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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 | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.00 | - |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
RNS Number:5005C Technoplast Industries Ld 01 September 2004 TECHNOPLAST INDUSTRIES LIMITED FINANCIAL STATEMENTS 30 JUNE 2004 UNAUDITED TECHNOPLAST INDUSTRIES LIMITED FINANCIAL STATEMENTS AS AT 30 JUNE 2004 TABLE OF CONTENTS Page Management Discussion and Analysis A-N Auditors' Review Report 2 Condensed Consolidated Profit and Loss Account 3 Condensed Consolidated Statement of Recognised Gains and Losses 4 Condensed Consolidated Balance Sheets 5 Condensed Consolidated Cash Flow Statements 6-8 Notes to the Financial Statements 9-24 Management Discussion and Analysis for the period ended 30th June 2004 We take pleasure in presenting the consolidated financial statements of Technoplast Industries Limited for the period ended 30th June 2004. 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 "period" refers to the results for the six month period ended 30th June 2004, while the term "quarter" refers to the three month period ended 30th June 2004. We present below a description of the main events that occurred during 2004 and during the period under report. * On 13 May 2004, the merger with Kidron Plastics Ltd. was consummated. As part of the merger, 145,613,968 no-par value shares were issued to Kidron Management and Holdings (1961) Ltd. and others, in return 100% of the shares of Kidron Plastics Ltd. and in return for the exercise of the option to make an additional cash investment of U.S.$ 500 thousand. * The aforementioned merger transaction was treated from an accounting standpoint as a reverse acquisition. In other words, from an accounting standpoint, Kidron Plastics Ltd. acquired the control over Technoplast, even though from a legal standpoint, it was the Company that acquired Kidron Plastics, in return for shares of the Company that were issued to the controlling shareholders of Kidron Plastics. The Company elected the accounting treatment of the reverse acquisition since the controlling shareholders of Kidrom Plastics obtained control over the merged entity, in accordance with international standards relating to this kind of event. * Accordingly, Kidron Plastics' assets and liabilities were presented at their book value as recorded in its books, and the assets and liabilities of the Company were presented at their fair value as at the date of acquisition, since, from an accounting standpoint, the Company was the acquired entity. * In the aforementioned acquisition transaction, it was decided that the basis for determining the value of the transaction is the value of the Company and the value of Kidron Plastics Ltd. The value was determined as part of a company valuation conducted by an independent expert for Kidrom Plastics and for the Company for purposes of consummating this transaction. * The consolidated profit and loss account of Kidron Plastics and the Company for the second quarter of the year includes the results of operations of the Company for the entire quarter and half of the results of operations of Kidron (from the date of acquisition through the end of the quarter). * The comparative amounts are those that were publicized in the past as part of the Company's financial statements. * Since transfer of control over the Company, Management has been making changes (personnel and processes) which are expected to be completed by the end of 2004. * On 13 May 2004, the Tel Aviv District Court approved a creditor arrangement for the Company, the major provisions of which are as follows: The guaranteed creditors (the banks), to whom the Company owed an amount of NIS 65 million, (as of date of the arrangement) will receive the following: - A payment of NIS 15 million within 6 months. - An amount of NIS 28 million will be converted into U.S. dollars and spread out over a 10-year period. - Participation in profits up to an amount of NIS 10 million over a ten-year period (an amount of 25% of the Company's pre-tax income in excess of U.S.$ 1.1 million from operations and/or the sale of injection mould plastic products). - An amount of NIS 12 million will be erased, subject to the payment of the NIS 15 million within six months of the approval of the creditor arrangement. Unsecured creditors, to whom the Company owed an amount of NIS 13 million, will receive the following: - Two alternatives: Alternative A - A cash payment (within 90 days) of 25% of their debt; Alternative B - A cash payment (within 90 days) of 15% of their debt and 25% spread out over 5 years. - Participation in profits, unlimited in time, of 25% of their debt (15% of the Company's pre-tax income in excess of U.S.$ 1.1 million from operations in manufacturing and/or the sale of injection mould plastic products). - Erasure of 50% of their debt, and under alternative B, erasure of 35% of the debt. Creditors to whom the Company owes less than NIS 10,000 each received 70% of their debt. According to the creditors arrangement, subsequent to the balance sheet date, the Company paid an amount of NIS 7.5 million the banks and an amount of NIS 2.5 million to its unsecured creditors. Payment of the second half to the banks, in an amount of NIS 7.5 million is expected to be made in November 2004. The trustee of the creditors arrangement received payment demands from suppliers and service providers in a total amount of NIS 16.7 million, of which the trustee approved at this stage demands of NIS 11.6 million, broken down as follows: payment demands under alternative A in an amount of NIS 5.2 million; payment demands under alternative B in an amount of NIS 6 million; and payment demands in an amount of NIS 0.4 million (to creditors with outstanding debts of less than NIS 10,000). Based on the alternatives selected by the suppliers, an amount of NIS 2.5 million was to be paid within 90 days, an amount of NIS 4.3 million was for long-term payment, and an amount of NIS 4.8 million was to be erased. * In April 2004, the Company signed an assessment agreement with the tax assessing officer, whereby the order issued to the Company in respect of the 1998 tax year, in an amount of NIS 11.7 million (including interest and linkage differentials) would be cancelled. Concurrently, an amount of NIS 22 million would be deducted from the Company's tax loss carryforwards. As a result of the aforementioned assessment arrangement, in the first quarter of 2004, the Company erased a provision for taxes in an amount of NIS 5 million. * Following consummation of the merger agreement with Kidron, on 23 May 2004, a new production agreement was signed by the Company and Z.A.G. Industries Ltd. (hereinafter - "Z.A.G."), whereby Z.A.G. undertook to transfer to the Company at least 30% of Z.A.G.'s injection production of plastic products in Israel (whether the production is done by Z.A.G., subcontractors or third parties), but not less than US$9 million, at agreed-upon prices. The production agreement is for a period of 10 years, commencing with the signing of the agreement. Notwithstanding the above, after four years of operation, either party is entitled to terminate the production agreement upon advance notice of 12 months. In the event such advance notice is given, the other party has the right to extend the advance notice period by an additional 12 months (i.e., a total of 24 months). On 29th August 2004, the Supervisor of Restrictive Trade Practices exempted this agreement from the requirement to obtain approval as a restrictive agreement for a period of ten years. In addition, another agreement was signed among Z.A.G., the Company and a limited partnership of Technoplast Investments (1993) Ltd. The Limited Partnership will manufacture and have sole global marketing rights for agreed-upon products of Z.A.G. and products of the Company. For purposes of its operations, the Limited Partnership will purchase production services from the Company, at agreed-upon prices. Z.A.G. will act as the sole representative of the Limited Partnership in North America. The agreement is for a two-year period, commencing with the date of its signing, and will be automatically extended for additional periods of two years, unless any of the parties notifies the other party prior to the end of the agreement period of its desire to terminate the agreement at the end of the agreement period. Such notice must be given at least three months in advance, with the other party having the right to extend the advance notice period by an additional three months (i.e., a total of six months). On 29th August 2004, the Supervisor of Restrictive Trade Practices exempted this agreement from the requirement to obtain approval as a restrictive agreement for a period of two years. Subsequent to the balance sheet date, in order to realize this agreement, the following companies were set up: the Partnership, Kidron Plastics Marketing Ltd. and Kidron Plastics (UK) Ltd. * As part of a compromise agreement signed with its banks, the Company allotted the banks 8,131,053 option warrants that currently comprise 4.3% of the Company's share capital under full dilution. The exercise price per option was set at U.S.$ 0.0178 per share. The options are exercisable until 12 May 2009. * 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 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, linked to the Israeli Consumer Price Index, over a period of 60 months. The sale of the shares to the third party was subject to obtaining various approvals by no later than 15 May 2004. It was also agreed that in the event that such approvals are not obtained, the Company will be entitled to demand the return of the shares and rights in SMS. The date for obtaining the approval of the banks was extended by mutual agreement with the third party to 30 June 2004 and, concurrently, the date by which the Company is entitled to demand return of the shares and rights in SMS was also extended to 15 July 2004. In accordance with the approval of the sale of the shares, the SMS activity is segregated from the Company's activities in the consolidated profit and loss account, under an item entitled "loss on discontinued operations". The discontinued operations contributed a loss of NIS 2.8 million to the consolidated profit and loss account for the first quarter of 2004 (NIS 16.6 million in 2003). Further to its resolution of 16 March 2004 regarding the sale of its holdings in SMS and the resignation of the representatives of the Company from the board of directors of SMS, the board of directors of the Company resolved, on 30 May 2004, that it had no intention of investing in or supporting the activities of SMS in any manner of form. A notice regarding this decision was circulated to the other shareholders of SMS and to the banks financing SMS. * The Company decided not to exercise its right to demand the return of the shares by 15th July 2004, as above, and as a result, the holdings in the shares of SMS were absolutely and unconditionally transferred to the third party. As part of the consummation of the transaction, the Company waived the demand that the purchaser undertake a guarantee toward a particular bank. * Results of operations during the period under report reflected the following: As mentioned above, the profit and loss account for the current quarter includes the results of company operations for the entire quarter and half of the results of operations of Kidron Plastics (from the date of acquisition until the end of the quarter), while the comparative amounts include only the results of operations of the Company. - Group sales for the period amounted to NIS 51.8 thousand, compared with NIS 42 million in the same period last year, an increase of 23%. Company sales totalled NIS 49.8 million during the period, compared with NIS 42 million last year, an increase of 19%. Group sales for the quarter amounted to NIS 21.1 million, compared with NIS 16.7 million in the same quarter last year, an increase of 26%. Company sales in the quarter amounted to NIS 19.1 million, compared with NIS 16.7 million in the same period last year, an increase of 14%. - The Group's gross profit reached 7% for the period, compared with 8% of sales in the same period last year. The Group's gross profit for the quarter reached 3% of sales, compared with a gross loss of 5% of sales in the same quarter last year, and gross profit of 11% for all of 2003. - The Company showed a negative cash flow from current operations in an amount of NIS 2.2 million, compared with a negative cash flow in the same period last year in an amount of NIS 5.7 million, and compared with a negative cash flow of NIS 4.5 million during all of 2003. * We present below condensed income statement data for the quarter, compared with results of operations in 2003 and in the same quarter last year, in NIS millions: Six months ended Three months Year ended 31 Six months ended Three months 30/6/2004 ended 30/6/2004 /12/2003 30/6/2003 ended 30/6/2003 Sales 51.8 21.1 97.4 42 16.7 Gross profit (loss) 3.6 0.6 11.2 3.3 (0.8) Operating loss before (6.5) (5) (10) (6.5) (5.7) financing Operating loss after (9.5) (6.4) (12.9) (6.3) (4.5) financing Loss from continuing (7.7) (6.4) (20.7) (15.0) (14.2) operations * The consolidated loss for the period amounted to NIS 10.5 million, compared with a loss of NIS 17.2 million in the same period last year. The consolidated loss for the quarter amounted to NIS 6.4 million, compared with NIS 15.6 million in the same quarter last year, and compared with a loss of NIS 37.3 million for all of 2003. * The results for the period were affected by other expenses of NIS 3.4 million, the write-off of a provision for income tax in an amount of NIS 5 million, and the loss on discontinued operations in an amount of NIS 2.8 million. * The loss from continuing operations amounted to NIS 7.7 million for the period, compared with NIS 15 million in the same period last year. The loss on continuing operations for the quarter amounted to NIS 6.4 million, compared with NIS 14.1 million in the same quarter last year and compared with a loss of NIS 20.7 million for all of 2003. * As at 30th June 2004, the Group had shareholders' equity of NIS 1.5 million and a working capital deficit of NIS 2.3 million. The Group has accumulated losses as at 30th June 2004 in an amount of NIS 112.7 million. Subsequent events * Bank Igud LeIsrael Ltd. and Bank Hapoalim BM issued new credit lines in an amount of U.S.$ 2 million in favour of Kidron Plastics Marketing Ltd., a granddaughter subsidiary of the Company which was set up in order to realize the organizational changes and the marketing cooperation with ZAG. Insurance and indemnification of senior officers The general shareholders meeting approved the following resolutions: * The Company's engagement of an insurance company for purposes of obtaining a policy for liability insurance in respect of senior executives of the Company, including a controlling interest in the Company (hereinafter - the "Policy"). The limit of liability of the proposed policy is up to U.S.$ 5,000,000 per claim and per insurance period, and the policy is renewable from time to time. The insurance will apply both to senior executives that serve from time to time and/or senior executives that are controlling shareholders that serve from time to time. * Granting a release from liability to senior executives serving from time to time ("senior executives"), including controlling shareholders in the Company, whereby the Company releases its senior executives in advance from liability toward the Company in respect of damages caused and/or to be caused by them as a result of a breach of their fiduciary responsibility toward the Company, and waives any claims against them. The aforementioned does not apply to any action or inaction in respect of which the Company is not permitted to release its senior executives from liability under the provisions of the Companies Law, 1999 (hereinafter - the "Companies Law"), as issued from time to time. * Undertaking to indemnify the directors and senior executives serving the Company from time to time, including a controlling shareholder, subject to certain conditions. * Granting a guarantee to secure the repayment of the debts of a subsidiary. * The general shareholders' meeting of the Company approved the following resolution: In accordance with the provisions of the allotment agreement the Company signed with Kidron Management and Holdings (1961) Ltd. on 31st August 2004, a guarantee, renewable and unlimited in amount, was cancelled. The guarantee was given by Kidron to secure the debts and liabilities of Kidron Plastics Ltd. to a certain bank. Therefore, in view of the fact that the Company is the owner of 100% of the issued and paid-up share capital of Kidron Plastics Ltd., a demand was made of the Company to provide a guarantee to secure the repayment of the debts of Kidron Plastics Ltd. to the First International Bank of Israel Ltd., in place of the guarantee of Kidron to the same bank. As at the date of the financial statements, the debt of Kidron Plastics Ltd. to the First International Bank of Israel Ltd. was an amount of NIS 4.5 million, in respect of the credit line issued by the bank to finance inventory and receivables. * The controlling shareholders in the Company, Mr. Michael Susz and/or Kidron Management and Holdings (1961) Ltd. gave guarantees, limited as per agreement, to secure the abovementioned new credit lines issued by Bank Igud LeIsrael Ltd. and Bank Hapoalim BM in favour of Kidron Plastics Marketing Ltd. The guarantees were granted without the Company having to give to its controlling shareholders any consideration or contra-undertaking. 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. 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. Sales of AFIC during the period totalled NIS 11.4 million, compared with NIS 12.4 million during the same period last year and NIS 24.5 million for all of 2003. Net earnings for the period and the quarter amounted to NIS 0.8 million and NIS 0.4 million, respectively, compared with NIS 1.1 million and NIS 0.5 million, respectively, during the same periods last year and NIS 2.3 million for all of 2003. The company's shareholders' equity as at 30th June 2004 amounted to NIS 6.9 million, compared with NIS 5 million at the end of the same period last year, and NIS 6.1 million as at 31st December 2003. The investment in AFIC is presented in the financial statements under the equity method. The Company is entitled to appoint 2 directors as its representatives on the board of directors of AFIC and it exercised this right by appointing two directors. As at 30th June 2004, the Company recorded its investment in AFIC at an amount of NIS 1.7 million, 25.1% of the shareholders' equity of AFIC at that date. Kidron Plastics Ltd. (hereinafter - "Plastics") Plastics is engaged in the importing, marketing, and distribution of raw materials and products in the area of plastics to the fiberglass and polyester industries. The Company holds 100% of the issued and paid-up share capital of Plastics. Plastics' financial statements are consolidated under the reverse acquisition method as described above. Sales of Plastics for the quarter amounted to NIS 7.3 million and its net earnings amounted to NIS 0.1 million. Its shareholders' equity as at 30th June 2004 amounted to NIS 0.3 million. Financial Position (consolidated) 30th June 2004 30th June 2003 31st December 2003 NIS'000 % of balance NIS'000 % of balance NIS'000 % of sheet sheet balance sheet Total balance sheet 91,100 160,108 143,076 Current assets 31,214 34% 27,032 17% 29,352 21% Investments 1,763 2% 1,287 -- 1,578 1% Tangible fixed assets 53,708 59% 60,237 38% 56,356 39% Goodwill 4,415 5% -- -- -- -- Assets attributed to discontinued -- -- 71,552 45% 55,790 39% operations Current liabilities 33,489 37% 65,084 41% 73,498 51% Long-term liabilities 56,094 61% 18,078 11% 14,051 10% Liabilities attributed to -- -- 72,310 45% 71,037 50% discontinued operations Shareholders' equity (deficit) 1,517 2% 4,636 3% (15,510) (11%) The explanations below pertain to the changes in the consolidated balance sheet which took place during the reporting period. Current assets increased during the period under report by approximately NIS 1.9 million. This increase resulted from the increase of approximately NIS 4 million in trade debtors and the increase of NIS 0.6 million in cash, offset by the NIS 2.2 million decrease in accounts receivable and other debit balances, and the NIS 0.6 million decrease in inventory. Kidron Plastics, consolidated for the first time, contributed mainly an increase of NIS 5.4 million in trade debtors and an NIS 1.3 million increase in inventory. The NIS 2.6 million decrease in tangible fixed assets originated from depreciation for the period in an amount of NIS 3.6 million, plus an amount of NIS 0.6 million representing the depreciated cost of fixed assets sold during the period, offset by purchases of fixed assets in an amount of NIS 0.9 million, plus the addition of fixed assets of Kidron Plastics in an amount of NIS 0.7 million. Current liabilities presented in the balance sheet as at 30th June 2004 decreased by approximately NIS 40 million, as a result of the decrease in short-term credit from banking institutions in an amount of NIS 31.4 million and a decrease of NIS 8.6 million in trade and other creditors. The decrease in short-term credit from banks derives from the repayment of credit in an amount of NIS 3.2 million and from long-term loans and new credit lines placed at the disposal of the Company by the banks as part of the agreement signed with the banks in May 2004. Kidron Plastics contributed an amount of NIS 6.4 million to the increase in short-term credit from banks. The decrease in trade creditors and accounts payable derives from the write-off of supplier balances in accordance with the creditors arrangement in respect of unsecured creditors in an amount of NIS 4.8 million and the reclassification to long-term liabilities of supplier balances in an amount of NIS 4.3 million, of which NIS 2.8 million were spread out over a 5-year period and NIS 1.5 million, contingent upon participation in profits unlimited in time. Kidron Plastics contributed an amount of NIS 2.8 million to the increase in balances of suppliers and accounts payable. The NIS 42 million increase in long-term liabilities derived from the new credit lines issued to the Company by the banks as part of the agreement with them. These include long-term loans of NIS 15 million, liabilities of NIS 12 million which are expected to be written off and liabilities of NIS 10 million to be repaid from the future profits. Another factor which contributed to the increase in long-term liabilities were the supplier and accounts payable balances which were reclassified to long-term liabilities in accordance with the creditors arrangement. These included an amount of NIS 2.8 million spread out over a 5-year period and NIS 1.5 million which is presented as liabilities to be repaid from future profits. During the reporting period, the Company's shareholders' equity made the transition from a negative to a positive amount, with an of NIS 1.5 million as at the end of the period, compared with a deficit of NIS 15.5 million at the beginning of the reporting period. The NIS 17 million increase in shareholders' funds derived from the loss for the period under report in an amount of NIS 10.5 million, from a share issue against the shares of Kidron Plastics in an amount of NIS 25.2 million and from a share issue for a cash amount of NIS 2.3 million. Results of consolidated operations Six months ended Six months ended Three months ended Three months ended Year ended 30/6/2004 30/6/2003 30/6/2004 30/6/2004 31/12/2003 NIS'000 % of NIS'000 % of NIS'000 % of sales NIS'000 % of sales NIS'000 % of sales sales sales Turnover 51,756 41,995 21,073 16,655 97,412 Gross profit (loss) 3,563 7% 3,323 8% 604 3% (813) (5%) 11,189 11% Operating loss (6,510) (13%) (6,516) (15%) (4,974) (24%) (5,668) (34%) (9,989) (10%) Financing income (2,997) (6%) 208 0% (1,419) (7%) 1,206 7% (2,884) (3%) (expenses), net Operating loss after (9,507) (18%) (6,308) (15%) (6,393) (30%) (4,462) (27%) (12,873) (13%) financing Other expenses, net (3,369) (6%) (9,010) (21%) (50) 0% (9,828) (59%) (8,448) (9%) Taxes on income - 4,970 (10%) -- (30) 0% -- -- tax benefit Share of Group in profits 212 -- 278 0% 114 0% 136 0% 574 -- of associated undertaking Loss on discontinued (2,837) (5%) (2,149) (5%) -- (1,479) (1%) (16,588) (17%) operations Loss for the period (10,531) (20%) (17,189) (41%) (6,359) (30%) (15,633) (94%) (37,335) (38%) Analysis of the results of consolidated operations for the period ended 30th June 2004 Turnover Group sales during the period increased by NIS 9.8 million (23%) compared with sales in the same period last year, and totalled NIS 51.7 million for the period. Group sales during the quarter increased by NIS 4.4 million (27%) compared with sales in the same quarter last year, and totalled NIS 21.1 million for the quarter. Kidron Plastics contributed an amount of NIS 2 million to the increase in Group sales for the quarter. Company sales during the period increased by NIS 7.8 million (19%) compared with sales in the same period last year, and totalled NIS 49.7 million for the period. Company sales during the quarter increased by NIS 2.5 million (15%) compared with sales in the same quarter last year, and totalled NIS 19.1 million for the quarter. Gross profit Consolidated gross profit during the period reached an amount of NIS 3.6 million (7% of sales), compared with a gross profit of NIS 3.3 million (8% of sales) in the same period last year. The Group's gross profit for the quarter amounted to NIS 0.6 million (3% of sales), compared with a gross loss of NIS 0.8 million (-5% of sales) in the same quarter last year and a gross profit of NIS 11.1 million (11% of sales) for all of 2003. The Company's gross profit during the period reached an amount of NIS 2.9 million (6% of sales), compared with a gross profit of NIS 3.3 million (8% of sales) in the same period last year. The Company's gross loss for the quarter amounted to NIS 0.1 million (-1% of sales), compared with a gross loss of NIS 0.8 million (-5% of sales) in the same quarter last year. The decrease in gross profit derived mainly from an increase in the percentage of raw materials out of total sales during the quarter (62% of sales, compared with 56% raw material consumption in the same period last year). The increase in the percentage of raw material consumption derived from the sharp increase in raw material prices and from a change in the product mix sold during the reporting period, compared with the products that were sold in the same period last year. The increase in gross profitability of the Company during the quarter, compared with the same quarter last year derived mainly from an increase in sales. Operating loss The Group's operating loss for the period amounted to NIS 6.5 million (12% of sales), compared with NIS 6.5 million in the same period last year (16% of sales), and compared with an operating loss of 10% in all of 2003. The Group's operating loss for the quarter amounted to NIS 5 million (24% of sales), compared with NIS 5.7 million in the same quarter last year (34% of sales), and compared with an operating loss of 10% in all of 2003. The decrease in gross profit was the major factor contributing to the increase in the operating loss. Selling and marketing expenses decreased by NIS 0.7 million and amounted to NIS 5.6 million (11% of sales) in the period and to NIS 2.6 million during the quarter (13% of sales), compared with NIS 6.3 million (15% of sales) and NIS 2.9 million (17% of sales) in the same period and quarter of last year, respectively. The decrease in selling expenses was achieved as a result of the efficiency measures taken by Company management in recent quarters. General and administrative expenses amounted to NIS 4.5 million during the period, compared with NIS 3.5 million during the same period last year (9% of sales during the period and 8% of sales during the same period last year). General and administrative expenses amounted to NIS 2.9 million during the quarter, compared with NIS 2 million during the same quarter last year (14% of sales during the quarter and 12% of sales during the same quarter last year). The increase in general and administrative expenses derived mainly from the expenses of Kidron Plastics which were added this quarter. Financing expenses Financing expenses of the Group and the Company amounted to NIS 3 million during the period, compared with NIS 0.2 million in the same period last year. Financing expenses of the Group and the Company amounted to NIS 1.4 million during the quarter, compared with financing income of NIS 1.2 million in the same quarter last year. The increase in financing expenses is explained mainly by the exchange rate differentials (expense) during the period in an amount of NIS 0.5 million, compared with income from exchange rate differentials of NIS 2.2 million in the same period last year. Other expenses Other expenses amounted to NIS 3.4 million during the period, compared with other expenses of NIS 9 million in the same period last year. The expenses reflect mainly the provisions that were recorded in the first quarter of the year in respect of debit balances previously recorded on the books of the Company. Taxes on income In accordance with the assessment agreement signed by the Company with the tax assessing officer in April 2004, whereby the order issued against the Company in respect of the 1998 tax year in an amount of NIS 11.7 million was cancelled, the Company erased the provision for taxes it recorded in its books in an amount of NIS 5 million. Loss from discontinued operations Further to the contingent sale of the shares and rights of the Company in its subsidiary, Smart Modular Storage Ltd., to a third party, the share of the Company in the results of the subsidiary was recorded in the first quarter of the year as a loss from discontinued operations. During the current quarter, the Company did not exercise its option to demand the return of the shares of Smart Modular Storage to its possession and, as a result, the transfer of the holdings in the shares of SMS to a third party became final. Liquidity and cash flows Liquidity data (consolidated) 30/6/04 30/6/03 31/12/03 Working capital deficit (2,275) (38,052) (44,146) Cash, bank deposits and short-term trade investments 827 485 211 Liquidity ratios (consolidated) Cash, bank deposits and short-term trade investments/current 0.026 0.018 0.007 assets Current ratio 0.93 0.42 0.40 Quick ratio 0.75 0.34 0.30 Cash flows (consolidated) Group cash flows from operations for the period totalled an outflow of NIS 2.3 million, compared with a cash outflow from current operations of NIS 5.7 million during the same period last year. Group cash flows from operations for the quarter totalled an outflow of NIS 2.6 million, compared with a cash outflow from current operations of NIS 2.9 million during the same quarter last year. The factors that contributed to the cash flows were as follows: the loss for the period in an amount of NIS 10.5 million, less expenses in a net amount of NIS 0.7 million not constituting a cash flow, plus a decrease in trade creditors and other payables (NIS 4.1 million), offset by a decrease in inventories (NIS 1.96 million), a decrease in other receivables (NIS 2.5 million), depreciation and amortisation of NIS 3.6 million, a loss on discontinued operations in an amount of NIS 2.8 million, a decrease in trade debtors (NIS 0.9 million). The discontinued operations had a cash outflow from current operations of NIS 0.8 million during the period, compared with NIS 1 million in the same period last year. This outflow was used mainly in the purchase of fixed assets. Cash flows from financing activity during the period under report amounted to an inflow of approximately NIS 3.7 million, compared with an inflow of NIS 2 million in the same period last year. The inflow resulted from the net repayment of short-term bank credit in an amount of NIS 3.2 million, offset by the receipt of long-term loans in an amount of NIS 4.6 million and the cash proceeds of the share issue in an amount of NIS 2.3 million Sources of finance As a result of the creditors arrangement that was approved by the court, and the investment of shareholders, as described above, Company management believes that the credit framework the Company receives from the bank will be adequate to cover its current financing needs. 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 10 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 (including 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 30th June 2004, the excess of the Group's liabilities in foreign currency over its assets in foreign currency amounted to NIS 17.9 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 results in 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 58% 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 13%, but the Company and its competitors have not raised the prices of merchandise they sell to their customers. Customer credit risks As indicated below, the Group has a major customer, Z.A.G., comprising 58% of the consolidated sales turnover during the period. 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, 58% of the total Group sales. As mentioned above, on 23rd May 2004, the Company's board of directors approved new long-term agreements between the Company and its major customer. Linked balance sheet as at 30th June 2004 (NIS '000) Denominated in Linked to the Unlinked Non-monetary Total or linked to ICPI items foreign currency Assets Cash and cash equivalents 742 - 85 - 827 Trade debtors 15,390 - 6,052 - 21,442 Other debtors - 1,152 1,675 - 2,827 Stocks - - - 6,118 6,118 Investments - 28 - 1,735 1,763 Tangible assets - - - 53,708 53,708 Goodwill - - - 4,415 4,415 Total assets 16,132 1,180 7,812 65,976 91,100 Liabilities Credit from banking institutions 11,700 8,480 26,085 - 46,265 (excluding current maturities) Trade creditors 1,840 - 10,754 - 12,594 Other creditors 1,800 - 3,788 - 5,588 Long-term loans 18,647 6,412 41 - 25,100 Deferred taxes - - - 36 36 Total liabilities 33,987 14,892 40,668 36 89,583 Surplus (deficit) of assets over (17,855) (13,712) (32,856) 65,940 1,517 liabilities Michael Susz Moshe Katz Chairman of the Board General Manager and Director 31st August 2004 The Board of Directors of 31 August 2004 Technoplast Industries Ltd. Dear Sirs: Re: Review of the Unaudited Condensed Interim Consolidated Financial Statements for the Six Month and Three Month Periods ended 30 June 2004 At your request, we have reviewed the condensed interim consolidated balance sheet of TECHNOPLAST INDUSTRIES LIMITED and its subsidiaries as at 30 June 2004, the condensed consolidated profit and loss accounts, condensed statements of recognised gains and losses, condensed statements of changes in shareholders' equity and the condensed consolidated statements of cash flows for the six month and three month periods then ended. Our review was conducted in accordance with procedures prescribed by the Institute of Certified Public Accountants in Israel and included, inter alia, reading the said financial statements, reading the minutes of the shareholders' meetings and of the meetings of the Board of Directors and its committees, as well as making inquiries of persons responsible for financial and accounting matters. We were provided with the reports of other accountants regarding the review of the financial statements of a subsidiary, whose assets as at 30 June 2004 constitute approximately 12% of total consolidated assets and whose revenues for the six month and three month periods constitute approximately 4% and 9% of total consolidated revenues respectively. Moreover, the data included in the consolidated financial statements pertaining to the equity value of the investment and the Company's share in the results of operations of an associated undertaking, are based on the financial statements that were reviewed by other accountants. Since the review performed is limited in scope and does not constitute an audit in accordance with generally accepted auditing standards, we do not express an opinion on the condensed financial statements. During the performance of our review, including reading review reports of other auditors as stated above, nothing came to our attention that would necessitate any material modifications to the condensed financial statements referred to above in order for them to be in conformity with generally accepted accounting principles and in accordance with Section D of the Securities Regulations (Periodic and Immediate Reports), 1970. Fahn Kanne & Co Certified Public Accountants (Isr.) The accompanying notes are an integral part of these condensed statements. CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT Convenience translation Year ended Three months ended Six months ended Three months Six months 31st 30th June 30th June ended 30th ended 30th December June June 2003 2003(*) 2004 2003(*) 2004 2004 2004 Adjusted(1) Adjusted(1) Reported Adjusted(1) Reported Reported cost(2) cost(2) cost(2) NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 #' 000 #' 000 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Turnover 97,412 16,655 21,073 41,995 51,756 2,587 6,353 Cost of sales 86,223 17,468 20,469 38,672 48,193 2,512 5,915 ______ ______ ______ ______ ______ _____ _____ Gross profit (loss) 11,189 (813) 604 3,323 3,563 75 438 Selling, general and administrative (21,178) (4,855) (5,578) (9,839) (10,073) (685) (1,236) expenses ______ ______ ______ ______ ______ _____ _____ Operating loss before other expenses (9,989) (5,668) (4,974) (6,516) (6,510) (610) (798) Other expenses (8,448) (9,828) (50) (9,010) (3,369) (6) (414) ______ ______ ______ ______ ______ _____ _____ Loss on ordinary activities before (18,437) (15,496) (5,024) (15,526) (9,879) (616) (1,212) financial expenses Net financial expenses (income) (2,884) 1,206 (1,419) 208 (2,997) (174) (368) ______ ______ ______ ______ _____ _____ _____ Loss on ordinary activities before (21,321) (14,290) (6,443) (15,318) (12,876) (790) (1,580) taxes Tax - - (30) - 4,970 (4) 610 ______ ______ ______ ______ ______ _____ _____ Loss after taxation (21,321) (14,290) (6,473) (15,318) (7,906) (794) (970) Net equity in profits of associated 574 136 114 278 212 14 26 undertaking ______ ______ ______ ______ ______ _____ _____ Loss from continuing operation (20,747) (14,154) (6,359) (15,040) (7,694) (780) (944) Loss from discontinued operation(16,588) (1,479) - (2,149) (2,837) - (348) ______ ______ ______ ______ ______ _____ _____ Loss for the period (37,335) (15,633) (6,359) (17,189) (10,531) (780) (1,292) ______ ______ ______ ______ ______ _____ _____ Loss per share (NIS/#) Loss from continuing operation (0.62) (0.42) (0.06) (0.45) (0.11) (0.007) (0.013) Loss from discontinued operation (0.49) (0.04) - (0.06) (0.04) - (0.005) ______ ______ ______ _____ _____ _____ _____ (1.11) (0.46) (0.06) (0.51) (0.15) (0.007) (0.018) ______ ______ ______ _____ _____ _____ _____ (1) Adjusted to NIS of December 2003. (2) See Note 2. (*) Reclassified - see Note 1D. The accompanying notes are an integral part of these condensed statements. CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES Convenience translation Year ended Three months ended Six months ended Three months Six months 31st 30th June 30th June ended 30th ended 30th December June June 2003 2003(*) 2004 2003(*) 2004 2004 2004 Adjusted(1) Adjusted(1) Reported Adjusted(1) Reported Reported cost(2) cost(2) cost(2) NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 #' 000 #' 000 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Total recognised losses for the period (37,335) (15,633) (6,359) (17,189) (10,531) (780) (1,292) ______ ______ ______ ______ _____ _____ _____ (1) Adjusted to NIS of December 2003. (2) See Note 2. (*) Reclassified - see Note 1D. The accompanying notes are an integral part of these condensed statements. CONDENSED CONSOLIDATED BALANCE SHEETS Convenience translation 31st December 30th June 30th June 30th June 2003 2003(*) 2004 2004 Adjusted(1) Reported cost(2) NIS' 000 NIS' 000 NIS' 000 #' 000 (Audited) (Unaudited) (Unaudited) (Unaudited) Assets attributed to the discontinued operation 55,790 71,552 - - ---------- ---------- ---------- ---------- Fixed assets Tangible assets 56,356 60,237 53,708 6,592 Investee company 1,544 1,248 1,735 213 Severance pay - redundancy provision 34 39 28 3 Goodwill - - 4,415 542 _______ _______ _______ ______ 57,934 61,524 59,886 7,350 ---------- ---------- ---------- ---------- Current assets Stocks 6,711 5,093 6,118 751 Debtors 22,430 21,454 24,269 2,979 Cash at bank and in hand 211 485 827 101 _______ _______ _______ ______ 29,352 27,032 31,214 3,831 ---------- ---------- ---------- ---------- Creditors: amounts falling due within one year Bank loans and overdrafts 51,001 44,964 19,616 2,408 Creditors 22,497 20,120 13,873 1,703 _______ _______ _______ ______ 73,498 65,084 33,489 4,111 ---------- ---------- ---------- ---------- Net current assets/liabilities (44,146) (38,052) (2,275) (280) _______ _______ _______ ______ _______ _______ _______ ______ Total assets less current liabilities 69,578 95,024 57,611 7,070 _______ _______ _______ ______ _______ _______ _______ ______ Liabilities attributed to the discontinued 71,037 72,310 - - operation ---------- ---------- ---------- ---------- Creditors: amounts falling due after more than one year Non-convertible bank loans 14,051 18,078 29,749 3,651 Creditors - - 2,809 345 Deferred taxes - - 36 4 Liabilities to banking institutions, expected to - - 12,000 1,473 be written off Liabilities to be repaid out of future income - - 11,500 1,411 _______ _______ _______ ______ 14,051 18,078 56,094 6,884 ---------- ---------- ---------- ---------- Net assets/liabilities (15,510) 4,636 1,517 186 _______ _______ _______ ______ _______ _______ _______ ______ Capital and reserves (Note 5) (15,510) 4,636 1,517 186 _______ _______ _______ ______ _______ _______ _______ ______ (1) Adjusted to NIS of December 2003. (2) See Note 2. (*) Reclassified - see Note 1D. Michael Susz Moshe Katz Aliza Perry Chairman of the Board General Manager Comptroller and Director Date of approval: 31 August 2004. The accompanying notes are an integral part of these condensed statements. CONSOLIDATED CASH FLOW STATEMENTS Convenience translation Year ended Three months ended Six months ended Three months Six months 31st 30th June 30th June ended 30th ended 30th December June June 2003 2003(*) 2004 2003(*) 2004 2004 2004 Adjusted(1) Adjusted(1) Reported cost Adjusted(1) Reported cost Reportedcost(2) (2) (2) NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 #' 000 #' 000 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net cash flows from operating activities (Appendix A) Net cash flow from continuing (2,915) (4,335) (2,561) (1,584) (2,253) (315) (276) operating activities Net cash outflow from discontinued (1,545) 1,452 - (4,090) - - - operating activities ______ ______ ______ _____ _____ _____ _____ (4,460) (2,883) (2,561) (5,674) (2,253) (315) (276) --------- --------- --------- ------- ------- ------- ------- Investing activities Payments to acquire tangible fixed (1,245) (251) (317) (929) (869) (39) (107) assets Receipts from sales of tangible fixed 1,089 232 - 900 - - - assets Purchase of a subsidiary consolidated - - 20 - 20 2 2 for the first time (Appendix C) Receipts from sale of the discontinued - - - - - - - operation (Appendix D) ______ ______ ______ _____ _____ _____ _____ Net cash outflow from continuing (156) (19) (297) (29) (849) (37) (105) investing activities Net cash outflow from discontinued (1,283) (65) - (989) - - - investing activities ______ ______ ______ _____ _____ _____ _____ Net cash flow from investing (1,439) (84) (297) (1,018) (849) (37) (105) activities ______ ______ ______ _____ _____ _____ _____ Financing activities Issue of shares - - 2,290 - 2,290 281 281 Receipt of long-term bank loans 4,470 - 18,491 - 18,491 2,270 2,270 Repayment of long-term loans (8,210) (1,790) (12,068) (4,419) (13,906) (1,481) (1,707) Short-term bank loans and credit, net 6,901 5,089 (5,348) 6,396 (3,157) (656) (388) ______ ______ ______ _____ _____ _____ _____ Net cash inflow (outflow) from 3,161 3,299 3,365 1,977 3,718 414 456 continuing financing activities Net cash inflow from discontinued 3,916 60 - 6,369 - - - financing activities ______ ______ ______ _____ _____ _____ _____ 7,077 3,359 3,365 8,346 3,718 414 456 --------- --------- --------- ------- ------- ------- ------- Increase in cash and cash equivalents 1,178 392 507 1,654 616 62 75 ______ ______ ______ _____ _____ _____ _____ Opening balance - from continuing 121 1,540 320 121 211 39 26 operation ______ ______ ______ _____ _____ _____ _____ Opening balance - from discontinued 806 649 1,041 806 1,894 128 232 operation ______ ______ ______ _____ _____ _____ _____ Closing balance - from continuing 211 485 827 485 827 101 101 operation ______ ______ ______ _____ _____ _____ _____ Closing balance - from discontinued 1,894 2,096 - 2,096 - - - operation ______ ______ ______ _____ _____ _____ _____ (1) Adjusted to NIS of December 2003. (2) See Note 2. (*) Reclassified - see Note 1D. The accompanying notes are an integral part of these condensed statements. APPENDIX A RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES Convenience translation Year ended Three months ended Six months ended Three months Six months 31st 30th June 30th June ended 30th ended 30th December June June 2003 2003(*) 2004 2003(*) 2004 2004 2004 Adjusted(1) Adjusted(1) Reported Adjusted(1) Reported Reported cost(2) cost(2) cost(2) NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 #' 000 #' 000 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Loss for the year (37,335) (15,633) (6,359) (17,189) (10,531) (780) (1,292) Loss from discontinued operation 16,588 1,479 - 2,149 2,837 - 348 Depreciation of tangible fixed assets 15,340 9,003 1,806 11,418 3,640 222 447 and intangible assets Write-down of investment in other (970) - - (970) - - - company Loss on sale of tangible fixed assets, 1,855 1,446 - 1,538 613 - 75 net Decrease (increase) in the value of (27) - - - - - - capital note Increase (erosion) in the value of (1,176) (1,585) (387) (2,004) 228 (49) 28 long-term liabilities Company's equity in earnings of (574) (136) (114) (278) (212) (14) (26) associated undertakings, net Decrease/(increase) in stocks 467 2,110 391 2,085 1,890 48 232 Decrease/(increase) in trade debtors 5,592 2,765 1,431 6,186 879 176 108 Decrease/(increase) in other debtors (475) (316) (928) 77 2,482 (114) 305 Increase/(decrease) in trade creditors (2,180) (678) 1,046 (2,979) 2,601 128 319 Increase/(decrease) in other creditors 176 (2,824) 548 (1,416) (6,714) 67 (824) Decrease in redundancy provision (196) 5 - (162) - - - Increase/(decrease) in severance pay - - 29 5 (39) 34 1 4 redundancy provision ______ ______ ______ _____ _____ _____ _____ Net cash outflow from operating (2,915) (4,335) (2,561) (1,584) (2,253) (315) (276) activities ______ ______ ______ _____ _____ _____ _____ (1) Adjusted to NIS of December 2003. (2) See Note 2. (*) Reclassified - see Note 1D. The accompanying notes are an integral part of these condensed statements. APPENDIX B MAJOR NON-CASH TRANSACTIONS Convenience translation Three months Six months ended Three months Six months ended 30th June 30th June ended 30th June ended 30th June 2004 2004 2004 2004 Reported cost(1) Reported cost(1) NIS' 000 NIS' 000 #' 000 #' 000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Capital issue against shares of a 25,268 25,268 3,102 3,102 subsidiary ______ ______ _____ _____ APPENDIX C PURCHASE OF SUBSIDIARIES, CONSOLIDATED FOR THE FIRST TIME Convenience translation Three months Six months ended Three months Six months ended 30th June 30th June ended 30th June ended 30th June 2004 2004 2004 2004 Reported cost(1) Reported cost(1) NIS' 000 NIS' 000 #' 000 #' 000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Working capital except for cash, net 438 438 54 54 Excess cost attributed to working capital (4,300) (4,300) (528) (528) Fixed assets, net (736) (736) (90) (90) Goodwill (4,415) (4,415) (542) (542) Severance pay - redundancy provision (28) (28) (4) (4) Non-convertible bank loans 41 41 5 5 Excess cost attributed to the (16,284) (16,284) (1,998) (1,998) discontinued operations Deferred taxes 36 36 4 4 Share issue 25,268 25,268 3,102 3,102 ______ ______ _____ _____ 20 20 3 3 ______ ______ _____ _____ APPENDIX D RECEIPTS FROM SALE OF THE DISCONTINUED OPERATIONS Convenience translation Three months Six months ended Three months Six months ended 30th June 30th June ended 30th June ended 30th June 2004 2004 2004 2004 Reported cost(1) Reported cost(1) NIS' 000 NIS' 000 #' 000 #' 000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Assets attributed to the discontinued 55,685(**) 55,685(**) 6,835(**) 6,835(**) operation Liabilities attributed to the (73,769) (73,769) (9,054) (9,054) discontinued operation Liabilities remaining in the financial 1,800 1,800 221 221 statements Excess cost attributed to the 16,284 16,284 1,998 1,998 discontinued operation ______ ______ _____ _____ - - - - ______ ______ _____ _____ (1) See Note 2. (**) Includes cash and cash equivalents in the amount of NIS 1,041 thousand that were included in the discontinued operation no longer consolidated. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 - GENERAL A. Company activities Technoplast Industries Limited (hereafter - the Company) is a public company engaged in the manufacture and marketing of plastic products. B. Merger with Kidron Plastics Ltd. Further to the in-principle agreement signed on 29th June 2004, the Company signed an agreement on 31st August 2004 with Kidron Management and Holdings (1961) Ltd., on its behalf and on behalf of others (hereinafter - "Kidron"), whereby Kidron will transfer to the Company, by means of a stock swap, all of the shares of Kidron Plastics Ltd. (hereinafter - "Kidron Plastics"), a company active in the area of importing and marketing of raw materials for the plastics industry, against an allotment of Company shares which will grant Kidron 77.27% of the issued and paid in share capital of the Company. In addition, Kidron was granted an option to invest in the Company an amount of U.S.$ 500 thousand in cash, for additional shares (hereinafter - the "Merger Transaction"). According to the agreement, the merger transaction is contingent upon the fulfilment of certain conditions, including the formulation of a creditors arrangement for the Company (see C. below), the approval of the Tel Aviv Stock Exchange, the approval of the tax authorities, and the approval of the Israel Investment Centre. On May 13, 2004, upon the approval of the creditors arrangement by the district court, the Merger Transaction with Kidrom Plastics was consummated. At that time, 117,201,486 no par value shares of the Company were issued to Kidron and others, in consideration of 100% of the shares of Kidron Plastics. On that date, all of the directors serving on the Company's board of directors resigned, except for the public directors, and new directors were appointed to the board as representatives of Kidron. Accounting ramifications of the Merger Transaction From a legal standpoint, the Company purchased Kidron Plastics in return for shares of the Company that were allotted to the controlling shareholders of Kidron Plastics. However, since the controlling shareholders of Kidron Plastics obtained control of the merged entity, it was determined that Kidron Plastics is to be considered as the purchaser from an accounting standpoint and the Company is to be considered as the acquired company. The abovementioned transaction was handled as a reverse acquisition. Accordingly, the assets and liabilities of Kidron Plastics were presented at their book value on the books of Kidron Plastics, and the assets and liabilities of the Company were presented at their fair value as of the date of acquisition, since the Company was considered to be the acquired company from an accounting standpoint. Cost of the acquisition In the aforementioned acquisition transaction, it was stipulated that the basis for determining the value of the transaction is the value of Kidron Plastics Ltd., the accounting purchaser, which is a privately-held company having a stable operation. The value was determined as part of a company valuation carried out for Kidron Plastics and the Company in advance of the signing of the merger transaction, by independent experts. The cost of the acquisition, in an amount of NIS 2,116 thousand was determined on the basis of 22.27% of the fair value of Kidron Plastics Ltd. (the part of Kidron Plastics that was transferred to the ownership of the shareholders of Technoplast as part of the Merger Transaction). NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) B. Merger with Kidron Plastics Ltd. (cont.) Calculation of the excess cost of the acquisition and the allocation thereof The excess cost, in an amount of NIS 25 million, was calculated on the basis of the book value of the company as of the date of acquisition (13th May 2004). Of the total amount of the excess cost, an amount of NIS 16.3 million was attributed to liabilities in respect of discontinued operations, and an amount of NIS 4.3 million was attributed to the discrepancy between the book value and fair value of the working capital (mainly the balance of trade accounts payable, as a result of the creditors arrangement). The balance of NIS 4.4 million is goodwill. In the event that in the future, the liabilities to the banks in an amount of NIS 12 million are written off as stipulated in the creditors arrangement (see C below), the goodwill will be cancelled and the amount of the write-off will be attributed to the discrepancy between the book value and fair value of the loans as of the day of the merger, generating a negative excess cost that will be attributed to non-monetary items, as per Opinion No. 57 of the Institute of Certified Public Accountants in Israel. Exercising the option At the date of the Merger Transaction, the option was realized, whereby Kidron was issued 28,412,482 shares in return for U.S.$ 500 thousand in cash. Profit and loss for the second quarter The consolidated profit and loss account of Kidron Plastics and the Company for the second quarter of the year includes the results of operations of the Company for the entire quarter and half of the results of operations of Kidron (from the date of acquisition through the end of the quarter). Comparative amounts The comparative amounts are those that were publicized in the past as part of the Company's financial statements. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) B. Merger with Kidron Plastics Ltd. (cont.) Presented below are the balance sheets from the financial statements of Kidron Plastics Ltd.: Summary of the balance sheets Convenience translation 31st December 30th June 30th June 30th June 2003 2003(*) 2004 2004 Adjusted(1) Reported cost(2) NIS' 000 NIS' 000 NIS' 000 #' 000 (Audited) (Unaudited) (Unaudited) (Unaudited) Fixed assets Tangible assets 544 476 736 90 Severance pay - redundancy provision 22 21 28 3 _______ _______ _______ ______ 566 497 764 93 ---------- ---------- ---------- ---------- Current assets Stocks 1,146 1,090 1,297 159 Debtors 4,610 4,460 5,743 705 Cash at bank and in hand 86 12 20 2 _______ _______ _______ ______ 5,842 5,562 7,060 866 ---------- ---------- ---------- ---------- Creditors: amounts falling due within one year Bank loans and overdrafts 4,407 3,964 4,616 567 Creditors 1,957 1,892 2,798 343 _______ _______ _______ ______ 6,364 5,856 7,414 910 ---------- ---------- ---------- ---------- Net current assets/liabilities (522) (294) (354) (44) _______ _______ _______ ______ _______ _______ _______ ______ Total assets less current 44 203 410 49 liabilities _______ _______ _______ ______ _______ _______ _______ ______ Creditors: amounts falling due after more than one year Non-convertible bank loans - - 41 5 Deferred taxes 24 7 36 4 _______ _______ _______ ______ 24 7 77 9 ---------- ---------- ---------- ---------- Net assets 20 196 333 40 _______ _______ _______ ______ _______ _______ _______ ______ Capital and reserves 20 196 333 40 _______ _______ _______ ______ _______ _______ _______ ______ (1) Adjusted to NIS of December 2003. (2) See Note 2. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) B. Merger with Kidron Plastics Ltd. (cont.) Summary of the Profit and Loss Statements Convenience translation Year ended Three months ended Six months ended Three months Six months 31st December 30th June 30th June ended 30th June ended 30th June 2003 2003 2004 2003 2004 2004 2004 Adjusted(1) Adjusted(1) Reported Adjusted(1) Reported Reported cost(2) cost(2) cost(2) NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 #' 000 #' 000 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Turnover 10,894 2,504 3,914 4,879 7,345 480 901 Cost of sales 6,292 1,400 2,523 2,808 4,521 310 555 ______ ______ ______ ______ _____ _____ _____ Gross profit 4,602 1,104 1,391 2,071 2,824 170 346 Selling, general and 4,056 812 1,140 1,679 2,236 140 274 administrative expenses ______ ______ ______ ______ _____ _____ _____ Operating profit before 546 292 251 392 588 30 72 other expenses Other expenses - - 2 - 52 - 6 ______ ______ ______ ______ _____ _____ _____ Profit on ordinary 546 292 253 392 640 30 78 activities before financial expenses Net financial expenses/ (353) 156 (68) 79 (158) (8) (19) (income) ______ ______ ______ ______ _____ _____ _____ Income on ordinary 193 448 185 471 482 22 59 activities before taxes Tax loss after taxation 76 166 60 178 169 7 21 ______ ______ ______ ______ _____ _____ _____ Income for the period 117 282 125 293 313 15 38 ______ ______ ______ ______ _____ _____ _____ ______ ______ ______ ______ _____ _____ _____ (1) Adjusted to NIS of December 2003. (2) See Note 2. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) B. Merger with Kidron Plastics Ltd. (cont.) Consolidated statement of recognised gains and losses Convenience translation Year ended Three months ended Six months ended Three months Six months 31st December 30th June 30th June ended 30th June ended 30th June 2003 2003 2004 2003 2004 2004 2004 Adjusted(1) Adjusted(1) Reported Adjusted(1) Reported Reported cost(2) cost(2) cost(2) NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 #' 000 #' 000 (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Total recognised gains for 117 282 125 293 313 15 38 the year ______ ______ ______ ______ _____ _____ _____ ______ ______ ______ ______ _____ _____ _____ (1) Adjusted to NIS of December 2003. (2) See Note 2. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) C. Creditor Arrangement On 13 May 2004, the Tel Aviv District Court approved a creditor arrangement for the Company, the major provisions of which are as follows: The guaranteed creditors (the banks), to whom the Company owes an amount of NIS 65 million (as of 31 March 2004), will receive the following: - A payment of NIS 15 million within 6 months. - An amount of NIS 28 million will be converted into U.S. dollars and spread out over a 10-year period. - Participation in profits up to an amount of NIS 10 million over a ten-year period (25% of the Company's pre-tax income from operations and/or the sale of injection mould plastic products, in excess of US$ 1.1 million). - An amount of NIS 12 million will be erased, subject to the payment of the NIS 15 million within six months of the approval of the creditor arrangement. Unsecured creditors, to whom the Company owes an amount of NIS 13 million, will receive the following: - Two alternatives: Alternative A - A cash payment (within 90 days) of 25% of their debt; Alternative B - A cash payment (within 90 days) of 15% of their debt and 25% spread out over 5 years. - Participation in profits, unlimited in time, of up to 25% of their debt (up to 25% of the Company's pre-tax income from operations and/or the sale of injection mould plastic products, in excess of U.S.$ 1.1 million). - Erasure of 50% of their debt, with an alternative of 35%. Creditors to whom the Company owes less than NIS 10,000 each will receive 70% of their debt. According to the creditors arrangement, subsequent to the balance sheet date, the Company paid an amount of NIS 7.5 million the banks and an amount of NIS 2.5 million to its unsecured creditors. The balance of the liability to the banks which was due within six months following the date of approval of the creditors arrangement, in an amount of NIS 7.5 million, is expected to be made in November 2004. The trustee of the creditors arrangement received payment demands from suppliers and service providers in a total amount of NIS 16.7 million, of which the trustee approved at this stage demands of NIS 11.6 million, broken down as follows: payment demands under alternative A in an amount of NIS 5.2 million; payment demands under alternative B in an amount of NIS 6 million; and payment demands in an amount of NIS 0.4 million (to creditors with outstanding debts of less than NIS 10,000). Based on the alternatives selected by the suppliers, an amount of NIS 2.5 million was to be paid within 90 days, an amount of NIS 4.3 million was for long-term payment, and an amount of NIS 4.8 million was to be erased. Further to the approval of the creditors arrangement, the review report of the Company's auditors does not contain a reference to the "going-concern" issue which had been included in the auditors' report on the financial statements as of December 31, 2003. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 - GENERAL (cont.) C. Creditor Arrangement (cont.) As part of the compromise agreement signed with the banks, the Company allotted to the banks 8,131,052 option warrants that currently comprise 4.3% of the Company's share capital, fully diluted. The exercise price of each warrant is U.S.$ 0.0178 per share. The option warrants are exercisable until May 12, 2009. D. Sale of Smart Modular Storage Ltd. Shares (hereafter: "SMS") 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 bank 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 linked to the Israeli Consumer Price Index over a period of 60 months. The sale of the shares to the third party was subject to obtaining various approvals by no later than 15 May 2004. It was also agreed that in the event that such approvals are not obtained, the Company will be entitled to demand the return of the shares and rights in SMS. The date for obtaining the approval of the banks was extended by mutual agreement to 30 June 2004 and, concurrently, the date by which the Company is entitled to demand return of the shares and rights in SMS was also extended to 15 July 2004. Since 16 March 2004, the Company has no representation on the board of directors of SMS. The financial statements present the SMS activity as discontinued operations, in accordance with Standard No. 8 of the Israeli Accounting Standards Board. The Company included in the results of a discontinued operations an amount of NIS 2.8 million for the first quarter of 2004. 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 for the first quarter, 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. Further to its resolution of 16 March 2004 regarding the sale of its holdings in SMS and the resignation of the representatives of the Company from the board of directors of SMS, the board of directors of the Company resolved, on 30 May 2004, that it had no intention of investing in or supporting the activities of SMS in any manner or form. A notice regarding this decision will be circulated to the other shareholders of SMS and to the banks financing SMS. The Company did not exercise its right to demand the return to its hands of the shares by July 15, 2004 and, as a result, the holdings of the Company in the shares of SMS were transferred unconditionally and absolutely to the third party. As part of the consummation of the Merger Transaction, the Company waived the agreement of the purchaser to undertake a guarantee toward a certain bank. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 - GENERAL E. New production agreement with Z.A.G. On 23 May 2004, the Company signed a new production agreement with Z.A.G. Industries Ltd. (hereinafter - "Z.A.G."), whereby Z.A.G. undertook to transfer to the Company at least 30% of Z.A.G.'s injection production of plastic products in Israel (whether the production is done by Z.A.G., subcontractors or third parties), but not less than US$9 million, at agreed-upon prices. The production agreement is for a period of 10 years, commencing with the signing of the agreement. Notwithstanding the above, after four years of operation, either party is entitled to terminate the production agreement upon advance notice of 12 months. In the event such advance notice is given, the other party has the right to extend the advance notice period by an additional 12 months (i.e., a total of 24 months). On 29th August 2004, the Supervisor of Restrictive Trade Practices exempted this agreement from the requirement to obtain approval as a restrictive agreement for a period of ten years. In addition, the Company signed another agreement with Z.A.G. and a limited partnership in which a subsidiary of the Company serves as an unlimited partner and the Company serves as the sole limited partner (hereinafter - the " Limited Partnership"). The Limited Partnership will have sole global marketing rights for agreed-upon products of Z.A.G. and products of the Company (hereinafter - the "Products of the Limited Partnership"). For purposes of its operations, the Limited Partnership will purchase production services from the Company at agreed-upon prices and will appoint Z.A.G. as its sole representative in North America for purposes of marketing and selling the Products of the Limited Partnership for an agreed-upon consideration. The marketing of the Products of the Limited Partnership to the rest of the world will be done by the Limited Partnership, at its discretion. The agreement is for a two-year period, commencing with the date of its signing, and will be automatically extended for additional periods of two years, unless any of the parties notifies the other party prior to the end of the agreement period of its desire to terminate the agreement at the end of the agreement period (either original or extension). Such notice must be given at least three months in advance, with the other party having the right to extend the advance notice period by an additional three months (i.e., a total of six months). On 29th August 2004, the Supervisor of Restrictive Trade Practices exempted this agreement from the requirement to obtain approval as a restrictive agreement for a period of two years. Subsequent to the balance sheet date, in order to realize this agreement, the following companies were set up: the Partnership, Kidron Plastics Marketing Ltd. and Kidron Plastics (UK) Ltd. The aforementioned agreements are independent of one another. ZAG is a major customer of Technoplast, with purchases from Technoplast amounting to NIS 37 million in 2003 and NIS 43 million in 2002. ZAG is the owner of the huge U.S. concern, The Stanley Works, the shares of which are traded in New York. F. Tax assessment arrangement In April 2004, the Company signed an assessments agreement with the tax assessing officer, whereby the order issued to the Company in respect of the 1998 tax year, in an amount of NIS 11.7 million (including interest and linkage differentials) would be cancelled. Concurrently, an amount of NIS 22 million would be deducted from the Company's tax loss carryforwards. As a result of the aforementioned assessment arrangement, the Company erased a provision for taxes in an amount of NIS 5 million during the period under report. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES A. The Company implements Accounting Standard No. 14 - Financial Reporting for Interim Periods, issued by the Israeli Accounting Standards Board. Except for the exceptions below, the significant accounting policies applied in the interim statements are consistent with those applied in the annual financial statements of the Company at 31st December 2003. B. Discontinuance of Adjustment of Financial Statements In 2001, the Israeli Accounting Standards 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 inflation commencing on 1 January 2004. The Company implemented the provisions of the Standards and, as of 1 January 2004, it no longer adjusts its financial statements. C. Financial statements in reported amounts 1. Definitions A. Adjusted amount - a nominal historical amount adjusted in accordance with the provisions of Opinions 23, 36, and 50 of the Institute of Certified Public Accountants in Israel. B. Reported amount - an adjusted amount as of December 31, 2003, plus amounts in nominal values added subsequent to December 31, 2003, less amounts deducted subsequent to December 31, 2003. C. Adjusted financial reporting - financial reporting based on the provisions of Opinions 23, 36 and 50 of the Institute of Certified Public Accountants in Israel. D. Nominal financial reporting - financial reporting based on reported amounts. 2. Basis for financial statement presentation A. In the past, the Company presented its financial statements on the basis of historical cost, adjusted for changes in the Israeli Consumer Price Index. The adjusted values, as above, presented in the 31 December 2003 financial statements served as the basis for nominal financial reporting as of 1 January 2004. Additions made during the quarter are presented in nominal shekel values. B. The amounts of non-monetary assets do not necessarily reflect the economic or realizable value of such assets. Rather, they reflect the reported value of the assets. C. The term "cost" as used in the financial statements refers to "reported cost" (see definition below). D. Comparative data for prior periods were adjusted to the Israeli Consumer Price Index of December 2003. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) C. Financial statements in reported amounts (cont.) 3. Balance sheet A. Non-monetary items are presented in reported amounts. B. Monetary items are presented in the balance sheet in nominal historic values as of the balance sheet date. 4. Income statement A. Revenues and expenses deriving from non-monetary items or from reserves included in the balance sheet are derived from the difference between the reported amount at the beginning of the period and the reported amount at the end of the period. B. The remainder of the income statement items are presented in nominal amounts. NOTE 3 - FINANCIAL STATEMENTS IN ADJUSTED VALUES The accompanying financial statements are prepared on the basis of historical cost adjusted for the changes in the general purchasing power of the new Israeli Shekel ("NIS"). Comparative figures in these financial statements were adjusted to the NIS of December 2003. The percentage change in the Israeli Consumer Price Index ("CPI") and in the representative foreign currency exchange rates are as follows: CPI # $ 2004 2003 2004 2003 2004 2003 % % % % % % For the six months ended 30 June 1.4 (0.5) 3.8 (6.9) 2.7 (8.97) For the three months ended 30 June 1.5 (1.27) (1.9) (4) (0.68) (8.00) For the year ended 31 December - (1.89) - 2.83 - (7.56) NOTE 4 - CONVENIENCE TRANSLATION The reported cost financial statements at 30 June 2004 (including the profit and loss account and the balance sheet) have been translated into Sterling using the representative exchange rate at the balance sheet date (#1 = NIS 8.1472). 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. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 5 - STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY A. Reported cost (Unaudited) Share Premium Capital funds Loss account Total capital on shares NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 Three month period ended 30 June 2004 Balances at 1 April 2004 42,724 43,608 327 (106,341) (19,682) Capital issue against shares of a - 25,268 - - 25,268 subsidiary Share issue for cash - 2,290 - - 2,290 Net loss for three months - - - (6,359) (6,359) ______ ______ ____ ______ ______ Balances at 30 June 2004 42,724 71,166 327 (112,700) 1,517 ______ ______ ____ ______ ______ ______ ______ ____ ______ ______ Share Premium Capital Loss Total capital on shares funds account NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 Six month period ended 30 June 2004 Balances at 1 January 2004 42,724 43,608 327 (102,169) (15,510) Capital issue against shares of - 25,268 - - 25,268 a subsidiary Share issue for cash - 2,290 - - 2,290 Net loss for six months - - - (10,531) (10,531) ______ ______ ____ ______ ______ Balances at 30 June 2004 42,724 71,166 327 (112,700) 1,517 ______ ______ ____ ______ ______ ______ ______ ____ ______ ______ B. Convenience Translation (Unaudited) Share Premium Capital Loss Total capital on shares funds account # '000 # '000 NIS' 000 # '000 # '000 Three month period ended 30 June 2004 Balances at 1 April 2004 5,244 5,352 40 (13,052) (2,416) Capital issue against shares of - 3,101 - - 3,101 a subsidiary Share issue for cash - 281 - - 281 Net loss for three months - - - (780) (780) _____ _____ ___ ______ ______ Balances at 30 June 2004 5,244 8,734 40 (13,832) 186 _____ _____ ___ ______ ______ _____ _____ ___ ______ ______ NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 5 - STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY B. Convenience Translation (cont.) (Unaudited) Share Premium Capital Loss Total capital on shares funds account # '000 # '000 NIS' 000 # '000 # '000 Six month period ended 30 June 2004 Balances at 1 January 2004 5,244 5,352 40 (12,540) (1,904) Capital issue against shares of - 3,101 - - 3,101 a subsidiary Share issue for cash - 281 - - 281 Net loss for six months - - - (1,292) (1,292) _____ _____ ___ ______ ______ Balances at 30 June 2004 5,244 8,734 40 (13,832) 186 _____ _____ ___ ______ ______ _____ _____ ___ ______ ______ C. Adjusted to NIS of December 2003 (Unaudited) Share Premium Capital Profit Total capital on shares funds and loss account NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 Three month period ended 30 June 2003 Balances at 1 April 2003 42,724 43,608 327 (66,390) 20,269 Net loss for three months - - - (15,633) (15,633) ______ ______ ____ ______ ______ Balances at 30 June 2003 42,724 43,608 327 (82,023) 4,636 ______ ______ ____ ______ ______ ______ ______ ____ ______ ______ Share Premium Capital Profit Total capital on shares funds and loss account NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 Six month period ended 30 June 2003 Balances at 1 January 2003 42,724 43,608 327 (64,834) 21,825 Net loss for six months - - - (17,189) (17,189) ______ ______ ____ ______ ______ Balances at 30 June 2003 42,724 43,608 327 (82,023) 4,636 ______ ______ ____ ______ ______ ______ ______ ____ ______ ______ NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 5 - STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (cont.) D. Adjusted to NIS of December 2003 Year ended 31 December 2003 (Audited) Share Premium Capital Profit Total capital on shares funds and loss account NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000 Balances at 1 January 2003 42,724 43,608 327 (64,834) 21,825 Loss for the year - - - (37,335) (37,335) ______ ______ ___ ______ ______ Balances at 42,724 43,608 327 (102,169) (15,510) 31 December 2003 ______ ______ ___ ______ ______ ______ ______ ___ ______ ______ NOTE 6 - BUSINESS SEGMENTS A. General Group companies are engaged in three main business segments: Manufacture and marketing for subcontractors (including Z.A.G.), and manufacture of self manufactured products and import and marketing of raw material for the chemical industry. B. Business segments Reported cost Production Production & Import & Total of self marketing - marketing of consolidated manufactured subcontracting raw material products (including Z.A.G.) for chemical industry NIS'000 NIS'000 NIS'000 NIS'000 Three month period ended 30 June 2004 (unaudited) Segmental turnover 8,642 10,474 1,957 21,073 ______ ______ ______ ______ ______ ______ ______ ______ Segmental results (3,985) (1,113) 124 (4,974) ______ ______ ______ ______ ______ ______ ______ ______ Production Production & Import & Total of self marketing - marketing of consolidated manufactured subcontracting raw material products (including Z.A.G.) for chemical industry NIS'000 NIS'000 NIS'000 NIS'000 Six month period ended 30 June 2004 (unaudited) Segmental turnover 23,182 26,617 1,957 51,756 ______ ______ ______ ______ ______ ______ ______ ______ Segmental results (5,267) (1,367) 124 (6,510) ______ ______ ______ ______ ______ ______ ______ ______ NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 6 - BUSINESS SEGMENTS (cont.) B. Business segments (cont.) Convenience translation (unaudited) Production Production & Import & Total of self marketing - marketing of consolidated manufactured subcontracting raw material products (including Z.A.G.) for chemical industry # '000 # '000 # '000 # '000 Three month period ended 30 June 2004 (unaudited) Segmental turnover 1,061 1,286 240 2,587 _____ _____ _____ _____ _____ _____ _____ _____ Segmental results (489) (137) 16 (610) _____ _____ _____ _____ _____ _____ _____ _____ Production Production & Import & Total of self marketing - marketing of consolidated manufactured subcontracting raw material products (including Z.A.G.) for chemical industry # '000 # '000 # '000 # '000 Six month period ended 30 June 2004 (unaudited) Segmental turnover 2,846 3,267 240 6,353 _____ _____ _____ _____ _____ _____ _____ _____ Segmental results (646) (168) 16 (798) _____ _____ _____ _____ _____ _____ _____ _____ NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 6 - BUSINESS SEGMENTS (cont.) B. Business segments (cont.) Adjusted to NIS of December 2003 Production of self Production & Total manufactured products marketing - consolidated subcontracting (including Z.A.G.) NIS'000 NIS'000 NIS'000 Three month period ended 30 June 2003 (unaudited) Segmental turnover 10,356 6,299 16,655 ______ ______ ______ ______ ______ ______ Segmental results (4,750) (918) (5,668) ______ ______ ______ ______ ______ ______ Production of self Production & Total manufactured products marketing - consolidated subcontracting (including Z.A.G.) NIS'000 NIS'000 NIS'000 Six month period ended 30 June 2003 (unaudited) Segmental turnover 24,652 17,343 41,995 ______ ______ ______ ______ ______ ______ Segmental results (5,010) (1,506) (6,516) ______ ______ ______ ______ ______ ______ Adjusted to NIS of December 2003 Production of self Production & Total manufactured products marketing - consolidated subcontracting (including Z.A.G.) NIS'000 NIS'000 NIS'000 Year ended 31 December 2003 (audited) Segmental turnover 56,103 41,309 97,412 ______ ______ _______ ______ ______ _______ Segmental results (6,985) (3,004) (9,989) ______ ______ _______ ______ ______ _______ NOTE 7 - SUBSEQUENT EVENTS A. Receipt of new credit lines Bank Igud LeIsrael Ltd. and Bank Hapoalim BM issued new credit lines in an amount of U.S.$ 2 million in favour of Kidron Plastics Marketing Ltd., a granddaughter subsidiary of the Company which was set up in order to realize the organizational changes and the marketing cooperation with ZAG. NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 7 - SUBSEQUENT EVENTS (cont.) B. The general shareholders meeting of the Company approved the following resolutions: Insurance and indemnification of senior executives The Company's engagement of an insurance company for purposes of obtaining a policy for liability insurance in respect of senior executives of the Company, including a controlling interest in the Company (hereinafter - the "Policy"). The limit of liability of the proposed policy is up to U.S.$ 5,000,000 per claim and per insurance period, and the policy is renewable from time to time. The insurance will apply both to senior executives that serve from time to time and/or senior executives that are controlling shareholders that serve from time to time. Granting a release from liability to senior executives serving from time to time ("senior executives"), including controlling shareholders in the Company, whereby the Company releases its senior executives in advance from liability toward the Company in respect of damages caused and/or to be caused by them as a result of a breach of their fiduciary responsibility toward the Company, and waives any claims against them. The aforementioned does not apply to any action or inaction in respect of which the Company is not permitted to release its senior executives under the provisions of the Companies Law, 1999 (hereinafter - the "Companies Law"), as issued from time to time. Undertaking to indemnify the directors and senior executives serving the Company from time to time, including a controlling shareholder, subject to certain conditions. Giving a guarantee to secure the payment of the debts of a subsidiary Giving a Company guarantee to secure payment of the debts of Kidron Plastics Ltd. to a certain bank, replacing the guarantee of Kidron Management and Holdings (1961) Ltd. to that bank. The removal of the guarantee of Kidron Management and Holdings (1961) Ltd. was a precondition to the allotment agreement of 31st August 2004. As at the date of the financial statements, the debt of Kidron Plastics Ltd. to bank was an amount of NIS 4.5 million, in respect of the credit line issued by the bank to finance inventory and receivables. C. Guarantee of controlling shareholders of the Company The controlling shareholders of the Company, Mr. Michael Susz and/or Kidron Management and Holdings (1961) Ltd. gave guarantees, limited as per agreement, to secure the new credit lines issued by Bank Igud LeIsrael Ltd. and Bank Hapoalim BM in favour of Kidron Plastics Marketing Ltd. The guarantees were granted without the Company having to give to its controlling shareholders any consideration or contra-undertaking. ============================ ============== This information is provided by RNS The company news service from the London Stock Exchange END IR ZFLFBZKBEBBZ
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