrease in selling expenses are the major factors contributing to the decrease in the operating loss. The operating loss for the fourth quarter of the year amounted to NIS 1.8 million (5% of sales), compared with a loss of NIS 3.2 million in the same quarter last year (13% of sales). Selling and marketing expenses amounted to NIS 13.8 million (14% of sales) in 2003, compared with NIS 14.3 million (15% of sales) in 2002. The decrease in these expenses contributed to the decrease in the operating loss. The decrease in selling expenses was achieved notwithstanding the marketing efforts and the measures that were taken to penetrate new markets and the increase in direct exports of Company products. General and administrative expenses increased to NIS 7.4 million (8% of sales), compared with NIS 6.6million (7% of sales) in 2002, mainly due to non-recurring expenses incurred by the Company in the fourth quarter of 2003. Financing expenses Financing expenses amounted to NIS 2.8 million in 2003, compared with NIS 2.1 million in 2002. Other expenses Other expenses amounted to NIS 8.4 million in 2003, compared with NIS 0.6 million in 2002. Most of the 2003 amount, NIS 6.9 million, was a provision for a decline in value of assets which the Company recognized in accordance with Standard No. 15, issued in January 2003 by the Israeli Accounting Standards Board. The balance derived mainly from expenses connected to the closure of the Barkan plant. The provision was based on the company valuation commissioned by the Company from an external appraiser and adopted by the Company's board of directors. Loss from discontinued operations Further to the approval of the board of directors of the sale of all of the shares and rights of the Company in its subsidiary, SMS, to a third party, the share of the Company in the results of the subsidiary was recorded as a loss from discontinued operations. Liquidity and cash flows Liquidity data (consolidated) 31/12/03 31/12/02 Working capital deficit (44,146) (29,746) Cash, bank deposits and short-term investments 211 121 Liquidity ratios (consolidated) Cash, bank deposits and short-term investments 0.007 0.003 /current assets Current ratio 0.40 0.54 Quick ratio 0.30 0.43 Cashflows (consolidated) Group cash flows from operations for the period totalled an outflow of NIS 4.5 million, compared with a cash inflow of NIS 2.3 million during 2002. The factors that contributed to the cash flows were as follows: the loss forthe period in an amount of NIS 37.3 million, plus income in a net amount of NIS 1.91 million not constituting a cash flow, offset by a decrease in inventories (NIS 0.4 million), a decrease in trade debtors (NIS 5.6 million), depreciation and amortisation of NIS 15.3 million, a loss on discontinued operations in an amount of NIS 16.6 million, less an increase in accounts receivable (NIS 0.5 million) and a decrease in trade creditors (NIS 2 million).. Cash flows used in investment activity during the period under report totalled an outflow of approximately NIS 1.4 million, compared with NIS 4.7 million in 2002. The outflow was used mainly for the purchase of fixed assets. Cash flows from financing activity during the period under report amounted to an inflow of approximately NIS 7.1 million during the period under report, compared with NIS 2.7 million in the 2002. The inflow resulted from the receipt of short-term bank credit in a net amount of NIS 6.0 million, offset by thenet repayment of long-term loans in an amount of NIS 3.7 million and from receipt of short and long-term credit, net, from discontinued operations in an amount of NIS 3.9 million. Sources of finance The Group's current financing needs are covered by credit lines granted by banks. During 2002, the Company signed agreements whereby it recorded a floating charge in favor of banks and a fixed charge on the building and property in Barkan and a fixed charge on the building and property in Migdal Ha'emek in favor of one of the banks, which increased the Company's credit framework by an amount of NIS 4.5 million. Concurrently, the Group is continuing its negotiations with the banks to further expand its credit framework and to reschedule the repayment dates of its long-term loans. The Group requested the increased credit in order to finance its working capital needs and to make necessary investments. Group Management believes that the successful culmination of negotiations withthe banks will provide adequate credit frameworks to finance the continued implementation of the rehabilitation plan. Company Management also believes that the implementation of the rehabilitation plan and/or the successful culmination of the negotiations with the banks and/or the closing with Kidron and/or an influx of cash to the Company will enable it to continue its business activity in an orderly fashion with a proper cash flow. In the event that the plans are not successful, it is doubtful as to whether the Group can continue operating as a "going concern" and, as a result, it will not be in a position to realize its assets or pay its liabilities in the normal course of its business. Donations Company policy is to contribute to the community, especially in the areas surrounding its plants, based on the financial ability to do so. During the period under report, in accordance with this policy, the Company made contributions of NIS 15 thousand to various institutions and organizations. Exposure to market risks and risk management General The Group's activity in competitive international markets for consumer goods exposes the Company to risks deriving from changes in exchange rates and prices of raw materials, to the risks of granting credit to customers in Israel and abroad, and to the risks of being dependent on major customers. The Company's board of directors discusses market risks and the manner in which they are handled, at its quarterly meetings. The general manager is responsible for managing risks deriving from changes in raw material prices (changing selling prices in accordance with the up-to-date prices of raw materials), changes in exchange rates and the risks of granting credit to customers and the risks from dependency on major customers. The Company is exposed to the following market risks: Exchange rate fluctuations Approximately 90% of the Group's sales are denominated in the dollar or European currencies (hereinafter - "foreign currency"). In addition, 90% of the raw material costs are foreign currency denominated and about 20% of the Group's other expenses are foreign currency linked. As at 31st December 2003, the excess of the Group's liabilities in foreign currency over its assets in foreign currency amounted to NIS 35.4 million. The above data show that the Company is exposed to two opposing foreign currency effects - on the one hand, a devaluation of the shekel resultsin financing expenses because of the outstanding foreign currency liabilities. On the other hand, since the percentage of foreign currency linked expenses is lower than the percentage of foreign currency linked revenues, the Company's operating income increases as a result of the same devaluation. Changes in raw material prices In accordance with the Company's agreement with ZAG, the Company's major customer (approximately 38% of all Company sales during the period), any change in the price of raw materials is immediately and entirely transferred to the prices of products. With regard to other customers, the Company has no obligation to fixed prices over the long-term. As a result, no forward transactions are entered into, to guarantee raw material prices. Nevertheless, it is difficult to raise product prices every time raw material prices increase and under the best of circumstances, compensation is only partial. Recently, raw material prices rose by approximately 39%, but the Company and its competitors have not raised the prices of merchandise they sell to their customers. The effects of the increases in raw material prices will be felt mainly during the first quarter of 2004. Customer credit risks As indicated below, the Group has a major customer, Z.A.G., comprising 38% of the consolidated sales turnover in 2003. Management estimates that the credit risk in respect of this customer is not high and does not justify taking out credit insurance. Therefore, the Group does not insure itself for credit risks. The Company entered into an agreement with an international provider of business and financial data regarding companies around the world, and it uses the data it obtains to conduct initial and ongoing credit risk evaluations of both its new and existing customers. Dependency on a major customer The Company has a major customer - Z.A.G., to which it sold during the period, 38% of the total Group sales. The dependency on this customer is declining. In order to reduce the exposure deriving from the major customer, the Company maintains a policy of varying its product lines and makes efforts in expanding its customer base, primarily in Europe, the U.S.and the local market. Linked balance sheet as at 31st December 2003 (NIS '000) Denominated in Linked to the Unlinked Non-monetary Total or linked to ICPI items foreign currency Assets Cash and cash equivalents 141 - 70 - 211 Trade debtors 15,486 - 1,945 - 17,431 Other debtors - 1,560 3,439 - 4,999 Stocks - - - 6,711 6,711 Investments- 34 - 1,544 1,578 Tangible assets - - - 56,356 56,356 Assets attributed to discontinued 7,562 660 4,652 43,500 55,790 operations Total assets 23,189 2,254 9,522 108,111 143,076 Liabilities Credit from banking institutions 15,484 8,147 27,370 - 51,001 Trade creditors 556 - 12,032 - 12,588 Other creditors - 5,000 4,578 331 9,909 Long-term loans 14,051 - - - 14,051 Liabilities attributed to 28,467 6,190 35,001 1,379 71,037 discontinued operations Total liabilities 58,558 19,337 78,981 31,701 158,586 Surplus (deficit) of assets over (35,369) (17,083) (69,459) 106,401 (15,510) liabilities The minimum number of directors proficient in financial and accounting matters The Company's board of directors is comprised of directors having a wealth of professional experience in matters of business and finance. This composition assists the board in complying with the obligations placed upon it by law and by the Company's documents of incorporation, in all matters regarding assessing the financial position of the Company and in preparing and approving the Company's financial statements. In view of the above, the Company has determined that the minimum number of directors having proficiency in business and financial matters should be two. Director having proficiency in accounting and financial matters Bilha Sova - BA in economics and statistics, MBA, CFO in Galam Ltd., and a director in Pahmas Registered Partnership. and Matechet Maayan Agricultural Cooperative Union Ltd. Itamar Patishi - Chairman of the Board and C.E.O. of Technoplast Ventures Ltd.; Chairman of the Board of Patishi-Shrem Fudim Kelner Management Ltd.; Member of the Board of the following companies: Technoplast Investments (1993) Ltd.; Tripod Investments Ltd.; A.A. Patishi Management (1999) Ltd.; A.A. Patishi Holdings (2002) Ltd.; Solar Properties and Real Estate Ltd.; Atech Technologies and Engineering Ltd; Nicast Ltd.; AFIC Printing Products Ltd. Shlomo Tisser - BA; director of the following companies: Vilar International Ltd.; Vilar Properties (1985) Ltd.; T.Z. Construction and Property for Rent in Tzipori (1993) Ltd.; T.Z. Equipmentand Rental Properties 1996 ltd.; T.Z. Construction and Properties in Barkan (1997) Ltd.; T.Z. Construction and Properties in the South (1997) Ltd.; M.L.G.A.S. Investments Ltd.; Gal Vered Properties and Holdings Ltd.; Solar Properties and Real EstateLtd.; Vilar USA; T.Z. Constructions and Tabor Properties (1993) Ltd.; Harkibarim Ltd.; The Center for Storage M.A. Ltd.; Vilar Technologies 99 Ltd.; Sandak and Livne Engineering and Initiation Ltd.; M.K.V.S.T. Management and Investments Ltd.; H.S.T. Industrial Construction (1995) Ltd.; Mivne Peles Ltd.; M.P. Infrastructures Ltd.; Heshet Carmel Ltd. Avi Shachar - Shachar HaMillennium (1991) Ltd.; Smart Storage Systems Ltd.; B'Ma'asef Plastics (1994) Ltd.; B'Ma'asef Marketing and Trade (1993) Ltd.;Plasef (Manufacture and Marketing of Profiles) Ltd.; A.G.M.R. Holdings and Management Ltd.; A.G.M.R. Engineering and Investments Ltd.; Zuk Bazelet Investments Ltd. Itamar Patishi Moshe Katz Chairman of the Board General Manager 31st March 2004 Fahn Kanne & Co. Schmidt & Co. Grant Thornton Certified Public Accountants (Isr) Certified Public Accountants (Isr) Member firm of Grant Thornton Head Office: Levinstein Tower 2 Har Sinai Street 23 Menachem Begin Rd. P.O. Box 1187 Tel-Aviv 66184 Tel-Aviv 61010 PO Box 36172 Israel Tel-Aviv 61361 Israel T: 972-3-5601060 T: 972-3-5660269 T: 972-3-7106666 F: 972-3-5609076 F: 972-3-7106660 E: schmidtt@inter.net.il E: info@gtfk.co.il To The Members of Technoplast Industries Ltd. We have audited the accounts on pages 3 to 42. Respective responsibilities of directors and auditors The Company's directors are responsible for the preparation of accounts. It is our responsibility to form an independent opinion, based on our audit, on those accounts and toreport our opinion to you. Basis of opinion We conducted our audit in accordance with generally accepted auditing standards, including those prescribed by the Israeli Auditor's Regulations (Mode of Performance), 1973. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We did not audit the financial statements of a fully consolidated subsidiary whose assets included in the consolidation as "assets of a discontinued operation" constituted 39% and 36.1% of total consolidated assets as at 31 December 2003 and 2002, respectively, and whose results of operations for the years ended 31 December 2003, 2002, and 2001 were included in the consolidation as a "loss on discontinued operations". The financial statements of this subsidiary were audited by other certified public accountants whose reports were furnished to us. Our opinion, insofar as it related to amounts emanating from the financial statements of such subsidiary, is based solely on the said reports of the other accountants. Furthermore, the data included in the financial statements relating to the net asset value of an affiliate stated on the equity basis and to the Group's equity in its operating results, is based on financial statements which were audited by other auditors. The abovementioned Financial Statements were prepared on the basis of historical cost, adjusted to reflect changes in the purchasing power of the Israeli currency, in accordance with Opinions issued by the Institute of Certified Public Accountants in Israel. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the accounts are free of material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts. Opinion In our opinion the accounts give a true and fair view of the state of affairs of the group at 31st December 2003 and of the loss, total recognised gains and losses and cash flows of the group for the three years then ended, and have been properly prepared in accordance with generally accepted accounting principles in Israel. We draw attention to Note 1 of the financial statements regarding the doubt as to the ability of the Company to continue as a "going concern", and plans of Management pertaining to the continued existence as a "going concern". The financial statements do not contain any adjustments or reclassifications of assets and liabilities that may prove to be necessary if the Company cannot continue operating as a "going concern". Fahn, Kanne & Co. Schmidt & Co. Certified Public Accountants Certified Public Accountants 31 March 2004 - 2 - The accompanying notes are anintegral part of these statements. CONSOLIDATED PROFIT AND LOSS ACCOUNTS (Adjusted to NIS of December 2003) Convenience translation (Note 2) Year ended Year ended 31st 31st December December Note 2001(*) 2002(*) 2003 2003 NIS '000 NIS '000 NIS '000 # '000 Turnover 3 93,753 93,706 97,412 12,410 Cost of sales 4 94,580 86,372 86,223 10,984 _______ _______ _______ ______ Gross (loss) profit (827) 7,334 11,189 1,426 Selling, general and administration expenses 5 21,766 20,931 21,178 2,698 _______ _______ _______ ______ Operating loss before other expenses (22,593) (13,597) (9,989) (1,272) Other expenses, net 6 (4,597) (591) (8,448) (1,076) _______ _______ _______ ______ Loss on ordinary activities before financial (27,190) (1,188) (18,437) (2,348) expenses Net financial expenses 7 (6,450) (2,112) (2,884) (367) _______ _______ _______ ______ Loss on ordinary activities before taxation (33,640) (16,300) (21,321) (2,715) Tax benefit (tax on profit) on ordinary 8 1,899 - activities Tax on behalf of previous year - (33) - - _______ _______ _______ ______ Loss on ordinary activities aftertaxation (31,741) (16,333) (21,321) (2,715) Net equity in earnings of associated undertaking 9 - 574 73 _______ _______ _______ ______ Loss from a continuing operation (31,741) (16,333) (20,747) (2,642) Loss from a discontinued operation (3,029) (497) (16,588) (2,115) _______ _______ _______ ______ Loss for the year (34,770) (16,830) (37,335) (4,757) _______ _______ _______ ______ _______ _______ _______ ______ Loss per share (NIS/#) Loss from a continuing operation (0.94) (0.49) (0.62) (0.08) Loss froma discontinued operation (0.09) (0.01) (0.49) (0.06) _______ _______ _______ ______ (1.03) (0.50) (1.11) (0.14) _______ _______ _______ ______ _______ _______ _______ ______ Basic number of shares (in thousands) 33,584 33,584 33,584 33,584 _______ _______ _______ ______ _______ _______ _______ ______ (*) Reclassified - see Note 24. CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES (Adjusted to NIS of December, 2003) Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001 2002 2003 2003 NIS '000 NIS '000 NIS '000 # '000 Total recognised losses for the year (34,770) (16,830) (37,335) (4,757) _______ _______ _______ ______ _______ _______ _______ ______ The accompanying notes are an integral part of these statements. CONSOLIDATED BALANCE SHEETS (Adjusted to NIS of December, 2003) Convenience translation (Note 2) 31st December 31st December Note 2002(*) 2003 2003 NIS '000 NIS '000 # '000 Assets attributed to the discontinued operation 24 61,131 55,790 7,107 ----------- ----------- --------- Fixed assets Tangible assets 10 73,395 56,356 7,180 Investee company 11 - 1,544 197 Severance pay - redundancy provision 17 - 34 4 _______ _______ ______ 73,395 57,934 7,381 ----------- ----------- --------- Current assets Stocks 12 7,178 6,711 855 Debtors 13 27,547 22,430 2,857 Cash at bank and in hand 121 211 27 _______ _______ ______ 34,846 29,352 3,739 ----------- ----------- --------- _______ _______ ______ Creditors: amounts falling due within one year Bank loans and overdrafts 14 40,091 51,001 6,497 Creditors 15 24,501 22,497 2,866 _______ _______ ______ 64,592 73,498 9,363 ----------- ----------- --------- _______ _______ ______ Net current assets/(liabilities) (29,746) (44,146) (5,624) _______ _______ ______ _______ _______ ______ Total assets less current liabilities 104,780 69,578 8,864 _______ _______ ______ _______ _______ ______ Liabilities attributed to the discontinued operation 59,817 71,037 9,050 ----------- ----------- --------- Creditors: amounts falling due after more than one year Non - convertible bank loans 16 22,976 14,051 1,790 ----------- ----------- --------- Provisions for liabilities and charges Redundancy provision - severance pay 17 162 - - ----------- ----------- --------- _______ _______ ______ Net assets (liabilities) 21,825 (15,510) (1,976) _______ _______ ______ _______ _______ ______ Contingent liabilities and commitments 20 Capital and reserves (deficit) 18 21,825 (15,510) (1,976) _______ _______ ______ _______ _______ ______ Date of approval: 31 March 2004 Itamar Patishi Moshe Katz Aliza Perry Chairman of the Board General Manager Controller (*) Reclassified - see Note 24. The accompanying notes are an integral part of these statements. CONSOLIDATED CASH FLOWS STATEMENTS (Adjusted to NIS of December, 2003) Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001(*) 2002(*) 2003 2003 NIS '000 NIS '000 NIS '000 # '000 Net cash flows from operating activities (Appendix A) Net cash flow from continuing operating activities (17,062) (4,962) (2,915) (371) Net cash flow from discontinued operating activities (6,952) 7,246 (1,545) (197) ______ ______ ______ _____ (24,014) 2,284 (4,460) (568) --------- --------- --------- ------- Investing activities Payments to acquire tangible fixed assets (8,498) (1,854) (1,245) (159) Receipts from sales of tangible fixed assets 976 251 1,089 139 ______ ______ ______ _____ Net cash outflow from continuing investing activities (7,522) (1,603) (156) (20) Net cash flow from discontinued investing activities (6,406) (3,136) (1,283) (163) ______ ______ ______ _____ Net cash flow from investing activities (13,928) (4,739) (1,439) (183) ______ ______ ______ _____ Financing activities Receipt of long-term bank loans 13,058 - 4,470 569 Repayment of long-term loans (10,223) (8,793) (8,210) (1,046) Short-term bank loans and credit, net 14,475 15,040 6,901 879 ______ ______ ______ _____ Net cash inflow from continuing financing activities 17,310 6,247 3,161 402 Net cash flow from discontinued financing activities 13,177 (3,592) 3,916 499 ______ ______ ______ _____ 30,487 2,655 7,077 901 --------- --------- --------- ------- ______ ______ ______ _____ Decrease in cash and cash equivalents (7,455) 200 1,178 150 ______ ______ ______ _____ ______ ______ ______ _____ Opening balance - from continued operation 7,708 408 121 15 ______ ______ ______ _____ ______ ______ ______ _____ Opening balance - from discontinued operation 474 319 806 103 ______ ______ ______ _____ ______ ______ ______ _____ Closing balance - from continued operation 408 121 211 27 ______ ______ ______ _____ ______ ______ ______ _____ Closing balance - from discontinued operation 319 806 1,894 241 ______ ______ ______ _____ ______ ______ ______ _____ (*) Reclassified - see Note 24. The accompanying notes are an integral part of these statements APPENDIX A RECONCILIATION OF OPERATING PROFIT TO NET CONSOLIDATED CASH FLOWS FROM OPERATING ACTIVITIES (Adjusted to NIS of December 2003) Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001 2002 2003 2003 NIS '000 NIS '000 NIS '000 # '000 Loss for the year (34,770) (16,830) (37,335) (4,757) Loss from discontinued operation 3,029 497 16,588 2,115 Depreciation of tangible fixed assets and intangible 8,278 9,223 15,340 1,955 assets Write-down of investment in other company 1,125 - (970) (124) Loss on sale of tangible fixed assets, net 566 552 1,855 236 Decrease (increase) in the value of capital note (117) - (27) (3) Change in deferred taxes, net (1,899) - - - Increase (erosion) in the value of long-term liabilities 2,752 754 (1,176) (150) Company's equity in losses of associated undertakings, - - (574) (73) net Decrease/(increase) in stocks (80) 3,373 467 59 Decrease/(increase) in trade debtors 3,593 2,752 5,592 712 Decrease/(increase) in other debtors 3,203 (993) (475) (60) Increase/(decrease) in trade creditors (3,796) (2,867) (2,180) (278) Increase/(decrease) in other creditors 1,286 (582) 176 22 Decrease in redundancy provision (232) (841) (196) (25) ______ ______ ______ _____ Net cash outflow from operating activities (17,062) (4,962) (2,915) (371) ______ ______ ______ _____ ______ ______ ______ _____ APPENDIX B MAJOR NON-CASH TRANSACTIONS (Adjusted to NIS of December 2003) Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001 2002 2003 2003 NIS '000 NIS '000 NIS '000 # '000 Acquisition of tangible fixed assets on credit 489 - - - ____ _____ ______ ____ ____ _____ ______ ____ Transfer from long-term loans to short-term credit - 2,601 - - ____ _____ ______ ____ ____ _____ ______ ____ The accompanying notes are an integral part of these statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL 1. Company activities Technoplast Industries Limited (hereafter - the Company) is a public company engaged in the manufacture and marketing of plastic products. As at 31 December 2003, the Company had a working capital deficit that amounted to NIS 44.2 million and the Group had an accumulated loss of NIS 102 million. The Group concluded the year under report with a negative cash flow from current operations in an amount of NIS 4.5 million. In their opinion letter on the financial statements as of 31 December 2003, the accountants of the subsidiary, Smart Modular Storage Ltd., drew attention to the loss of NIS 29.6 million in the reporting period (of which NIS 14.5 million was in respect of a write-off of goodwill), the shareholders deficit in an amount of NIS 30.3 million, the deficit in working capital in an amount of NIS 36.5 million and the negativecash flow from operating activities in an amount of NIS 1.5 million. In addition, the accountants pointed out that the financing of the working capital needed by the subsidiary is conditioned upon the extension of due dates of bank loans and the receipt of alternative lines of credit. In accordance with Opinion No. 57 of the Institute of Certified Public Accountants in Israel, the Company also included in the results of its operations the minority share in the shareholders' deficit of SMS, which exceeds SMS's liabilities to the minority shareholders and the guarantees received from the minority shareholders by an amount of NIS 5.2 million. On 16 March 2004, the board of directors of the Company approved the sale of all of the shares and rights of the Company in SMS to a third party, in return for the cancellation of the Company's guarantee of the debts of SMS to a certain bank (the guarantee was for an amount of U.S.$ 400 thousand) and in return for an amount equal to 15% of the annual net income of SMS in excess of NIS 3 million, relative to the shares being sold, but not to exceed an aggregate amount of NIS 650 thousand over a period of 60 months. The sale of the shares to the third party is subject to receipt of the approval of the creditor banks, by no later than 15 May 2004. In the event that such approval is not forthcoming and/or the Company's guarantee is not cancelled by 15 May 2004, the Company has the right, until 31 May 2004, to demandthe return of all of its rights and shares of SMS. If no demand is made for the return of the rights and shares, they shall remain the possession of the third party. Mr. Itamar Patishi resigned from the board of directors of SMS, effective 16 March 2004 and, as such, Technoplast no longer has any representation on the SMS board. The financial statements present the SMS activity as discontinued operations, in accordance with Standard No. 8 of the Israeli Accounting Standards Board. See also Note 24. As a result of the decision of the Company to sell the shares of SMS, the Company expects to report a profit of NIS 15 million in the financial statements for the year ended 31 December 2004. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) 1. Company activities (cont.) Further to the agreement in principle signed on 29 June 2003, a final agreement was signed on 31 August 2003 with Kidron Management andHoldings Company (1961) Ltd. on its behalf and on behalf of others (hereinafter - "Kidron"), whereby Kidron will transfer to the Company, by means of a merger, all the shares of Kidron Plastics Ltd. (a company active in importing and marketing raw materials for the plastics industry), in return for an allotment of shares in the Company, which will grant Kidron 75% of the issued and outstanding shares (fully diluted) of the Company. In addition, Kidron was granted an option to purchase additional shares in return for an amount of U.S.$ 500 thousand. The percentage of the Company held by Kidron was determined on the basis of a company valuation by an outside party. Consummation of the transaction is subject to a number of pre-conditions and to obtaining the necessary approvals under law, including the approval of the general shareholders meeting of the Company. On 22 December 2003, the general shareholders meeting of the Company approved the allotment of shares toKidron. On 24 February 2004, the general shareholders meeting approved the extension for the consummation of the agreement for the allotment of shares to Kidron until 31 March 2004, and empowered the Company's board of directors to sign an agreement with Kidron for an additional 45-day extension. In the past few days, Kidron has asked the Company to come to an arrangement with the Company's creditors. Reaching such arrangement is Kidron's pre-condition for consummation of the merger with the Company. On 31 March 2004, the Company's board of directors passed a resolution whereby it extended the date for the closing of the transaction until 15 May 2004 and whereby it agreed to enter into an arrangement with its creditors, as requested by Kidron, on condition and subject to receipt from Kidron, by no later than 4 April 2004, of the following: a. A written waiver of all of the pre-conditions for the closing of the transaction, except for the following pre-conditions: - Reaching an arrangement between the Company and its creditors (including the tax authorities, banks, and suppliers) to the complete satisfaction of Kidron. Kidron agrees that this item shall be deemed to have been fulfilled on thedate arrangement with the creditors is approved (in accordance with an agreed-upon request to be submitted by the Company) by the court authorized to do so, with regard to all of the Company's creditors, except for the income tax authorities. - The required approval of the Tel Aviv Stock Exchange. - The approval of the tax authorities of the merger, in accordance with article 103(T) of the Israeli Income Tax Ordinance. - The approval of the Israel Investment Center. These waivers will in no way prejudice any of the rights of Kidron and /or the Company. b. A commitment to realize the option to invest U.S.$ 500 thousand in cash in the shares of the Company, on the date of the closing, whether by Kidron or by assignment of the rights to any third party. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) c. A loan in a cash amount of U.S.$ 100 thousand, to be considered as a payment on account of the realization of the option mentioned in the preceding paragraph. In the event the option is not exercised, the loan shall be repaid within 90 days. d. A commitment to close the transaction within 7 days of the fulfillment of the pre-conditions detailed in paragraph "a" above, but no later than 15 May 2004, subject to fulfillment of the aforementioned conditions by that date. The Kidron Group operates through subsidiaries in Israel and Europe in a variety of areasconnected to the manufacture and supply of raw materials and other industrial inputs The Company is continuing to implement the reorganization plan it commenced upon toward the end of 2001 and is continuing negotiations with its banks. Company Management estimates that implementation of the reorganization plan and/ or successful conclusion of negotiations with its banks and/or reaching an arrangement with its creditors and/or the consummation of the agreement with Kidron and/or an influx of cash to the Company, will allow it to continue its business operations as a "going concern". If this course of action is not adopted, there is doubt as to whether the Group can continue to operate as a "going concern" and, therefore, may not be able to dispose of its assets and repay its liabilities during the normal course of its business. The financial statements do not contain any adjustments to the value or classification of assets or liabilities that may be necessary should the Company not be able to continue operating as a "going concern". 2. Accounting policies The financial statements presented herein were prepared in accordance with generally accepted accounting principles ("GAAP") in Israel, whichare not materially different from those followed under International Accounting Standards. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) 3. Definitions The Company - Technoplast Industries Ltd. Subsidiaries - Companies, the control in which exceeds 50% and the financial statements of which are consolidated with those of the Company (see appendix) Associated undertaking - A company, except for a subsidiary that the company's investment therein is included on the basis of the equity value. Investee company - A subsidiary or an associated undertaking. The Group- The Company and its investees. Interested parties - As defined in the Israeli Securities Regulations (Preparation of Annual Financial Statements) 1993. Related parties - As defined in the Opinion of the Institute of Certified Public Accountants in Israel pertaining to related parties. Dollar - U.S. dollar CPI - Israeli Consumer Price Index NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES 1. Financial reporting in inflationary economies In most countries, primary financial statements are prepared on the historical cost basis of accounting without regard to changes in the general level of prices. In an inflationary economy, reporting of operating results and financial position in the local currency, without making any adjustments is not always helpful to the users of financial statements. Money loses purchasing power at such a rate that comparison of amounts from transactions and other events that have occurred at different times, even within the same accounting period, can be misleading. In an inflationary economy, financial statements, are useful only if they are expressed in terms of the measuring unit, current at the balance sheet date. Accordingly, Israeli GAAP requires that financial statements be prepared in accordance with historical cost, adjusted for changes in the general purchasing power of the Israeli shekel at the balance sheet date ("Stable currency approach "). In accordance with the stable currency approach, the financial statements are prepared using historical cost values which are adjusted for changes in the general purchasing power of the currency at the balance sheet date. The underlying premise in this approach is to translate the current and comparative shekel amounts in the financial statements to constant shekel (possessing fixed purchasing power), thereby neutralising the inflationary effect. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) 2. Financial statements in adjusted Israeli currency (cont.) All figures in the accompanying financial statements are presented in adjusted NIS which have a constant purchasing power (December 2003 NIS), in accordance with the changes in the Israeli Consumer Price Index ("CPI" or "Index"). The financial statements have been adjusted in accordance with the Opinions of the Institute of Certified Public Accountants in Israel ("the Israeli Institute") and are based on the group's accounts maintained in nominal NIS. The adjusted amounts of non-monetary assets donot necessarily represent realisable current economic value, but only the original historical cost of those assets in terms of adjusted NIS. The term "cost" in these financial statements represents cost in adjusted NIS. 3. Principles of adjustment A. Balance sheet components have been adjusted as follows: Non-monetary items (balance sheet amounts which reflect their historical values when acquired or originated - mainly fixed assets, stocks and shareholders' equity) havebeen adjusted for changes in the CPI from the date acquired or originated, to the CPI for December 2003. Monetary items (balance sheet amounts which reflect their updated values or realisation values at the balance sheet date) are stated in the adjusted financial statements at their nominal values. Comparative figures of monetary items have been adjusted to the NIS of December 2003. Investments in associated undertakings and the share in the results of their operations for the reported period are determined on the basis of the adjusted financial statements of those companies. B. Profit and loss account components have been adjusted as follows: Components derived from non-monetary items have been adjusted on the same basis as the corresponding balance sheet items. With the exception of finance costs, profit and loss account transactions relating to trading items (e.g. sales, purchases, labour costs etc.) have been adjusted using the CPI for the month in which the transaction took place. The net financial income/(expenses) represents financial income and expenses in real terms, as well as the erosion of monetary items during the period. Current corporation tax includes an adjustment to reflect the erosion in value of payments on account made during the period, from the date of payment to the end of the period. C. Adjustment of financial statements of associated undertakings to US dollars The financial statements of a subsidiary included in the discontinued operations, which operates abroad as the "long arm" of the Group, were adjusted for changes in the Index after being translated into the Israeli currency, as follows: Non-monetary assets - at the exchange rate on the date of the transaction. Monetary assets - at the exchange rate on the balance sheet date. Income statement items - at average rates. Differences deriving from the aforementioned accounting treatment were reported as part of the financing component in the income statement. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) 3. Principles of adjustment (cont.) D. Convenience translation The adjusted financial statements at 31st December 2003 (including the profit and loss account and the balance sheet) have been translated into Sterling using the representative exchange rate at that date (# 1 = NIS 7.8496). The translation has been made solely for the convenience of the reader. The amounts presented in these financial statements should not be construed to represent amounts receivable or payable in Sterling or convertible into Sterling, unless otherwise indicated in these statements. 4. Details of changes in the CPI and the representative exchange rate of the US dollar and Sterling are as follows: CPI Exchange Exchange rate of US$ 1 rate of # 1 Points (*) NIS NIS At 31st December: 2003 178.571 4.379 7.8496 2002 182.01 4.737 7.6334 2001 170.9 4.416 6.4001 % % % Rate of change: For the year ended 31st December: 2003 (1.89) (7.56) 2.832 2002 6.50 7.27 19.27 2001 1.41 9.28 6.01 (*) Based on the CPI for the month ended on the balance sheet date, using an average base of 1993 = 100. 5. Discontinuance of adjusting financial statements for the effects of changes in the general purchasing power of the Israeli currency In 2001, the Israeli AccountingStandards Board issued Standard No. 12, " Discontinuance of Adjusting Financial Statements for Inflation". In December 2002, the Board approved Standard No. 17, "Postponement of the Discontinuance of the Adjustment of Financial Statements". According to Standard No. 12 and Standard No. 17, financial statements will no longer be adjusted for changes in the general purchasing power of the Israeli currency, commencing on January 1, 2004. Until December 31, 2003, the Company will continue to prepare its financial statements in accordance with Opinion No. 36 of the Institute of Certified Public Accountants in Israel. The adjusted values presented in the financial statements as of December 31, 2003 will serve as the basis for the nominal financial reporting commencing on January 1, 2004. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) 6. Consolidation of financial statements A. The consolidated financial statements include the financial statements of Technoplast Industries Limited and its subsidiaries, Technoplast Investments (1993) Limited (inactive during reported period) and Smart Modular Storage Ltd. B. Inter-company balances and transactions between companies, whose financial statements were consolidated into the consolidated financial statements, as well as inter-company profits, were eliminated in the consolidated financial statements. 7. Cash equivalents This item includes current bank balances that are available for withdrawal and unrestricted short-term bank deposits, with maturities of less than three months. 8. Stocks The stocks are presented at the lower of cost or market. Cost is determined as follows: Products - on the basis of sales price less the computed gross profit margin. Raw materials, consumables and purchased products - on the basis of " first in - first out". 9. Allowance for doubtful debts The allowance is calculated on specific debts, the collection of which is doubtful in the opinion of management. 10. Investment in investee companies Investments in investee companies are presented on the equity method. 11. Investment in associated undertakings A. The investments in associated undertakings have been accounted for under the equity method of accounting. B. The difference between the cost of the investment and the fair value of its assets less the fair value of its liabilities as at the date of purchase represents goodwill. This goodwill is amortised at an annual rate of 10% and is presented as an asset in the balance sheet, provided that it represents economic value. The Company has a policy of periodically evaluating the economic benefit expected to be derived from the goodwill and to consider a write-down if appropriate. A loss on the decline in value of goodwill should be recorded whenever the book value of the goodwill exceeds its recoverable value. C. In determining the Company's share of the business results of associated undertakings, intercompany transactions have been eliminated. NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) 12. Fixed assets Fixed assets are presented at cost, net of investment grants received, and net of accumulated depreciation. Depreciation is computed on the straight-line method, over the estimated useful lives, of fixed assets as follows: % Buildings 2 Machinery and equipment 4-20 (mainly 10%) Vehicles 15 Office furniture and equipment 7-33 (mainly 10%) Fixed assets under self construction include payroll costs, materials and other direct costs. 13. Deferred tax 1. Deferred tax is computed in respect of temporary differences between amounts included in the adjusted financial statements and amounts taken into account for tax purposes. Deferred tax balances are computed according to the tax rate at which the Company's profits are expected to be taxed. 2. The Company has not created a deferred tax liability in respect of the difference between the book value and the tax value of the investment which the Company has no intention of realising in the foreseeable future. 3. Due to the uncertainty of future profits, no deferred tax assets were recorded in the accounting records of the Company or its investee companies. 14. Assets and liabilities linked to the CPI or to foreign currency Balances linked to the CPI are included on the basis of the CPI relevant to the terms of the transaction. Balances linked to or denominated in foreign currencies are included at the relevant exchange rate prevailing on the balance sheet date, as published by the Bank of Israel. 15. Turnover Sales are recognised in the profit and loss account upon delivery of merchandise to customers. 16. Earnings per share Earnings per share is computed in accordance with the provisions of Opinion No. 55 of the Institute of Certified Public Accountants in Israel. The effect of warrants is included in the computation of primary earnings per share only if their exerciseis considered probable, based on the relationship between the market price of the shares stemming from the exercise of the warrants and the discounted present value of the future proceeds derived from the exercise of the warrants. The warrants will only be included in diluted earnings per share, if their exercise is considered improbable and they have a dilutive effect. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) 17. Transaction between the Company and its controlling shareholders Transactions between the Company and its controlling shareholders are presented in accordance with the guidelines of the Securities Regulations (Financial Statement Presentation of Transactions Between an Entity and its Controlling Shareholders) 1996. Assets transferred from a controlling shareholder to the Company are presented at their cost in the accounting records of the controlling shareholder. The considerations paid by the Company in excess of the cost of the assets are debited to a capital fund which is added to the accumulated deficit. 18. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 19. Fair value of financial instruments The Company and its subsidiaries have financial instruments which include, among other things, cash and cash equivalents, quoted securities, and trade and other debtors, as well as financial liabilities which include, among other things, short-term credit, and trade and other creditors. The fair value of these financial instruments is not materially different from their book value. 20. Advertising expenses Advertising costs are expensed when incurred. 21. Israeli Accounting Standard No. 15 In January 2003, the Israeli Accounting Standards Board issued Standard No. 15, which deals with a decline in asset value. The standard stipulates the required accounting treatment and presentation in cases of a decline in asset value. The standard requires the entity to recognize the loss on the decline in asset value whenever the book value of the asset exceeds its recoverable value. The standard is applicable to the financial statements of periods commencing on or after January 1, 2003. Adoption of the standard will, in most cases, have no retroactive effect. The Company set up a reserve for decline in asset value in an amount of NIS 7 million, which was based on an asset valuation that was ordered by the Company from an external appraiser and adopted by the Company's board of directors for purposes of the merger with Kidron Plastics Ltd. 22. Financial criteria According to the guidelines of the Israeli Securities Authority, when a long-term liability is payable on demand due to a breach of a restriction or financial criterion, it must be presented in the balance sheet as a current liability. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - TURNOVER The turnover and profit before taxation are attributable to one area of operations, the manufacture and marketing of plastic products. An analysis of turnover by geographical market is shown below. Convenience translation (Note 2) Year endedYear ended 31st 31st December December 2001(*) 2002(*) 2003 2003 Adjusted NIS '000 # '000 In Israel (1) 64,614 53,101 48,477 6,176 Abroad 29,139 40,605 48,935 6,234 _______ ______ _______ ______ 93,753 93,706 97,412 12,410 _______ ______ _______ ______ _______ ______ _______ ______ (1) Includes sales to major Customer A 49,970 43,011 37,308 4,753 _______ ______ ______ ______ _______ ______ ______ ______ Percentage from turnover 53.3% 45.9% 38.3% 38.3% _______ ______ ______ ______ _______ ______ ______ ______ (*) Reclassified - see Note 24. NOTE 4 - COST OF SALES Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001(*) 2002(*) 2003 2003 Adjusted NIS '000 # '000 Materials 48,088 44,350 46,343 5,904 Labour 21,311 17,122 15,599 1,987 Outside contractors 7,837 4,246 8,282 1,055 Depreciation 7,730 9,004 8,268 1,053 Manufacturing overhead 9,421 9,495 7,859 1,001 Decrease/(increase) in finished goods stock 193 2,155 (128) (16) ______ ______ ______ ______ 94,580 86,372 86,223 10,984 ______ ______ ______ ______ ______ ______ ______ ______ (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - SELLING, RESEARCH AND DEVELOPMENT, GENERAL AND ADMINISTRATION EXPENSES Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001(*) 2002(*) 2003 2003 Adjusted NIS '000 # '000 Selling expenses Wages and related expenses 1,617 2,305 2,814 358 Shipping and export expenses 7,052 7,308 6,915 881 Marketing commissions 2,765 2,965 2,190 279 Other 299 1,754 1,851 236 ______ ______ ______ _____ 11,733 14,332 13,770 1,754 --------- --------- --------- -------- General and administrative expenses Wages and related expenses 3,156 2,594 2,272 289 Travel and automobile maintenance (including 637 539 423 54 depreciation) Professional services 1,575 933 1,700 217 Depreciation 204 116 9712 Allowance for doubtful debts 2,269 882 1,417 181 Other 2,192 1,535 1,499 191 ______ ______ ______ _____ 10,033 6,599 7,408 944 --------- --------- --------- -------- ______ ______ ______ _____ 21,766 20,931 21,178 2,698 ______ ______ ______ _____ ______ ______ ______ _____ (*) Reclassified - see Note 24. NOTE 6 - OTHER EXPENSES Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001(*) 2002(*) 2003 2003 Adjusted NIS '000 # '000 Capital loss on sale of fixed assets (568) (552) (1,855) (236) Reserve for decline in assets value - - 970 124 Write-down of investment in other company (1,123) - (6,903) (881) Expensesrelating to prior years, net (2,641) (60) (122) (15) Other income/(expenses), net (265) 21 (538) (68) _____ _____ _____ _____ (4,597) (591) (8,448) (1,076) _____ _____ _____ _____ _____ _____ _____ _____ (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - NET FINANCIAL EXPENSES Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001(*) 2002(*) 2003 2003 Adjusted NIS '000 # '000 On long-term loans (4,989) (1,220) 255 32 On short-term loans (561) (2,070) (3,722) (473) Net increase (erosion) in the value of monetary items (900) 1,178 583 74 and other financing expenses _____ _____ _____ _____ (6,450) (2,112) (2,884) (367) _____ _____ _____ _____ _____ _____ _____ _____ (*) Reclassified - see Note 24. NOTE 8 - TAXATION A. Tax on profit from ordinary activities (tax benefit): Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001(*) 2002(*) 2003 2003 Adjusted NIS '000 # '000 Net deferred tax (1,899) - - - Current tax in respect of prior years - 33 - - _____ _____ _____ ____ (1,899) 33 - - _____ _____ _____ ____ _____ _____ _____ ____ (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - TAXATION (cont.) B. Tax adjustments on income We present belowa reconciliation between the theoretical tax expense, assuming that all the income of the Company and the subsidiary were taxed at the regular rates of 36%, and the actual tax expense as reported in the profit and loss account. Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001(*) 2002(*) 2003 2003 Adjusted NIS '000 # '000 Profit (loss) on ordinary activities before (33,640) (16,300) (21,321) (2,715) taxation _____ _____ _____ ____ _____ _____ _____ ____ Ordinary tax rates 36% 36% 36% 36% _____ _____ _____ ____ _____ _____ _____ ____ Tax on profit (tax benefit) computed according to (12,111) (5,868) (7,676) (977) the ordinary tax rates Increase/(decrease) in the tax burden: Tax on profit (tax benefit) from the reduction in 4,227 2,091 2,772 352 tax rates- "approved plants" Net non-deductible expenses and exempt income 628 80 1,889 241 Deduction of "extraordinary settlements" (666) (664) (488) (62) Tax adjustment in respect of prior years - 33 - - Differences arising from sale of investment in 1,847 - - - associated undertaking Amounts in respect of which deferred taxes were not 4,121 4,299 3,306 421 provided, net Other differences 55 62 197 25 _____ _____ _____ ____ Taxes on income included in the profit and loss (1,899) 33 - - account _____ _____ _____ ____ _____ _____ _____ ____ (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - TAXATION (cont.) C. Other information 1. Tax assessments The Company has final tax assessments for the tax years up to and including 1997. The tax assessment officer issued an assessment for the 1998 tax year whereby the Company has to pay additional tax of NIS 9 million (in NIS of 1998). On 28 December 2000, the Company filed an appeal in respect of the assessment to the district court. In the opinion of the Company's legal counsel, the Company's reasons for rejecting the assessment are very sound. Based on discussions held with the Income Tax Authorities, the Company set up a provision for taxes in its books in an amount of NIS 5 million. Subsequent to the balance sheet date, the Company engaged in negotiations with the Israeli Income Tax Authorities for the cancellation of the assessment made as part of the expected merger with Kidron Plastics Ltd., as reported in Note 1A. 2. As at 31 December 2003, the loss carryforward for income tax purposes amounted to NIS 83 million. 3. Benefits under the Law for the Encouragement of Industry (Taxation) 1969 The Company and a subsidiary are "Industrial Companies" under the Law for the Encouragement of Industry (taxation) 1969. Under this law, the Company claims a deduction in respect of issuance costs and is entitled to deduct depreciation at higher rates, as stipulated in the regulations under the Inflationary Adjustments Law. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - TAXATION (cont.) C. Other information (cont.) 4. Benefits under the Law for The Encouragement of Capital Investment ("the Law") The Company obtained approval for five expansion plans, which entitle it to tax benefits in respect of its "approved plants" in accordance with the Law. Tax benefits arecontingent upon compliance with the conditions and regulations stipulated in the Law and the approval letter. According to the Law, if the Company does not comply with the terms stipulated in the Law and approval letter, it will have to repay the investment grant received, plus interest and linkage differentials. In addition, the tax benefits will be revoked. Management of the Company is of the opinion that the Company has complied with all said conditions. In addition, the Company is entitled to accelerated depreciation in respect of fixed assets used in "approved plants". Details of the expansion plans are as follows: Expansion Date of Amount of The Company is Year in Approval The Company's Base year Year in Shareholders' Plan approval Investment entitled to an which from the entitlement to on which which entitlement to Number letter in US Investment InvestmentInvestmenttax benefits to entitlement tax benefit Dollars Grant at the requirements Centre on calculate to tax (thousands) following were fulfilment tax benefit rates fulfilled of an benefits ceases approved plan 1 1988 730 38% 1988 Received Taxation at a (a) (a) Taxation at a 2 1990 1,721 38% 1993 Received rate of 25% 1992 (b) rate of 15% on 3 1993 7,391 38% 1995 Not yet whichis 1995 2007 dividends received measured on the distributed 4 1996 6,992 34% in respect 1996 Not yet basis of the 1995 2008 from income of an received increase in derived from investment of turnover as an "approved US$ 6,025 compared with plant". thousand. 24% the base year in respect of (for a period of an investment 7 years from the of US$967 first year in thousand. which taxable income is generated) (c). 5 1997 9,516 Notentitled 2000 Not yet Tax exemption 1997 2007 to a grant received for a period of ten years (c) (*) The expanded tax plan which granted the Company a ten-year tax exemption was cancelled by the Israeli Investment Centre. The Company's appeal of the cancellation was rejected by the appeals committee. The Company is looking into its options to prevent the cancellation of the approved plan. a) Benefit period ended in 1995. b) Benefit period ended in 2002. c) Where dividends are distributed from tax exempt income, the Company is liable for Company tax at a rate of25%. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - NET EQUITY IN PROFITS OF ASSOCIATED UNDERTAKINGS Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001 2002 2003 2003 Adjusted NIS'000 # '000 Company's share in net profits (losses) - - 574 73 ___ ___ ___ ___ ___ ___ ___ ___ (*) Reclassified - see Note 24. NOTE 10 - TANGIBLE FIXED ASSETS A. Composition and changes 1. Adjusted NIS Real Machinery Vehicles Office Total estate (1) and furniture & (2) (3) equipment equipment Adjusted NIS' 000 Cost Balance at 31st December 2002 26,153 102,354 480 946 129,933 Additions during the year 23 1,222 - - 1,245 Disposals during the year - (13,724) - - (13,724) Allowance for decline in value - (6,903) - - (6,903) ______ _______ _____ _____ _______ Balance at 31st December 2003 26,176 82,949 480 946 110,551 ______ _______ _____ _____ _______ ______ _______ _____ _____ _______ Accumulated depreciation Balance at 31st December 2002 (2,671) (53,199) (223) (445) (56,538) Charge for the year (497) (7,771) (72) (97) (8,437) Disposals during the year - 10,780 - - 10,780 ______ _______ _____ _____ _______ Balance at 31st December 2003 (3,168) (50,190) (295) (542) 54,195 ______ _______ _____ _____ _______ ______ _______ _____ _____ _______ Net book value 31st December 2003 23,008 32,759 185 404 56,356 ______ _______ _____ _____ _______ ______ _______ _____ _____ _______ 31st December 2002(*) 23,482 49,155 257 501 73,395 ______ _______ _____ _____ _______ ______ _______ _____ _____ _______ (1) (2) (3) See next page. (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - TANGIBLE FIXED ASSETS (cont.) A. Composition and changes (cont.) 2. Convenience translation into Sterling Real Machinery Vehicles Office Total estate (1) and furniture & (2) (3) equipment equipment # '000 Cost Balance at 31st December2002 3,332 13,039 61 120 16,552 Additions during the year 3 156 - - 159 Disposals during the year - (1,748) - - (1,748) Allowance for decline in value - (879) - - (879) _____ ______ ____ ____ ______ Balance at 31st December 2003 3,335 10,568 61 120 14,084 _____ ______ ____ ____ ______ _____ ______ ____ ____ ______ Accumulated depreciation Balance at 31st December 2002 (340) (6,778) (28) (57) (7,203) Charge for the year (63) (990) (9) (12) (1,074) Disposals during the year - 1,373 - - 1,373 _____ ______ ____ ____ ______ Balance at 31st December 2003 (403) (6,395) (37) (69) (6,904) _____ ______ ____ ____ ______ _____ ______ ____ ____ ______ Net book value at 2,932 4,173 24 51 7,180 31st December 2003 _____ ______ ____ ____ ______ _____ ______ ____ ____ ______ 3. Other Information A. (1) The lease of land in Migdal Ha'emek expires in 2043. The lease of land in Barkan expires in 2036. (2) The cost at 31st December 2003 is net of investment grants of adjusted NIS 17,674 thousand (31st December 2002 - adjusted NIS 22,205 thousand) (3) The accumulated depreciation at 31st December 2003 is net of the amortisation of the investment grants amounting to adjusted NIS 10,387 thousand (31st December 2002 - adjusted NIS13,443 thousand). (4) Liens on fixed assets - see Note 21. (5) The decline in asset value is included in other expenses. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - INVESTMENTS IN INVESTEE COMPANIES A. The Company has a wholly-owned subsidiary named Technoplast Investments (1993) Ltd. During the period under report, the subsidiary was inactive. B. The Company owns 25.1% of the shares of AFIC. At the end of 2001, the Company wrote off the entire investment in AFIC, which amounted to NIS 1.1 million. The year 2002 and the first quarter of 2003 were characterised by a significant increase in AFIC's activities and a transition from loss to profit. On 27 March 2003, Itamar Patishi and Moshe Latz were appointed to the board of AFIC. In view of the above, Company management decided to include the investment in AFIC in the financial statements, on the equity basis. NOTE 12 - STOCKS Convenience translation (Note 2) 31st December 31st December 2002(*) 2003 2003 Adjusted NIS '000 # '000 Raw materials and consumables 3,830 3,238 412 Finished goods 3,348 3,473 443 _____ _____ ____ 7,178 6,711 855 _____ _____ ____ _____ _____ ____ (*) Reclassified - see Note 24. NOTE 13 - DEBTORS Convenience translation (Note 2) 31st December 31st December 2002(*) 2003 2003 Adjusted NIS '000 # '000 Trade debtors (1)(2) 23,023 17,431 2,220 Government institutions 1,616 1,560 199 Employees 89 31 4 Income receivable 1,552 1,899 242 Prepaid expenses 68 173 22 Controlling shareholder 7 7 1 Prepayment to trade creditors 207 154 20 Other debtors and prepayments (3) 985 1,175 149 _____ _____ ____ 27,547 22,430 2,857 _____ _____ ____ _____ _____ ____ (1) Net of allowance for doubtful debts 2,938 4,421 563 _____ _____ ____ _____ _____ ____ (2) Includes related parties 440 736 94 _____ _____ ____ _____ _____ ____ (3) Includes related parties 291 570 73 _____ _____ ____ _____ _____ ____ (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - BANK LOANS AND OVERDRAFTS Composition: Convenience translation (Note 2) 31st December 31st December Interest 2002(*) 2003 2003 rate % Adjusted NIS '000 # '000 Overdraft 8.2-16.2 11,526 16,062 2,045 Unlinked credit5.2-8.6 13,003 11,308 1,441 Credit linked to CPI 11.3-16.2 413 1,636 208 Credit linked to US dollar 7-10.12 7,175 9,998 1,274 Loan originally granted as long-term (**) 4.5-8 - 6,511 830 Current maturities of long-term loans 7,974 5,486 699 ______ ______ _____ 40,091 51,001 6,497 ______ ______ _____ ______ ______ _____ (*) Reclassified - see Note 24. (**) The Company was in arrears in repaying its loans. Therefore, according to the agreement with the banks, they are entitled to demand immediate repayment of the entire amount of the debt. NOTE 15 - CREDITORS Convenience translation (Note 2) 31st December 31st December 2002(*) 2003 2003 AdjustedNIS '000 # '000 Trade creditors 14,768 12,588 1,604 Employees and institutions 917 1,319 168 Provision for holiday pay 318 416 53 Other creditors and credit balances 8,498 8,174 1,041 ______ ______ _____ 24,501 22,497 2,866 ______ ______ _____ ______ ______ _____ (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - NON-CONVERTIBLE BANK LOANS A. Composition: Convenience translation (Note 2) 31st December 31st December Linkage Interest 2002(*) 2003 2003 basis rate % Adjusted NIS '000 # '000 Long-term bank loans: US$ 1.87-2.35 26,062 18,845 2,401 Euro 3 1,779 692 88 CPI 3,109 - - ______ ______ _____ 30,950 19,537 2,489 Less current maturities (7,974) (5,486) (699) ______ ______ _____ 22,976 14,051 1,790 ______ ______ _____ ______ ______ _____ (*) Reclassified - see Note 24. B. The long-term non-convertible bank loans mature as follows: Convenience translation (Note 2) 31st December 31st December 2003 2003 Adjusted NIS # '000 '000 Year following balance sheet date: 2004 5,486 699 2005 4,940 630 2006 3,982 507 2007 3,363 428 2008 and thereafter 1,766 225 ______ _____ 19,537 2,489 ______ _____ ______ _____ C. For information regarding financing expenses in "real terms" in respect of long-term loans, see Note 7. D. For information about the reclassification of loans originally granted as long-term, see Note 14. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - REDUNDANCY PROVISION A. In accordance with a collective agreement regarding the introduction of comprehensive pension rights, the Company makes regular payments for some of its employees to the "Mivtachim" pension fund, which confers pension rights when they reach retirement age. B. Several employees are provided for by the Company in managers' insurance policies, which include a severance component. C. The amounts accrued in the pension fund and in the managers' insurance are not under the Company's control. Accordingly, these sums and the related liabilities are not included in the financial statements. D. The balance sheet liability for future redundancy pay represents the balance of the liability that is not covered by the abovementioned deposits and insurance policies. There is a funded provision in a recognised severance fund for the entire liability. E. The liability and funded liability for redundancy pay at the balance sheet date are as follows: Convenience translation (Note 2) 31st December31st December 2002(*) 2003 2003 Adjusted NIS '000 # '000 Total liabilities 556 428 54 Less - funded provision in redundancy fund (394) (462) (58) ___ ___ ___ 162 (34) (4) ___ ___ ___ ___ ___ ___ (*) Reclassified - see Note 24. NOTE 18 - SHARE CAPITAL AND RESERVES 1. Share capital A. Composition: Authorised capital Issued and fully paid 31st December 31st December 2002 2003 2002 2003 Number of ordinary shares with no par value 450,000,000 35,000,000 33,583,691 33,583,691 __________ __________ _________ _________ __________ __________ _________ _________ B. The ordinary shares confer on their owners the right to vote and to participate in shareholders' meetings, the right to receive income and the right to participate in net assets upon liquidation of the Company. C. The Company's shares are in registered form and are listed on the Tel-Aviv Stock Exchange and, as of February 1997, are also listed on the Primary List of the London Stock Exchange. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - SHARE CAPITAL AND RESERVES (cont.) 1. Share capital (cont.) D. During November 1993, the Company issued 1,000,000 ordinary shares, 500,000 warrants (Series 1), and 1,042,000 warrants (Series 2) for total net proceeds of NIS 20,085 thousand (adjusted to NIS of December 2003). The exercise dates of both series have lapsed. Series 2 warrants were fully exercised. Of Series 1 - 333,272 warrants were exercisedand 166,728 warrants expired. E. In June 1996 the Company issued 246,905 ordinary shares for total net proceeds of NIS 2,756 thousand (adjusted to NIS of December 2003). F. On 9th February 1997, the authorised share capital of the company was increased by NIS 19.6 million. G. On 11th February, 1997, the Company allotted bonus shares at a rate of 200 percent, equivalent to 11,503,248 ordinary shares, par value NIS 1 each. The shares were allotted from undistributable funds and profit and loss account income of the Company. The bonus shares that were allotted, carry the same rights as all other ordinary shares. H. On 11th February 1997 the Company issued 8,000,000 ordinary shares, par value NIS 1 each, to the public in England. Net proceeds from the issue totalled NIS 49,785 thousand (adjusted to NIS of December 2003). I. On 12th December 1999, the authorised share capital of the Company was increased by NIS 4.9 million. J. During December 1999, the Company issued 1,400,000 ordinary shares in a private placement in return for net proceeds of NIS 8,185 thousand (adjusted to NIS of December 2002). K. During March 2000, the Board of Directors approved a private placement of 1,430,000 unquoted option warrants to 33 Company employees. The warrants were granted to the employees without consideration and will be exercisable into 1,430,000 ordinary shares of the Company, par value NIS 1 each. The base exercise price of each warrant is NIS 4.34, linked to the Israeli Consumer Price Index of December 1999 (published on 14th January 2000). The quantity of shares to be purchased by way of the warrants will be limited so as to reflect the benefit component to be derived from them on the date of exercise, i.e., the difference between the base exercise price of each warrant and the market price on the Tel Aviv Stock Exchange of each NIS 1 par value share on the date of exercise. The employees will be entitled to receive the option warrants in four equal annual instalments, on condition that they were employed by the Company during the relevant period. The first portion will be granted on 1st February 2001, with the subsequent portions being granted on 1st February of each succeeding year, until 1st February 2004. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - SHARE CAPITAL ANDRESERVES (cont.) 1. Share capital (cont.) L. The former General Manager of the Company holds 250,000 options to purchase 250,000 ordinary shares at a base exercise price of NIS 4.34, linked to the Israeli Consumer Price Index of December 1999. The quantity of shares to be purchased by way of the warrants will be limited so as to reflect the benefit component to be derived from them on the date of exercise, i.e., the difference between the base exercise price of each warrant and the market price on the Tel Aviv Stock Exchange of each NIS 1 par value share on the date of exercise. M. On 11 November 2001, the Company allotted to Itamar Patishi (hereinafter - "Patishi") and to Orlight Industries (1959) Ltd. (hereinafter - "Orlight") 1,150,000 option warrants each. The unquoted warrants are exercisable into 2,300,000 shares of the Company, par value NIS 1 each. The option warrants will be distributed to Patishi and Orlight pro rata (and equally) each quarter over a 12 quarter period beginning on 1 October 2001 and will be exercisable upon distribution. The options will be allotted gratis and will not be listed for trade on the stock exchange. The exercise price for each option warrant isNIS 1.70, linked to the Consumer Price Index of September 2001. The quantity of shares to be purchased by way of the warrants will be limited so as to reflect the benefit component to be derived from them on the date of exercise, i.e., the difference between the base exercise price of each warrant and the market price on the Tel Aviv Stock Exchange of each NIS 1 par value share on the date of exercise. This placement was made as part of the approval of the termsof service of Itamar Patishi and Shaul Kovrinsky as co-chairmen of the board of directors of the Company. They receive no salary for their service, for the three year period which commenced on 1 July 2001. On 14 July 2002, Mr. Shaul Kovrinsky resigned his membership in the board of directors of the Company. Upon his leaving the job of Joint Chairman of the board, 846,529 options out of a total quantity of 1,150,000 options that had been previously allotted to Orlight Industries Ltd., expired. Out of all of the option warrants allotted to him, Itamar Patishi undertook to waive 214,000 option warrants under certain circumstances pertaining to the merger with Kidron. N. On 17 July 2002, an extraordinary general shareholders' meeting of the Company approved the resolution passed by the board of directors regarding the private placement of 2,350,000 option warrants to Dekel HaGalil Ltd. (hereinafter - "Dekel", a private company wholly-owned by Mr. Daniel Stern. The option warrants are non-negotiable and can be exercised into 2,350,000 ordinary shares of the Company, par value NIS 1 each. The option warrants will be distributed to Dekel in stages such, that after 1 June 2003, Dekel will be entitled to receive and exercise into Company shares 587,500 warrants. The remaining warrants will be distributed quarterly over a 12 quarter period commencing on 1 September 2003 and will be exercisable on the date of distribution. The option warrants were allotted without consideration and will not be listed on the stock exchange. The base exercise price of each option warrant is NIS 1, linked to the Index of April 2002. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - SHARE CAPITAL AND RESERVES (cont.) 1. Share capital (cont.) N. (cont.) The option are exercisable into the quantity of shares that will reflect just the benefit component that derives therefrom on the date of exercise, i.e., the difference between the base exercise price of each option and the market price per share of the Company's shares on the Tel Aviv Stock Exchange. This allotment took place as part of the terms of Mr. Stern's employment in his duties as GeneralManager of the Company. On 11 January 2004, Mr. Daniel Stern resigned from the Company. Upon his resignation, 1,468,750 options of the 2,350,000 options which were allotted to Dekel HaGalil expired. O. On 27 April, 2003, the general shareholders meeting of the Company authorized an increase in the share capital of the Company by an amount of NIS 100,000,000 by creating an additional 100,000,000 ordinary shares, par value NIS 1 each. P. On 30th September 2003, thegeneral shareholders meeting of the Company passed a number of resolutions regarding an increase in the registered share capital of the Company by an amount of NIS 315,000,000, by registering 315,000,000 ordinary shares, par value NIS 1 each, and byconverting all of the ordinary shares of the Company (including those deriving from the capital increase) into ordinary shares with no par value. Any and all rights that the par value NIS 1 ordinary share of the Company had, withoutexception, will pass over to the non-par valve shares 2. Share capital and reserves A. Adjusted Share Premium on Capital Profit Total capital shares funds and loss account(*) Adjusted NIS '000 Balance at 31st January 2001 42,724 43,608 327 (13,234) 73,425 Changes during 2001 Loss for the year - - - (34,770) (34,770) ______ ______ ____ ______ _______ Balance at 31st December, 2001 42,724 43,608 327 (48,004) 38,655 Changes during 2002 Loss for the year - - - (16,830) (16,830) ______ ______ ____ ______ _______ Balance at 31st December, 2002 42,724 43,608 327 (64,834) 21,825 Changes during 2003 Loss for the year - -- (37,335) (37,335) ______ ______ ____ ______ _______ Balance at 31st December, 2003 42,724 43,608 327 (102,169) (15,510) ______ ______ ____ ______ _______ ______ ______ ____ ______ _______ (*) Reclassified - see Note 2.17. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - SHARE CAPITAL AND RESERVES (cont.) 2. Share capital and reserves (cont.) B. Convenience translation Share Premium on Capital Profit Total capital shares funds and loss account(*) # '000 Balance at 31st December, 2002 5,443 5,555 42 (8,259) 2,781 Changes during 2003 Loss for the year - - - (4,757) (4,757) _____ _____ ___ ______ ______ Balance at 31st December, 2003 5,443 5,555 (13,016) (1,976) _____ _____ ___ ______ ______ _____ _____ ___ ______ ______ (*) Reclassified - see also Note 2.17. NOTE 19 - INTERESTED PARTIES Convenience translation (Note 2) 31st December 31st December 2002 2003 2003 Adjusted NIS '000 # '000 A. Balance sheet items Debtors 7 7 1 ___ ___ ___ ___ ___ ___ Highest current debit balance during the year 7 7 1 ___ ___ ___ ___ ___ ___ B. Transactions with interested parties Convenience translation (Note 2) 31st December 31st December 2001 2002 2003 2003 Adjusted NIS '000 # '000 Office rent expense 98 - - - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - INTERESTED PARTIES (cont.) C. Benefits to interested parties Convenience translation (Note 2) 31st December 31st December 2001 2002 2003 2003 No. of Adjusted NIS '000 # '000 people Interested parties employed by the Company Remuneration of chief executive officer 1,116 676 801 103 1 Other interested parties 1,181 - - - Directors' Remuneration (not employees of the 218 109 314 40 5 Company) NOTE 20 - CONTINGENT LIABILITIES AND COMMITMENTS 1. Contingent liabilities under the Law for the Encouragement of Capital Investments are described in Note 8. 2. During 1996, the Company and ZAG entered into a manufacturing agreement for a period of five years commencing on 1st January 1996. On 6th April 2000, an amendment to the agreement was signed, extending it for a period of five years commencing 1st January 2000 to 31st December 2004. The major points of the agreement are as follows: A. ZAG agreed to place orders each year with the Company equal to 30% of ZAG's plastic injection production in Israel (based on its dollar value), on condition that the Company has the capacity to produce such amount. B. The Company will ensure that the production and packaging are carried out only in the Company's factories which operate in development zone "A", as defined in the Law for the Encouragement of Capital Investment - 1959, unless ZAG agrees otherwise in writing. C. In return for the production and packaging, ZAG will pay the Company amounts based on an agreed-upon costing method of the costs of manufacturing and packaging the products. A mechanism for updating the prices was also stipulated in the agreement. D. In the event that ZAG merges with another company or at least 50% of ZAG is purchased by another party, ZAG is entitled to cancel the manufacturing agreement upon giving the Company 90 days advance notice. In such a case, ZAG will incur no penalties or further liabilities. This right accrues only in the event that the merger is with or the purchase is by a strategic partner and the cancellation of the agreement is a precondition to any such merger or purchase. Furthermore, the manufacturing agreement can be cancelled by ZAG upon 30 days advance notice if control of the Company is transferred to a competitor of ZAG. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 - CONTINGENT LIABILITIES AND COMMITMENTS (cont.) 2. (cont.) E. In August 2003, an addendum to the agreement with ZAG was signed, whereby the liability of ZAG mentioned in paragraph 1 above was amended to an amount of US$ 700,000 a month and to 40% of the dollar value of ZAG's injection production in Israel. In March 2002, Technoplast was notified by the Restrictive Trade Practices Authority (hereinafter - the "Authority") that the Authority views the production agreement between Technoplast and Z.A.G. as a restrictive agreement if it limits competition. The Authority added that it does not currently possess enough information to determine if there was an actual restriction on competition. On 26 August 2002, the Supervisor of Restrictive Trade Practices notified the Company that he decided to exercise his authority under the law to exempt the production agreement between the Company and Z.A.G. from the requirement to obtain the approval of the Restrictive Trade Practices Court on a restrictive agreement. The exemption will apply only in cases in which Technoplast's commitment to refrain from competing with Z.A.G. preventsan infringement on Z.A.G.'s intellectual property. 3. Guarantees The Company is a guarantor in favor of the subsidiary, Smart Modular Storage Ltd., in an amount of U.S.$ 500 thousand. See also Note 1. The Company gave finance guarantees amounting to NIS 240 thousand. 4. In February 2003, the Company signed a long-term agreement pertaining to real estate it leases in the Barkan industrial zone. In respect of this agreement, the Company willreceive annual rents (linked to changes in the exchange rate of the US dollar) in an amount of US$ 140 thousand. 5. Litigation A. In 2001, a suit in an amount of NIS 1.6 million was filed in the Tel Aviv District Court against Z.A.G. Industries Ltd., Technoplast Ventures Ltd., Tripod Investments Ltd., Technoplast Industries Ltd., Itamar Patishi, and Zvi Yemini. The suit pertained to the negotiations that were allegedly conducted in 1997 and at the beginning of 1998, between the plaintiffs and any or all of the aforementioned six defendants, regarding an agreement to invest in a start-up company for the development of a paramedical device for relieving lower back pain. Notwithstanding the fact that the negotiations did not come to fruition and that no investment agreement was signed, the plaintiffs claim that a binding contract was made and breached by one or all of the defendants. As part of the suit, the plaintiffs claimed damages in respect of expenses allegedly incurred by them in an amount of U.S.$ 58 thousand, and the balance in respect of the loss of future profits. In the opinion of the Company's legal counsel, the suit is a nuisance suit and is factually without merit. The chances of the suit's succeeding are slim. No provision was set up in respect of this suit in the accounting records of the Company. B. For information regarding the tax assessment order issued to the Company, see Note 8.C.1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 - LIENS 1. To secure compliance with the terms of the receipt of investment grants, a lien, unlimited as to amount, was placed on the assets of the Company in favour of the State of Israel. 2. To secure repayment of the Company's liabilities to banks and others, the Company gave a lien on its machinery and equipment, and on a bank deposit and notes deposited with the bank. 3. During July 2002, the Company put a first pledge on its real estate and plant in Barkan. During the reporting period, the Company signed agreements whereby it put in favor of one of the banks a floating charge in favor of banks and a fixed charge on the building and property in Migdal Ha'emek in favor of one of the banks. 4. Total liabilities of the Company to banking institutions in an amount of NIS 65 million are secured by liens. NOTE 22 - BUSINESS SEGMENTS A. General Group companies are engaged in two main business segments: Manufacture and marketing for subcontractors (including Z.A.G.), and manufacture of self manufactured products. B. Business segments Consolidated 2003 1. Profit and loss data a. Adjusted NIS Year ended 31 December 2003 Production Production & Total of self marketing - consolidated manufactured subcontracting products (including Z.A.G.) NIS'000 NIS'000 NIS'000 Sales turnover: Outside customers 56,103 41,309 97,412 ______ ______ ______ ______ ______ ______ Segment results (6,985) (3,004) (9,989) Unallocated financing expenses (2,884) Other expenses, net (8,448) Net equity in earnings of associated undertaking 574 from continuing operating ______ Loss from continuing operations (20,747) Loss from discontinued operations (16,588) ______ Loss for the year (37,335) ______ ______ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 - BUSINESS SEGMENTS (cont.) B. Business segments (cont.) Consolidated 2003 (cont.) 1. Profit and loss data (cont.) b. Convenience translation Year ended 31 December 2003 Production Production & Total of self marketing - consolidated manufactured subcontracting products (including Z.A.G.) #'000 #'000 #'000 Sales turnover: Outside customers 7,148 5,262 12,410 _____ _____ ______ _____ _____ ______ Segment results (889) (383) (1,272) Unallocated financing expenses (367) Other expenses, net (1,076) Taxes on income - Net equity in earning of associated undertakings 73 from continuing operations ______ Loss from continuing operations (2,642) Loss from discontinued operations (2,115) ______ Loss for the year (4,757) ______ ______ 2. Other information a. Adjusted NIS 31 December 2003 Total consolidated NIS'000 General assets 87,286 Assets attributed to discontinued operation 55,790 _______ Total consolidated assets 143,076 _______ _______ General liabilities 87,549 Liabilities attributed to discontinued operation 71,037 _______ Total consolidated liabilities 158,586 _______ _______ Long-term assets - cost General long-term assets - cost - attributed to continuing operation 1,245 General depreciation and amortization - attributed to continuing operation 15,340 General non-cash expenses excluding depreciation and amortization - attributed 1,088 continuing operation NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 - BUSINESS SEGMENTS (cont.) B. Business segments (cont.) Consolidated 2003 (cont.) 2. Other information (cont.) b. Convenience translation 31 December 2003 Total consolidated #'000 General assets 11,120 Assets attributed to discontinued operation 7,102 ______ Total consolidated assets 18,227 ______ ______ General liabilities 11,153 Liabilities attributed to discontinued operation 8,864 ______ Total consolidated liabilities 20,017 ______ ______ Long-term assets - cost General long-term assets - cost - attributed to continuing operation 159 General depreciation and amortization - attributed to continuing operation 1,954 General non-cash expenses excluding depreciation and amortization - attributed to 231 continuing operation Consolidated 2002 1. Profit and loss data - Adjusted NIS Year ended 31 December 2002 Production Production & Total of self marketing - consolidated manufactured subcontracting products (including Z.A.G.) NIS'000 NIS'000 NIS'000 Sales turnover: Outside customers 43,327 50,379 93,706 ______ ______ ______ ______ ______ ______ Segment results (10,670) (2,927) (13,597) Unallocated financing expenses (2,112) Other expenses, net (591) Taxes on income (33) ______ Loss from continuing operations (16,333) Loss from discontinued operations (497) ______ Loss for the year (16,830) ______ ______ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 - BUSINESS SEGMENTS (cont.) B. Business segments (cont.) Consolidated 2002 (cont.) 2. Other information - Adjusted NIS 31 December 2002 Total consolidated NIS'000 General assets 108,241(*) Assets attributed to discontinued operation 61,131(*) _______ Total consolidated assets 169,372 _______ _______ General liabilities 87,730(*) Liabilities attributed to discontinued operation 59,817(*) _______ Total consolidated liabilities 147,547 _______ _______ Long-term assets - cost General long-term assets - cost - attributed to continuing operation 2,229 General depreciation and amortization - attributed to continuing operation 9,223 General non-cash expenses excluding depreciation and amortization - attributed to 2,645 continuing operation (*) Reclassified - see Note 24. Consolidated 2001 1. Profit and loss data - Adjusted NIS Year ended 31 December 2001(*) Production Production & Total of self marketing - consolidated manufactured subcontracting products (including Z.A.G.) NIS'000 NIS'000 NIS'000 Sales turnover: Outside customers 31,257 62,496 93,753 ______ ______ _______ ______ ______ _______ Segment results (17,934) (4,659) (22,593) Unallocated financing expenses (6,450) Other expenses, net (4,597) Taxes on income 1,899 _______ Loss from continuing operations (31,741) Loss from discontinued operations (3,029) _______ Loss for the year 34,770 _______ _______ (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 - BUSINESS SEGMENTS (cont.) C. Geographical segments 1. Consolidated - in 2003 a. Adjusted NIS Revenues by source Geographical segments Year ended 31 December 2003 Israel U.S.A. Europe Other Consolidated NIS'000 NIS'000 NIS'000 NIS'000 NIS'000 Sales turnover to outside customers 48,477 8,807 34,077 6,051 97,412 ______ ______ ______ _____ ______ ______ ______ ______ _____ ______ b. Convenience translation Revenues by source Geographical segments Year ended 31 December 2003 Israel U.S.A. Europe Other Consolidated #'000 #'000 #'000 #'000 #'000 Sales turnover to outside customers 6,176 1,122 4,341 771 12,410 _____ _____ _____ ____ ______ _____ _____ _____ ____ ______ 2. Consolidated - in 2002 (*) Revenues by source Geographical segments Year ended 31 December 2002 Israel U.S.A. Europe Other Consolidated NIS'000 NIS'000 NIS'000 NIS'000 NIS'000 Sales turnover to outside customers 53,101 7,211 28,305 5,089 93,706 ______ ______ ______ _____ ______ ______ ______ ______ _____ ______ (*) Reclassified - see Note 24. 3. Consolidated - in 2001 (*) Revenues by source Geographical segments Year ended 31 December 2001 Israel U.S.A. Europe Other Consolidated NIS'000 NIS'000 NIS'000 NIS'000 NIS'000 Sales turnover to outside customers 64,614 4,415 24,037 687 93,753 ______ ______ ______ ____ ______ ______ ______ ______ ____ ______ (*) Reclassified - see Note 24. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 23 - LINKAGE BASIS Linkage basis of monetary assets and liabilities as of31st December 2002: a. Adjusted NIS Denominated in Linked to the Unlinked Non-monetary Total or linked to ICPI items Foreign currency Adjusted NIS '000 Assets Cash and cash equivalents 141 - 70 - 211 Trade debtors 15,486 - 1,945 - 17,431 Other debtors - 1,560 3,439 - 4,999 Stocks - - - 6,711 6,711 Deposits and other debit balances - 34 - 1,544 1,578 Tangible assets - - - 56,356 56,356 Assets attributed to discontinued 7,562 660 4,652 42,916 55,790 operations ______ ______ ______ _______ _______ Total assets 23,189 2,254 10,106 107,527 143,076 ______ ______ ______ _______ _______ ______ ______ ______ _______ _______ Liabilities Bank loans and overdrafts (less 9,998 8,147 27,370 - 45,515 current maturities) Trade creditors 556 - 12,032 - 12,588 Other creditors - 5,000 4,578 331 9,909 Long-term loans 19,537 - - - 19,537 Liabilities attributed to 28,467 6,762 35,436 372 71,037 discontinued operations ______ ______ ______ _______ _______ Total liabilities 58,558 19,909 79,416 703 158,586 ______ ______ ______ _______ _______ ______ ______ ______ _______ _______ Surplus (deficit) of assets over (35,369) (17,655) (69,310) 106,824 (15,510) liabilities ______ ______ ______ _______ _______ ______ ______ ______ _______ _______ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 23 - LINKAGE BASIS (cont.) Linkage basis of monetary assets and liabilities as of 31st December 2003 (cont.): b. Convenience translation Denominated in Linked to the Unlinked Non-monetary Total or linked to ICPI items Foreign currency Adjusted #'000 Assets Cash and cash equivalents 18 - 9 - 27 Trade debtors 1,973 - 248 - 2,221 Other debtors - 199 437 - 636 Stocks - - - 855 855 Deposits and other debit balances - 4 - 197 201 Tangible assets - - 7,180 7,180 Assets attributed to discontinued 963 84 592 5,468 7,107 operations _____ _____ ______ ______ ______ Total assets 2,954 287 1,286 13,700 18,227 _____ _____ ______ ______ ______ _____ _____ ______ ______ ______ Liabilities Bank loans and overdrafts (less 1,274 1,038 3,486 - 5,798 current maturities) Trade creditors 71- 1,533 - 1,604 Other creditors - 637 583 42 1,262 Long-term loans 2,489 - - - 2,489 Liabilities attributed to 3,625 861 4,515 49 9,050 discontinued operations _____ _____ ______ ______ ______ Total liabilities 7,459 2,536 10,117 91 20,203 _____ _____ ______ ______ ______ _____ _____ ______ ______ ______ Surplus (deficit) of assets over (4,505) (2,249) (8,831) 13,609 (1,976) liabilities _____ _____ ______ ______ ______ _____ _____ ______ ______ ______ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 24 - DISCONTINUED OPERATION 1. On 16 March 2004, the board of directors of the Company approved the sale of all of the shares and rights of the Company in SMS to a third party, in return for the cancellation of the Company's guarantee of the debts of SMS to a certain bank (the guarantee was for an amount of U.S.$ 400 thousand) and in return for an amount equal to 15% of the annual net income of SMS in excess of NIS 3 million, relative to the shares being sold, but not to exceed an aggregate amount of NIS 650 thousand over a period of 60 months. The sale of the shares to the third party is subject to receipt of the approval of the creditor banks, by no later than 15 May 2004. In the event that such approval is not forthcoming and/or the Company's guarantee is not cancelled by 15 May 2004, the Company has the right, until 31 May 2004, to demand the return of all of its rights and shares of SMS. If no demand is made for the return of the rights and shares, they shall remain the possession of thethird party. Mr. Itamar Patishi resigned from the board of directors of SMS, effective 16 March 2004 and, as such, Technoplast no longer has any representation on the SMS board. The assets and liabilities attributed to the discontinued operations were presented in the financial statements in separate items after fixed assets and after long-term liabilities, respectively, in accordance with Standard No. 8 of the Israeli Accounting Standards Board. In the income statement, the loss from the discontinued operations was presented in a single line entitled "Loss from discontinued operations". 2. Summary of Profit and Loss Accounts Convenience translation (Note 2) Year ended Year ended 31st 31st December December 2001 2002 2003 2003 NIS '000 NIS '000 NIS '000 # '000 Turnover 50,079 55,717 52,507 6,689 Cost of sales 44,030 44,479 43,715 5,569 _______ _______ _______ ______ Gross profit 6,049 11,238 8,792 1,120 Selling, research and development, general and (7,394) (10,717) (20,900) (2,665) administration expenses _______ _______ _______ ______ Operating loss before other expenses (1,345) 521 (12,108) (1,545) Other income (expenses), net 45 (167) (9,080) (1,157) _______ _______ _______ ______ Loss on ordinary activities before financial (1,300) 354 (21,188) (2,702) expenses Net financial expenses (2,415) (1,708) (2,990) (381) _______ _______ _______ ______ Loss on ordinary activities before taxation (3,715) (1,354) (24,178) (3,083) Tax benefit (tax on profit) on ordinary activities - 34 (41) (5) _______ _______ _______ ______ Loss on ordinary activities after taxation (3,715) (1,320) (24,219) (3,088) Minority share in loss of investee 686 823 7,631 973 _______ _______ _______ ______ Loss for the year (3,029) (497) (16,588) (2,115) _______ _______ _______ ______ _______ _______ _______ ______ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 24 - DISCONTINUED OPERATION (cont.) Assets Attributed to Discontinued Operation Convenience translation (Note 2) 31st December 31st December 2002 2003 2003 NIS '000 NIS '000 # '000 Minority receivable 310 7,941 1,012 ----------- ----------- --------- Intangible assets 10,427 - - ----------- ----------- --------- Fixed assets Tangible assets 29,305 26,999 3,440 Deposits and other debit balances 70 136 17 _______ _______ ______ 29,375 27,135 3,457 ----------- ----------- --------- Current assets Stocks 10,935 7,546 961 Debtors 9,278 11,274 1,436 Cash at bank and in hand 806 1,894 241 ______________ ______ 21,019 20,714 2,638 ----------- ----------- --------- _______ _______ ______ Creditors: amounts falling due within one year Bank loans and overdrafts 21,713 27,916 3,727 Creditors 21,373 29,256 3,557 _______ _______ ______ 43,086 57,172 7,284 ----------- ----------- --------- _______ _______ ______ Net current assets/(liabilities) (22,067) (36,458) (4,646) _______ _______ ______ _______ _______ ______ Total assets less current liabilities 18,045 (1,382) (177) _______ _______ ______ _______ _______ ______ Creditors: amounts falling due after more than one year Capital note 5,493 5,480 698 Non - convertible bank loans 10,863 8,013 1,021 Deferred income 214 152 19 _______ _______ ______ 16,570 13,645 1,738 ----------- ----------- --------- Provisions for liabilities and charges Redundancy provision - severance pay 161 220 28 ----------- ----------- --------- _______ _______ ______ Net assets (liabilities) 1,314 (15,247) (1,943) _______ _______ ______ _______ _______ ______ Capital and reserves (deficit) 1,314 (15,247) (1,943) _______ _______ ______ _______ _______ ______ This informationis provided by RNS The company news service from the London Stock Exchange END FR BLGDSSSGGGSB
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