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