RNS Number:8490S
Technoplast Industries Ld
04 December 2003

                         TECHNOPLAST INDUSTRIES LIMITED

                              FINANCIAL STATEMENTS

                               30 SEPTEMBER 2003

                                   UNAUDITED




                         TECHNOPLAST INDUSTRIES LIMITED

                  FINANCIAL STATEMENTS AS AT 30 SEPTEMBER 2003

                               TABLE OF CONTENTS


                                                                                      Page
Management Discussion and Analysis                                                    A - L
Auditors' Review Report                                                                 2
Condensed Consolidated Profit and Loss Accounts                                         3
Condensed Statement of Recognized Gains and Losses                                      3
Condensed Consolidated Balance Sheets                                                   4
Condensed Consolidated Cash Flow Statements                                           5 - 7
Notes to the Financial Statements                                                     8 - 16


                       Management Discussion and Analysis

              for the nine month period ended 30th September 2003


We take pleasure in presenting the consolidated financial statements of
Technoplast Industries Limited for the period ended 30th September 2003
(hereinafter - "the period under report"). The term "Company" as used in this
report refers to the parent company, Technoplast Industries Ltd. and the term "
Group" refers to the consolidation of the Company and its subsidiaries.


The term "the period" refers to the results of operations for the nine-month
period, whereas the term "quarter" refers to the results of operations for the
three-month period ended 30th September 2003.


We present below a description of the main events that occurred during the
period under report.

Significant developments of the Company:


  * During the quarter under review, the results of operations of the Company
    once again reflected an improving trend, after the second quarter which was
    a deviant quarter when compared with other periods since the Company
    implemented its reorganization plan. The improving trend was reflected in
    the comparison between the results of this quarter with those of the
    previous quarter and with those of the same quarter last year in most
    aspects, as detailed below:


  * Sales turnover during the quarter totalled NIS 22.2 million, compared with
    NIS 16.7 million during the second quarter of the year, and with NIS 24.2
    million during the same quarter last year.

  * Gross profit during the quarter totalled NIS 2.8 million (13% of sales),
    compared with a gross loss of NIS 0.8 million (5% of sales) in the second
    quarter of this year, and with NIS 1.2 million (5% of sales) during the same
    quarter last year.

  * The operating loss during the quarter totalled NIS 1.7 million (8% of
    sales), compared with an operating loss of NIS 5.7 million (34% of sales) in
    the second quarter of this year, and an operating loss of NIS 3.6 million
    (15% of sales) during the same quarter last year.

  * On the other hand, the Company's financing expenses which during the
    quarter totalled NIS 2.9 million, due among other reasons to the effects of
    the negative inflation during the quarter on the excess of monetary
    liabilities, resulted to an after-tax loss (before the share of the Company
    in the losses of subsidiaries) in an amount of NIS 3.8 million, compared
    with NIS 14.4 million in the second quarter of the year, and with NIS 4.4
    million in the same quarter last year.

  * During the quarter, the Company generated a positive cash inflow from
    operations in an amount of NIS 0.2 million.

  * During the period, the Company's sales turnover totalled an amount of NIS
    64.3 million, compared with NIS 69.5 million during the same period last
    year (a decrease of 7%).


    The improving trend reflected in the operations and financial results
    of the Company continued and even strengthened during the fourth quarter of
    the year.

    Significant developments of the subsidiary


  * The change in the pattern of sales to the major customer (Home Depot) and
    the costs of setting up the logistics center in the U.S., continued their
    negative effects on the results of operations of the subsidiary. The sales
    turnover of the subsidiary decreased during the period to NIS 40 million,
    compared with NIS 52.3 million during the same period of 2002, and there was
    a transition from a positive contribution of NIS 2.2 million to consolidated
    profits during the first nine months of 2002, to a negative contribution of
    NIS 5.2 million during the reporting period.
    Sales of the subsidiary during the quarter totalled an amount of NIS 13.5
    million, compared with NIS 13.7 million during the same period last year.


    Notwithstanding the above, we would like to point out that commencing at the
    end of the third quarter, there was a significant awakening in orders from
    the subsidiary, mainly, from Home Depot. The results of the awakening in
    sales will be reflected in the fourth quarter of the year.


    Significant developments of the Group


  * Group sales during the period totalled NIS 104.3 million, compared with
    NIS 121.2 million during the same period last year, a decrease of 14%
    (mainly sales of a subsidiary).

  * Group sales during the quarter totalled NIS 35.3 million, compared with
    NIS 37.9 million during the same quarter last year, a decrease of 7%.

  * During the period, the Group had a consolidated loss of NIS 23.8 million,
    compared with NIS 10.1 million during the same period last year.


    This loss is comprised of the NIS 19.1 million loss of the Company
    (compared to NIS 12.3 million during the same period last year), plus the
    share of the Company in the losses of subsidiaries and investee companies in
    an amount of NIS 4.7 million (compared with earnings of NIS 2.2 million last
    year).


  * The financial results during the period were negatively affected by a
    number of events that occurred during the second quarter, as detailed below:


  * A decrease in the volume of operations due to decrease of orders from ZAG
    and Home Depot that caused a gross loss in the second quarter and an
    increase in the operating loss for the same quarter, as detailed above.

  * Non-recurring expenses totalling NIS 2.1 million that derived from the
    shutdown of the Barkan plant.

  * Based on the data of the valuation that was commissioned by the Company
    from an outside expert and adopted by the Company's board of directors for
    the expected merger transaction with Kidron (see details of the transaction,
    below), the Company updated its implementation of Israeli Accounting
    Standard No. 15 pertaining to the decrease in value of assets, and recorded
    a reserve of NIS 6.9 million in respect of the decrease in value of its
    assets.


    The loss of the Group, net of abovementioned non-recurring expenses,
    amounted to NIS 14.8 million, compared to NIS 10.1 million in the same
    period last year.


  * The consolidated net loss for the quarter amounted to NIS 6.6 million,
    compared with NIS 4.4 million during the same quarter last year.

  * In February 2003, the Company signed a long-term rental agreement in
    respect of property it owns in the Barkan industrial zone. The Company will
    receive annual rents amounting to U.S.$ 140,000.

  * Further to the agreement in principle, signed on 29 June 2003, a final
    agreement was signed on 31 August 2003 and amended on 14 September 2003 and
    on 13 November 2003 with Kidron Management and Holdings Company (1961) Ltd.
    on its behalf and on behalf of others (hereinafter - "Kidron"), whereby
    Kidron will transfer to the Company, by means of a merger, all the shares of
    Kidron Plastics Ltd. (a company active in importing and marketing raw
    materials for the plastics industry), in return for an allotment of shares
    in the Company which will grant Kidron and Michael and Sigal Zsus 75% of the
    issued and outstanding shares (fully diluted) of the Company. Michael Zsus
    is directly and through a subsidiary company, fully controlled by him,
    controlling 90% of Kidrow.
    The percentage of Kidron's holdings in the Company was determined on the
    basis of a valuation performed by an external expert.
    Consummation of the transaction is subject to a number of pre-conditions and
    to obtaining the necessary approvals under law, including the approval of
    the general shareholders meeting of the Company. The closing of this
    transaction is scheduled to take place up to 31 December 2003. Each party
    has the right to extend this date until 31 January 2004.
    The Kidron Group operates through subsidiaries in Israel and Europe in a
    variety of areas related to the manufacture and supply of raw materials and
    other inputs to industry.

  * As at 30th September 2003, the Group had a shareholders' deficit amounting
    to NIS 1.9 million and a working capital deficit amountingto NIS 68.4
    million. The Group has accumulated losses as at 30th September 2003
    amounting to NIS 88.9 million. The Group finished the period ended 30th
    September 2003 with a negative cash flow from operations amounting to NIS
    4.3 million (the Company finished the period with a negative cash flow from
    operations amounting to NIS 1.4 million).

  * The Group finished the quarter with a positive cash flow from operations
    amounting to NIS 1.4 million (the Company finished the quarter with a
    positive cash flow from operations amounting to NIS 0.2 million).


    Notwithstanding the above, the Company is continuing to implement the
    reorganization plan it commenced upon toward the end of 2001 and is
    continuing negotiations with its banks.
    Company Management estimates that implementation of the reorganization plan
    and/or successful conclusion of negotiations with its banks and/or the
    closing of the agreement with Kidron and/or an influx of cash to the
    Company, will allow it to continue its business operations in a regular
    manner and with a sound cash flow.

    If the aforementioned plans are not brought to fruition, there is a
    doubt as to whether the Group can continue to operate as a "going concern"
    and, therefore, may not be able to dispose of its assets and repay its
    liabilities during the normal course of its business.

    The financial statements do not contain any adjustments to the value or
    classification of assets or liabilities that may be necessary should the
    Company not be able to continue operating as a "going concern".


  * The accountants of the subsidiary, Smart Modular Storage Ltd., pointed out
    in their review letter on the financial statement as of 30 September 2003,
    the following:


            -     A loss of NIS 9.9 million in the reporting period,
            shareholders deficit in an amount of NIS 10.5 million, a deficit in
            working capital in an amount of NIS 31.4 million and a negative cash
            flow from operating activities during the period in an amount of NIS
            2.9 million.

            -     The financing of the working capital deficit needed for its
            operations requires the extension of due dates of bank loans and the
            receipt of alternative lines of credit.

                 If the aforementioned conditions are not fulfilled, it is
            doubtful whether the subsidiary will be able to continue operating
            as a "going concern" and, as a result, it may be unable to realize
            its assets or pay off its liabilities during the normal course of
            its business.


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.

The second-tier subsidiary, B'Ma'asaf Plastics (1994) Ltd., has a plant in the
industrial zone of Kibbutz Gezer for the manufacture of plastic product under
the extrusion method.

Developments in Group activity

As mentioned above, the quarter under review was characterised mainly by a
turnaround from the low point in activity and the results of operations of the
second quarter of 2003 and a return to the growth that commenced seven quarters
ago. This trend continued into the fourth quarter as well.

Subsidiaries, associated undertakings and other companies

Smart Modular Storage Ltd. (hereafter - "SMS")

The Company holds 56.5% of the issued and outstanding share capital of SMS.


SMS is engaged in the development and marketing of plastic do-it-yourself
storage rooms, manufactured under the extrusion method, for sale in Israel and
abroad.


During the fourth quarter of 2002, the terms of the agreement with a major
customer in the U.S. were changed, commencing on 1 January 2003. On that date,
the subsidiary became a local U.S. supplier, i.e., the subsidiary is obligated
to supply the customer's stores directly, as opposed to the previous terms of
agreement whereby the subsidiary delivered the product to the customer at the
Israeli port.


Approximately 60% of SMS's sales turnover during the period were to the major
customer - Home Depot in the U.S. (50% in the quarter), compared with 71% during
all of 2002. The subsidiary has been making great efforts to expand its customer
base, mainly in Europe and in the local market.


The total investment of the Company in SMS (including shareholders' loans) as at
the balance sheet date amounted to NIS (3.8) million (a credit balance), net of
the Company's share in the losses of SMS from the date of investment in an
amount of NIS 12.8 million.

In addition, the Company placed at the disposal of SMS a bank guarantee limited
in amount to an amount of up to U.S.$ 0.5 million.


B'Ma'asaf Plastics (1994) Ltd. (hereafter - "B'Ma'asaf")

As at the balance sheet date, the subsidiary, SMS, holds 100% of the issued and
outstanding shares of B'Ma'asaf, a company engaged in the manufacture of plastic
products using the extrusion method and manufactures PVC profiles for the
construction, electricity and agriculture industries.

Since the beginning of 2000, the manufacture of storage rooms has been gradually
transferred from SMS to B'Ma'asaf. At present, B'Ma'asaf manufactures all of the
storage rooms consumed by SMS.


CD Anywhere Innovative Storage Solutions Ltd. (hereafter - "CD")

In September 2001, the Company sold its investment in CD for an amount of U.S.$
350 thousand (at cost), of which it received half (an amount of NIS 0.6
million). The second half has not yet been paid, therefore, on 28th August 2003,
the Company filed suit in the Netanya Magistrates Court against Amir Levit and
others to recoup the balance of the debt.

AFIC Printing Products Ltd. (hereafter - "AFIC")

The Company holds 25.1% of AFIC's shares. AFIC is engaged in the production and
marketing of cartridges for printers and cash registers.


At the end of 2001, the Company set up a provision to write off the entire
investment in AFIC, in an amount NIS 1.1 million.


There was a significant increase of AFIC activity during 2002, and the company
made the transition from loss to profit. This trend continued into the first
quarter of 2003.

Sales of AFIC during the period totalled NIS 18.2 million, compared with NIS
14.4 million during the same period of last year. Net earnings for the period
amounted to NIS 1.8 million, compared with NIS 1.1 million during the same
period last year. The company's shareholders' equity amounted to NIS 5.7
million.


On 27 March, 2003, Itamar Patishi and Moshe Katz were appointed as directors in
AFIC.


In view of the above appointments, Company management decided to cancel the
reserve for decline in value set up in the past in respect of the investment in
AFIC and to include its investment in AFIC in the financial statements on the
equity basis.

As at 30th September 2003, the Company recorded its investment in AFIC at an
amount of NIS 1.4 million, 25.1% of the shareholders' equity of AFIC at that
date.




Financial Position (consolidated)


                          30th September 2003              30th September 2002             31st December 2002      
                        NIS'000       % of balance       NIS'000      % of balance       NIS'000     % of balance 
                                             sheet                           sheet                          sheet     
  Total balance sheet   155,941                          178,536                         170,065                      
  Current assets        53,881                 35%       61,502                34%       56,056               33%     
  Long-term debit       1,489                  1%        59                    0%        69                   0%      
  balances                                                                                                            
  Redundancy provision  13                     0%              -               -         -                    -       
  Tangible assets       86,388                 55%       106,207               60%       103,120              61%     
  Goodwill              9,573                  6%        10,768                6%        10,469               6%      
  Deferred taxes        -                      0%        -                      -        39                    -      
  Minority receivable   4,597                  3%        -                      -        312                  0%      
  Current liabilities   122,304                78%       104,343               59%          108,119           64%     
  Long-term             30,037                 19%       38,157                21%       34,516               20%     
  liabilities                                                                                                         
  Capital notes         5,527                  4%        5,480                 3%        5,516                3%      
  Minority rights       --                     --        1,890                 1%        --                   --      
  Shareholders' funds   (1,927)               (1%)       28,666                16%       21,914               13%     



The explanations below pertain to the changes in the consolidated balance sheet
which took place during the reporting period.

Current assets decreased during the period under report by approximately NIS 2.2
million. This decrease resulted from the decrease of NIS 2.2 million in
inventory (mostly at the subsidiary), offset by the increase of NIS 0.7 million
in cash, and an identical increase in debtors and other accounts receivable.

The NIS 1.4 million increase in long-term debit balances derives from the
cancellation of the reserve for decline in value of the investment in AFI.

The NIS 16.7 million decrease in tangible fixed assets derived from depreciation
for the period in an amount of NIS 9.3 million, plus the reserve for decline in
value of NIS 6.9 million, sales of fixed assets, the depreciated value of which
amounted to NIS 3 million, less purchases of fixed assets in an amount of NIS
2.5 million.

Current liabilities increased by approximately NIS 14.2 million, as a result of
the increase in short-term credit from banking institutions and from the
increase in suppliers and service providers.

The NIS 4.5 million decrease in long-term liabilities derived mainly from the
net repayment of loans which were made during the reporting period, and from the
erosion of foreign currency-linked loans.

The NIS 23.8 million decrease in shareholders' funds derived from the loss for
the period under report.

Results of consolidated operations

                    Nine Months Ended 30th September       Three Months Ended 30th September        Year Ended 31st  
                                                                                                        December      
                          2003                2002                2003                2002                 2002        
                  NIS'000     % of    NIS'000    % of    NIS'000      % of     NIS'000     % of    NIS'000     % of  
                              sales             sales                 sales               sales                sales  
  Turnover        104,283       -     121,241            35,254                37,937              150,032            
  Gross profit    13,002       12%    16,520      14%    4,851          14%    4,265        11%    18,469        12%  
  Selling         19,342       18%    14,035      12%    6,831          19%    4,335        11%    19,508        13%  
  expenses                                                                                                            
  Research &      -             -     35           -     -               -     25            -     118            -   
  Development                                                                                                         
  Administrative  9,269         9%    8,336       7%     2,826          8%     2,839        8%     12,150        8%   
  and general                                                                                                         
  expenses                                                                                                            
  Operating loss  (15,609)    (15%)   (5,886)    (5%)    (4,806)       (14%)   (2,934)     (8%)    (13,127)     (9%)  
  Financing       (4,725)      (4%)   (2,524)    (2%)    (4,188)       (11%)   (1,508)     (4%)    (3,839)      (3%)  
  expenses                                                                                                            
  Operating       (20,334)    (19%)   (8,410)    (7%)    (8,994)       (25%)   (4,442)     (12%)   (16,966)     (11%) 
  loss after                                                                                                          
  financing                                                                                                           
  Other income    (8,106)      (8%)   (329)       0%     838            2%     -             -     (760)        (1%)  
  (expenses)                                                                                                          
  Tax benefit     (40)          -     (33)         -     (996)         (3%)    (33)          -     1              -   
  Company share   444           -     -            -     165             -     -             -     -              -   
  in earnings                                                                                                         
  of investee                                                                                                         
  companies                                                                                                           
  Minority        4,285         4%    (1,373)    (1%)    2,406          7%     94            -     828           1%   
  share in                                                                                                            
  (earnings)                                                                                                          
  losses of                                                                                                           
  subsidiaries                                                                                                        
  Loss for the    (23,841)    (23%)   (10,145)   (8%)    (6,581)       (19%)   (4,381)     (12%)   (16,897)     (11%) 
  period                                                                                                              





Results of Company operations

                                                                                                                      
                   Nine Months Ended 30th September         Three Months Ended 30th September        Year Ended 31st  
                                                                                                        December      
                       2003                2002                 2003                 2002                 2002        
                 NIS'000     % of    NIS'000     % of     NIS'000      % of    NIS'000     % of     NIS'000     % of  
                            sales               sales                 sales               sales                sales  
  Turnover      64,333               69,489              22,166                24,222              94,089             
  Gross profit  6,150         10%    4,594        7%     2,813          13%    1,170        5%     7,365         8%   
  Operating     (8,232)      (13%)   (10,423)    (15%)   (1,689)       (8%)    (3,610)     (15%)   (13,652)     (15%) 
  loss                                                                                                                
  Financing     (2,690)      (4%)    (1,549)     (2%)    (2,885)       (13%)   (745)       (3%)    (2,118)      (2%)  
  expenses                                                                                                            
  Operating     (10,922)     (17%)   (11,972)    (17%)   (4,574)       (21%)   (4,335)     (18%)   (15,770)     (17%) 
  loss after                                                                                                          
  financing                                                                                                           
  Other         (8,225)      (13%)   (352)         -     823            4%     (14)          -     (595)        (1%)  
  income                                                                                                              
  (expenses)                                                                                                          
  Tax on        -              -     (33)          -     -                     (33)          -     (33)           -   
  income                                                                                                              
  Loss after    (19,133)     (30%)   (12,360)    (18%)   (3,751)       (17%)   (4,402)     (18%)   (16,398)     (17%) 
  taxation                                                                                                            
  Company       (4,694)      (7%)    2,215        3%     (2,830)       (13%)   21            -     (499)        (1%)  
  share in                                                                                                            
  earnings                                                                                                            
  (losses) of                                                                                                         
  subsidiaries                                                                                                        
  and                                                                                                                 
  investee                                                                                                            
  companies                                                                                                           
  Loss for      (23,841)     (37%)   (10,145)    (15%)   (6,581)       (30%)   (4,381)     (18%)   (16,897)     (18%) 
  the period                                                                                                          




Analysis of the results of consolidated operations for the period ended 30th
June 2003

Turnover

Group sales during the period decreased by NIS 17 million (14%) compared with
sales of the first nine months of 2002, and totalled NIS 104.3 million for the
quarter.

Company sales totalled NIS 64.3 million during the period under report, a
decrease of NIS 5.2 million (7%) over the same period last year.

The decrease in Company sales occurred mainly during the second quarter and
derived mainly from the decrease in sales to Z.A.G. and the upward revaluation
of the shekel versus the dollar and the euro.

Sales of subsidiaries amounted to NIS 40 million during the period, compared
with NIS 51.7 million in the same period last year. The decrease in sales of the
subsidiary is explained mainly by the change in the method of selling to Home
Depot in the U.S., and the upward revaluation of the shekel versus the dollar
and the euro and seasonal fluctuations that affect sales.

Gross profit

Consolidated gross profit during the period decreased from NIS 16.5 million (14%
of sales during the same period last year), to NIS 13 million (12% of sales).

The gross profit of the Company increased by NIS 4.6 million (7% of sales) from
the same period last year, to NIS 6.2 million (10% of sales) during the period
under review. The gross profit of the subsidiary, SMS, decreased during the
current period by an amount of NIS 4.1 million (35%) compared with the same
period last year. This was mainly due to the decrease in sales turnover and the
increase in raw material prices.

Operating loss

The decrease in the gross profit and the increase in general and administrative
expenses of the subsidiary, resulted in an increased operating loss for the
Group, which totalled NIS 15.6 million, compared with NIS 5.9 million in the
same period last year.

Selling and marketing expenses totalled NIS 19.3 million (18% of sales) for the
period, compared with NIS 14.1 million (12% of sales) in the same period last
year.

This increase is mainly the result of the change in the operating method
employed by the subsidiary in the U.S. market.

General and administrative expenses of the Group amounted to NIS 9.3 million (9%
of sales), compared with NIS 8.3 million (7% of sales) in the same period last
year.

Sales expenses and general and administrative expenses of the Company decreased
from NIS 15 million in the same period last year to NIS 14.4 million during the
period under report.

Financing expenses

The Group's financing expenses increased during the period by an amount of NIS
2.2 million compared with the same period in 2002, mainly as a result of the
effects of the negative inflation during the third quarter of the year.

Other expenses

This item increased significantly during the period under report and includes
non-recurring expenses during the second quarter in respect of the shut-down of
the Barkan plant, in an amount of NIS 2.1 million, a reserve for the decline in
value of machinery and equipment in an amount of NIS 6.9 million, offset by
income from the cancellation of the reserve for the decline in value of the
investment in AFIC, in an amount of NIS 1.1 million.


Liquidity and cash flows
Liquidity data (consolidated)                                         30/9/03         30/9/02        31/12/02
Working capital deficit                                               (68,423)        (42,841)        (52,063)
Cash, bank deposits and short-term trade investments                    1,649           2,729           931

Liquidity ratios (consolidated)
Current ratio                                                            0.44            0.59            0.52
Quick ratio                                                              0.31            0.46            0.35


Cash flows (consolidated)

Company cash flows from current operations during the quarter totalled an inflow
of approximately NIS 0.2 million. Company cash flows from current operations
during the period totalled an outflow of approximately NIS 1.4 million, compared
with an outflow of NIS 1.8 million for the same period last year.

Group cash flows from operations for the period totalled an outflow of NIS 4.3
million, compared with an inflow if NIS 4.3 million during the same period last
year.

The factors that contributed to the cash flows were as follows: the loss for the
period in an amount of NIS 23.8 million, less expenses not involving cash flows,
in a net amount of NIS 11.7 million, a decrease in accounts receivable (NIS 0.8
million) and an increase in trade creditors (NIS 4.8 million), less a decrease
in inventories (NIS 2.2 million).

Cash flows used in investment activity during the period under report totalled
an outflow of approximately NIS 1.4 million, compared with NIS 4.3 million in
the same period last year. The outflow was used mainly for the purchase of fixed
assets in an amount of NIS 2.5 million, offset by cash proceeds from the sale of
fixed assets in an amount of NIS 1.1 million.


Cash flows from financing activity during the period under report amounted to an
inflow of approximately NIS 6.3 million during the period under report, compared
with NIS 2 million in the same period last year. The inflow resulted from the
receipt of short-term bank credit in a net amount of NIS 9.5 million, offset by
the net repayment of long-teloans in an amount of NIS 3.2 million.

                               Sources of finance

The Group's current financing needs are covered by credit lines granted by
banks.

During 2002, the Company signed agreements whereby it recorded a floating charge
in favor of banks and a fixed charge on the building and property in Barkan and
a fixed charge on the building and property in Migdal Ha'emek in favor of one of
the banks, which increased the Company's credit framework by an amount of NIS
4.5 million.

Concurrently, the Group is continuing its negotiations with the banks to further
expand its credit framework and to reschedule the repayment dates of its
long-term loans. The Group requested the increased credit in order to finance
its working capital needs and to make necessary investments. Group Management
believes that the successful culmination of negotiations with the banks and/or
the closing with Kidron and/or an influx of cash to the Company will enable it
to continue its business activity in an orderly fashion with a proper cash flow.


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 chief financial officer of the Company is the party in charge of managing
the Company's risks to changes in exchange rates and the risks of granting
credit to customers.


The general manager is responsible for managing risks deriving from changes in
raw material prices (changing selling prices in accordance with the up-to-date
prices of raw materials) and from dependency on major customers.


The Company is exposed to the following market risks:


Exchange rate fluctuations

Approximately 90% of the Company'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 September 2003, the excess of the Group's liabilities in foreign
currency over its assets in foreign currency amounted to NIS 36 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 40% 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.

During the period, raw material prices rose by approximately 35%, 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 two primary customers Z.A.G. and Home Depot,
comprising 49% of the consolidated sales turnover. Management estimates that the
credit risk in respect of these customers 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,
25% of the total Group sales.


The dependency on this customer is declining and the Company carries a policy of
diverse products and multiplicity of customers.


The subsidiary has a major customer - Home Depot, to which it sold, during the
reporting period, 24% of the total sales of the Group.


In order to reduce the risk of dependency on a sole customer, the subsidiary has
stepped up its marketing and development efforts. The subsidiary has been
investing efforts in expanding its customer base, primarily in North America and
the local market.




Linked balance sheet as at 30th September 2003 (NIS '000)


                                                                                                                      
                             Linked to the ICPI    Denominated in or       Unlinked    Non-monetary items     Total  
                                                   linked to Foreign                                               
                                                   currency                                                    
  Assets                                                                                                              

  Cash and cash equivalents  -                     1,414                    235         -                     1,649   
  Trade debtors              -                     21,563                   8,763       -                     30,326  
  Other debtors              1,162                 -                        4,208       512                   5,882   
  Stocks                     -                     -                        -           16,024                16,024  
  Investments                -                     12                       59          1,418                 1,489   
  Redundancy provision       13                    -                        -           -                     13      
  Tangible assets            -                     -                        -           86,388                86,388  
  Deferred taxes             -                     -                        -           -                     -       
  Intangible assets          -                     -                        -           9,573                 9,573   
  Minority debt              -                     -                        -           4,597                 4,597   
  Total assets               1,175                 22,989                   13,265      118,512               155,941 

  Liabilities                                                                                                         

  Bank loans and             3,481                 21,677                   36,603      -                     61,761  
  overdrafts (excluding                                                                                               
  current maturities)                                                                                                 
  Trade creditors            -                     3,544                    35,920      -                     39,464  
  Other creditors            1,158                 -                        10,512      24                    11,694  
  Long-term loans            5,323                 33,720                   -           -                     39,043  
  Redundancy provision       -                     -                        215         -                     215     
  Deferred income            -                     -                        -           164                   164     
  Capital note               5,527                 -                        -           -                     5,527   
  Total liabilities          15,489                58,941                   83,250      188                   157,868 
  Surplus (deficit) of       (14,314)              (35,952)                 (69,983)    118,324               (1,927) 
  assets over liabilities                                                                                             
                                                                               




                Itamar Patishi              Daniel Stern
                Chairman of the Board       C.E.O.


30th November 2003



The Board of Directors of     30 November 2003

Technoplast Industries Ltd.

Dear Sirs:


        Re:  Review of the Unaudited Condensed Interim Consolidated

             Financial Statements for the nine month and three month periods
             ended 30th September, 2003

At your request, we have reviewed the condensed interim consolidated balance
sheet of TECHNOPLAST INDUSTRIES LIMITED as at 30th September 2003, the condensed
consolidated profit and loss accounts, condensed statements of recognized gains
and losses, condensed statements of changes in shareholders' equity and the
condensed consolidated statements of cash flows for the nine 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 September 2003
constitute approximately 37% of total consolidated assets and whose revenues for
the nine month and three month periods constitute approximately 39% and 38% 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 generaccepted auditing standards, we do not express an
opinion on the condensed financial statements.

During the performance of our review, including reading the review reports of
others 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.

We draw attention to Note 1 of the condensed financial statements regarding the
doubt as to the ability of the Company to continue as a "going concern", and the
plans of Management pertaining to the continued existance as a "going concern".

The condensed financial statements to not contain any adjustments or
reclassifications of assets and liabilities that may prove to be necessary if
the Company cannot continue operating as a "going concern".




    Fahn Kanne & Co.                        Schmidt & Co.
    Certified Public Accountants (Isr.)     Certified Public Accountants (Isr.)

                CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNTS

                      (Adjusted to NIS of September 2003)


                                                                                            Convenience translation   
                  Year ended       Three months ended            Nine months ended        Three months    Nine months 
                     31st           30th September                30th September           ended 30th     ended 30th  
                  December                                                                 September      September   
                    2002        2002           2003           2002           2003           2003           2003     
                  NIS' 000    NIS' 000       NIS' 000       NIS' 000       NIS' 000        #' 000         #' 000    
                  (Audited)   (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)  

  Turnover        150,032     37,937         35,254         121,241        104,283        4,749          14,047       
  Cost of sales   131,383     33,672(*)      30,403         104,721(*)     91,281         4,095          12,296       
                  _______     ______         ______         ______         ______         ______         ______       
  Gross profit    18,649      4,265          4,851          16,520         13,002         654            1,751        
  Selling,        31,776      7,199          9,657          22,406(*)      28,611         1,301          3,854        
  general and                                                                                                         
  administration                                                                                                      
  expenses                                                                                                            
                  _______     ______         ______         ______         ______         ______         ______       
  Operating       (13,127)    (2,934)        (4,806)        (5,886)        (15,609)       (647)          (2,103)      
  profit (loss)                                                                                                       
  before other                                                                                                        
  expenses                                                                                                            
  Other income    (760)       -              838            (329)          (8,1296)       113            (1,104)      
  (expenses)                                                                                                          
                  _______     ______         ______         ______         ______         ______         ______       
  Loss on         (13,887)    (2,934)        (3,968)        (6,215)        (23,805)       (534)          (3,207)      
  ordinary                                                                                                            
  activities                                                                                                          
  before                                                                                                              
  financial                                                                                                           
  expenses                                                                                                            
  Net financial   (3,839)     (1,508)        (4,188)        (2,524)        (4,725)        (564)          (636)        
  income                                                                                                              
  (expenses)                                                                                                          
                  _______     ______         ______         ______         ______         ______         ______       
  Loss on         (17,726)    (4,442)        (8,156)        (8,739)        (28,530)       (1,098)        (3,843)      
  ordinary                                                                                                            
  activities                                                                                                          
  before                                                                                                              
  taxation                                                                                                            
  Tax benefit     1           (33)           (996)          (33)           (40)           (134)          (5)          
  (tax on                                                                                                             
  profit) on                                                                                                          
  ordinary                                                                                                            
  activities                                                                                                          
                  _______     ______         ______         ______         ______         ______         ______       
  Loss on         (17,725)    (4,475)        (9,152)        (8,772)        (28,570)       (1,232)        (3,848)      
  ordinary                                                                                                            
  activities                                                                                                          
  after                                                                                                               
  taxation                                                                                                            
  Net equity in   -           -              165            -              444            22             60           
  profit of                                                                                                           
  associated                                                                                                          
  undertakings                                                                                                        
  Minority        828         94             2,406          (1,373)        4,285          324            577          
  share in loss                                                                                                       
  (profit) of                                                                                                         
  investee                                                                                                            
                  _______     ______         ______         ______         ______         ______         ______       
  Loss for the    (16,897)    (4,381)        (6,581)        (10,145)       (23,841)       (886)          (3,211)      
  period                                                                                                              
                  _______     ______         ______         ______         ______         ______         ______       
                  _______     ______         ______         ______         ______         ______         ______       
  Loss per        (0.50)      (0.13)         (0.19)         (0.3)          (0.71)         (0.02)         (0.09)       
  share (NIS/#)                                                                                                       
                  _______     ______         ______         ______         ______         ______         ______       
                  _______     ______         ______         ______         ______         ______         ______       

(*)     Reclassified.



               CONDENSED STATEMENT OF RECOGNISED GAINS AND LOSSES 

                         (Adjusted to NIS of September 2003) 

                                                                                                                      
                                                                                            Convenience translation   
                 Year ended        Three months ended            Nine months ended        Three months    Nine months 
                    31st            30th September                30th September           ended 30th     ended 30th  
                 December                                                                  September      September   
                   2002           2002           2003           2002           2003           2003           2003     
                 NIS' 000       NIS' 000       NIS' 000       NIS' 000       NIS' 000        #' 000         #' 000    
                 (Audited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)  
  Loss for      (16,897)      (4,381)        (6,581)        (10,145)       (23,841)       (886)          (3,211)      
  the period                                                                                                          
                _______       ______         ______         ______         ______         ______         ______       
  Total         (16,897)      (4,381)        (6,581)        (10,145)       (23,841)       (886)          (3,211)      
  recognized                                                                                                          
  losses for                                                                                                          
  the period                                                                                                          
                _______       ______         ______         ______         ______         ______         ______       
                _______       ______         ______         ______         ______         ______         ______       




                     CONDENSED CONSOLIDATED BALANCE SHEETS

                      (Adjusted to NIS of September 2003)
                                                                                                     Convenience
                                                                                                     translation
                                                      31st December   30th September                 30th September
                                                      2002            2002            2003           2003
                                                      NIS' 000        NIS' 000        NIS' 000       #' 000
                                                     (Audited)       (Unaudited)     (Unaudited)     (Unaudited)
Minority receivable                                   312              -              4,597          619
Intangible assets                                     10,469           10,768         9,573          1,290
Fixed assets
Tangible assets                                       103,120          106,207        86,388         11,637
Investment in investee companies                      -                -              1,418          191
Deposits                                              69               59             71             10
                                                      _______          _______        _______        ______
                                                      103,189          106,266        87,877         11,838

Funded amounts in respect of redundancy provision     -                -              13             2
Deferred tax                                          39               -              -              -
Current assets
Stocks                                                18,188           13,228         16,024         2,159
Debtors                                               36,937           45,545         36,208         4,877
Cash at bank and in hand                              931              2,729          1,649          222
                                                      _______          _______        _______        ______
                                                      56,056           61,502         53,881         7,258
Creditors: amounts falling due within one year
Bank loans and overdrafts                             62,057           59,295         71,146         9,584
Creditors                                             46,062           45,048         51,158         6,891
                                                      _______          _______        _______        ______
                                                      108,119          104,343        122,304        16,475
Net current assets/(liabilities)                      (52,063)         (42,841)       (68,423)       (9,217)
                                                      _______          _______        _______        ______
Total assets less current liabilities                 61,946           74,193         33,637         4,532
                                                      _______          _______        _______        ______
                                                      _______          _______        _______        ______

            Creditors:     amounts falling due after
            more than one year

Minority rights                                       -                1,890          -              -
Capital note                                          5,516            5,480          5,527          745
Non-convertible bank loans                            33,977           37,010         29,658         3,995
Deferred income                                       215              230            164            22
                                                      _______          _______        _______        ______
                                                      39,708           44,610         35,349         4,762
Provisions for liabilities and charges
Redundancy provision                                  324              917            215            29
                                                      _______          _______        _______        ______
                                                      40,032           45,527         35,564         4,791
                                                      _______          _______        _______        ______
Net assets (liabilities)                              21,914           28,666         (1,927)        (259)
                                                      _______          _______        _______        ______
                                                      _______          _______        _______        ______
Capital and reserves
Share capital                                         42,899           42,899         42,899         5,779
Share premium account                                 43,786           43,786         43,786         5,898
Capital funds                                         328              328            328            44
Profit and loss account (*)                           (65,099)         (58,347)       (88,940)       (11,980)
                                                      _______          _______        _______        ______
Shareholders' funds                                   21,914           28,666         (1,927)        (259)
                                                      _______          _______        _______        ______
                                                      _______          _______        _______        ______

(*)     Reclassified.

Date of approval: 30 November 2003.

    Moshe Katz                  Itamar Patishi                  Daniel Stern
    Vice President of Finance   Chairman of the Board           C.E.O.




                  CONDENSED CONSOLIDATED CASH FLOW STATEMENTS

                      (Adjusted to NIS of September 2003)


                                                                                                                      
                                                                                            Convenience translation   
                 Year ended        Three months ended            Nine months ended        Three months    Nine months 
                 31st                30th September                30th September           ended 30th     ended 30th  
                 December                                                                 September      September   
                 2002          2002           2003           2002           2003           2003           2003     
                 NIS' 000      NIS' 000       NIS' 000       NIS' 000       NIS' 000        #' 000         #' 000    
                 (Audited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)  
  Net cash       2,294        2,280          1,434          4,299          (4,264)        193            (574)        
  (outflow)                                                                                                           
  inflow from                                                                                                         
  operating                                                                                                           
  activities                                                                                                          
  (Appendix A)                                                                                                        
                 _______      ______         ______         ______         ______         ______         ______       
  Investing                                                                                                           
  activities                                                                                                          
  Increase in    (38)         -              -              (26)           -              -              -            
  deposits                                                                                                            
  Payments to    (5,079)      (1,365)        (519)          (4,576)        (2,476)        (70)           (333)        
  acquire                                                                                                             
  tangible                                                                                                            
  fixed assets                                                                                                        
  Receipts       359          49             181            311            1,117          24             150          
  from sales                                                                                                          
  of tangible                                                                                                         
  fixed assets                                                                                                        
                 _______      ______         ______         ______         ______         ______         ______       
  Net cash       (4,758)      (1,316)        (338)          (4,291)        (1,359)        (46)           (183)        
  outflow from                                                                                                        
  investing                                                                                                           
  activities                                                                                                          
                 _______      ______         ______         ______         _______        ______         ______       
  Financing                                                                                                           
  activities                                                                                                          
  Receipt of     4,643        4,642          4,487          4,642          4,487          605            605          
  long-term                                                                                                           
  bank loans                                                                                                          
  Repayment of   (11,130)     (3,227)        (1,852)        (7,650)        (7,612)        (249)          (1,026)      
  long-term                                                                                                           
  bank loans                                                                                                          
  Short-term     9,152        (9)            (4,674)        4,999          9,466          (630)          1,275        
  bank loans                                                                                                          
  and credit,                                                                                                         
  net                                                                                                                 
                 _______      ______         ______         ______         ______         ______         ______       
  Net cash       2,665        1,406          (2,039)        1,991          6,341          (274)          854          
  inflow                                                                                                              
  (outflow)                                                                                                           
  from                                                                                                                
  financing                                                                                                           
  activities                                                                                                          
                 _______      ______         ______         ______         ______         ______         ______       
  Increase       201          2,370          (943)          1,999          718            (127)          97           
  (decrease)                                                                                                          
  in cash and                                                                                                         
  cash                                                                                                                
  equivalents                                                                                                         
  Opening        730          359            2,592          730            931            349            125          
  balance                                                                                                             
                 _______      ______         ______         ______         ______         ______         ______       
  Cash and       931          2,729          1,649          2,729          1,649          222            222          
  cash                                                                                                                
  equivalents                                                                                                         
  - closing                                                                                                           
  balance                                                                                                             
                 _______      ______         ______         ______         ______         ______         ______       
                 _______      ______         ______         ______         ______         ______         ______       



                                   APPENDIX A

                   RECONCILIATION OF OPERATING PROFIT TO NET

                     CASH INFLOW FROM OPERATING ACTIVITIES

                      (Adjusted to NIS of September 2003)



                    Year ended      Three months ended           Nine months ended       Three months    Nine months 
                        31st          30th September               30th September          ended 30th     ended 30th  
                     December                                                              September      September   
                       2002         2002          2003          2002           2003           2003           2003     
                     NIS' 000     NIS' 000      NIS' 000      NIS' 000       NIS' 000        #' 000         #' 000    
                     (Audited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)    (Unaudited)    (Unaudited)  

  Loss for the       (16,897)    (4,381)       (6,581)       (10,145)      (23,841)       (886)          (3,211)      
  period                                                                                                              
  Depreciation of    14,297      3,456         3,139         10,488        17,125         423            2,307        
  tangible fixed                                                                                                      
  assets and                                                                                                          
  intangible assets                                                                                                   
  Decrease in        -           -             -             -             (974)          -              (131)        
  write-down of                                                                                                       
  investee in                                                                                                         
  other company                                                                                                       
  Amortisation of    (62)        (15)          (20)          (47)          (51)           (3)            (7)          
  deferred income                                                                                                     
  Loss on sale of    579         15            303           166           1,864          41             251          
  tangible fixed                                                                                                      
  assets, net                                                                                                         
  Change in          (38)        -             995           -             39             134            5            
  deferred tax, net                                                                                                   
  Increase(erosion)  880         879           1,347         1,831         (1,573)        181            (212)        
  in the value of                                                                                                     
  long-term                                                                                                           
  liabilities                                                                                                         
  Erosion in the     (54)        50            29            (19)          11             3              1            
  value of capital                                                                                                    
  note                                                                                                                
  Erosion in the     (1)         -             -             (2)           (2)            -              -            
  value of deposits                                                                                                   
  Decrease           3,519       1,316         (15)          8,477         2,164          (2)            292          
  (increase) in                                                                                                       
  stocks                                                                                                              
  Decrease           7,873       7,793         2,040         (1,475)       (79)           275            (11)         
  (increase) in                                                                                                       
  trade debtors                                                                                                       
  Decrease           (1,899)     (1,002)       297           (1,161)       808            40             109          
  (increase) in                                                                                                       
  other debtors                                                                                                       
  Increase           (3,089)     (3,351)       1,582         (5,020)       4,818          213            649          
  (decrease) in                                                                                                       
  trade creditors                                                                                                     
  Increase           (1,200)     (2,419)       774           33            207            104            28           
  (decrease) in                                                                                                       
  other creditors                                                                                                     
  Increase           (18)        (47)          71            (26)          71             10             10           
  (decrease) in                                                                                                       
  provision for                                                                                                       
  holiday pay                                                                                                         
  Increase           (768)       80            17            (174)         (109)          2              (15)         
  (decrease) in                                                                                                       
  redundancy                                                                                                          
  provision                                                                                                           
  Increase           -           -             27            -             (13)           4              (2)          
  (decrease) in                                                                                                       
  funded amounts                                                                                                      
  in respect of                                                                                                       
  redundancy                                                                                                          
  provision                                                                                                           
  Net minority       (828)       (94)          (2,406)       1,373         (4,285)        (324)          (577)        
  share in profits                                                                                                    
  (losses) of                                                                                                         
  consolidated                                                                                                        
  subsidiaries                                                                                                        
  Company's equity   -           -             (165)         -             (444)          (22)           (60)         
  in profits of                                                                                                       
  associates                                                                                                          
  undertaking                                                                                                         
                     ______      _____         _____         _____         _____          _____          _____        
  Net cash inflow    2,294       2,280         1,434         4,299         (4,264)        193            (574)        
  (outflow) from                                                                                                      
  operating                                                                                                           
  activities                                                                                                          
                     ______      _____         _____         _____         _____          _____          _____        
                     ______      _____         _____         _____         _____          _____          _____        


                                       APPENDIX B 

                              MAJOR NON-CASH TRANSACTIONS 

                           (Adjusted to NIS of September 2003) 

                                                                                                                      
                                                                                            Convenience translation   
                 Year ended        Three months ended            Nine months ended        Three months    Nine months 
                    31st            30th September                30th September           ended 30th     ended 30th  
                  December                                                                 September      September   
                    2002          2002           2003           2002           2003           2003           2003     
                  NIS' 000      NIS' 000       NIS' 000       NIS' 000       NIS' 000        #' 000         #' 000    
                 (Audited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)  
  Acquisition    376          -              -              -              -              -              -            
  of tangible                                                                                                         
  fixed assets                                                                                                        
  on credit                                                                                                           
                 _____        _____          _____          _____          _____          ____           ____         
                 _____        _____          _____          _____          _____          ____           ____         
  Transfer       2,612        140            627            2,654          627            84             84           
  from                                                                                                                
  long-term                                                                                                           
  loans to                                                                                                            
  short-term                                                                                                          
  credit                                                                                                              
                 _____        _____          _____          _____          _____          ____           ____         
                 _____        _____          _____          _____          _____          ____           ____         
 






                       NOTES TO THE FINANCIAL STATEMENTS


                NOTE 1     -     GENERAL

                Company activities

                Technoplast Industries Limited (hereafter - the Company) is a
                public company engaged in the manufacture and marketing of
                plastic products.


                As at 30 September 2003, the Company had a working capital
                deficit that amounted to NIS 37 million and the Group had a
                working capital deficit that amounted to NIS 68 million. As at
                30 September 2003, the Group had an accumulated loss of NIS 89
                million. The Group concluded the nine month period under report
                with a negative cash flow from current operations in an amount
                of NIS 4.3 million.


                During the second quarter of 2003, there was a sharp decrease in
                sales to Z.A.G., as well as a decrease in the Company's
                self-manufactured products. This resulted in a loss to the Group
                in an amount of NIS 23.8 million.


                The accountants of the subsidiary, Smart Modular Storage Ltd.,
                pointed out in their opinion letter on the financial statements
                as of 30 September 2003, the following:


                    -     A loss of NIS 9.9 million in the reporting period,
                    shareholders deficit in the amount of NIS 10.6 million, a
                    deficit in working capital in the amount of NIS 31 million
                    and a negative cash flow from operating activities in the
                    amount of NIS 3 million. In addition, the accountants
                    pointed out that the financing of the working capital
                    requires the extension of due dates of bank loans and the
                    receipt of alternative lines of credit.


                    -     The subsidiary is currently negotiating with its major
                    customer, as well as with its major supplier, to improve the
                    terms of the agreement with each. In addition, the
                    subsidiary is making efforts to reach new financing
                    arrangements with its banks and is weighting the possibility
                    of bringing in a strategic partner.


                    -     The abovementioned factors and others rise
                    considerable doubts whether the subsidiary will be able to
                    continue operating as a "going concern". The financial
                    statements do not include any adjustments in respect of the
                    subsidiary's assets and liabilities value and their
                    classification that may be necessary if the subsidiary will
                    not be able to operate as a "going concern.


                Further to the agreement in principle signed on 29 June 2003, a
                final agreement was signed on 31 August 2003 with Kidron
                Management and Holdings Company (1961) Ltd. on its behalf and on
                behalf of others (hereinafter - "Kidron"), whereby Kidron will
                transfer to the Company, by means of a merger, all the shares of
                Kidron Plastics Ltd. (a company active in importing and
                marketing raw materials for the plastics industry), in return
                for an allotment of shares in the Company which will grant
                Kidron 75% of the issued and outstanding shares (fully diluted)
                of the Company.


                The percentage of the Company to be held by Kidron will be
                determined on the basis of a company valuation by an outside
                party.


                Consummation of the transaction is subject to a number of
                pre-conditions and to obtaining the necessary approvals under
                law, including the approval of the general shareholders meeting
                of the Company.


                Kidron Group operates through subsidiaries in Israel and Europe
                in a variety of areas connected to the manufacture and supply of
                raw materials and other industrial inputs


                The Company is continuing to implement the reorganization plan
                it commenced upon toward the end of 2001 and is continuing
                negotiations with its banks.


                       NOTES TO THE FINANCIAL STATEMENTS





                NOTE 1     -     GENERAL (cont.)

                Company activities (cont.)

                Company Management estimates that implementation of the
                reorganization plan and/or successful conclusion of negotiations
                with its banks and/or the conclusion of the agreement with
                Kidron and/or an influx of cash to the Company, will allow it to
                continue its business operations as a "going concern".


                If this course of action is not adopted, there is doubt as to
                whether the Group can continue to operate as a "going concern"
                and, therefore, may not be able to dispose of its assets and
                repay its liabilities during the normal course of its business.


                The financial statements do not contain any adjustments to the
                value or classification of assets or liabilities that may be
                necessary should the Company not be able to continue operating
                as a "going concern".




                NOTE 2     -     SIGNIFICANT ACCOUNTING POLICIES

                    A.     The consolidated interim financial statements
                    (hereinafter - "the interim statements") have been prepared
                    as at 30th September 2003 and for the nine and three month
                    period then ended. The financial statements are presented in
                    condensed form, in accordance with generally accepted
                    accounting principles pertaining to interim financial
                    statements and in accordance with the Securities Regulations
                    (Periodic and Immediate Reports) - 1970.


                         These financial statements are to be read in
                    conjunction with the audited annual financial statements of
                    the Company at 31st December 2002 and their accompanying
                    notes.


                    B.     The significant accounting policies applied in the
                    interim statements are consistent with those applied in the
                    annual financial statements of the Company at st December
                    2002.


                    C.     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
                    Cessation of the Adjustment of Financial Statements".
                    According to Standard No. 12 and Standard No. 17, financial
                    statements will no longer be adjusted for changes in the
                    general purchasing power of the Israeli currency, commencing
                    on 1st January 2004. Until December 31, 2003, the Company
                    will continue to prepare its financial statements in
                    accordance with Opinion No. 36 of the Institute of Certified
                    Public Accountants in Israel. The adjusted values to be
                    presented in the financial statements as of December 31,
                    2003 will serve as the basis for the nominal financial
                    reporting commencing on January 1, 2004.




                       NOTES TO THE FINANCIAL STATEMENTS





                NOTE 2     -     SIGNIFICANT ACCOUNTING POLICIES (cont.)

                    D.     During the period under report, the Company
                    implemented Standard No. 14 of the Israeli Accounting
                    Standards Board, Financial Reporting for Interim Periods.
                    This standard replaced Opinion No. 43 of the Institute of
                    Certified Public Accountants in Israel. Disclosure of
                    information pertaining to segmental data appears in Note 6,
                    below.


                    E.     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"),
                    on the basis of the changes in the Israeli Consumer Price
                    Index (ICPI).


                         The percentage change in the Israeli Consumer Price
                    Index ("CPI") and in the representative foreign currency
                    exchange rates are as follows:


                                               CPI                   #                   $
                                          2003      2002      2003      2002       2003      2002
                                           %          %         %         %         %          %
                                         
    For the nine months
    ended 30 September                   (1.49)     6.99     (2.74)     19.04     (6.25)     10.3

                                         
    For the three months
    ended 30 September                   (0.99)     0.65      4.42      4.28       2.99      2.14

For the year ended 31 December             --        6.5       --       19.27       --       7.27





                NOTE 3     -     CONVENIENCE TRANSLATION

                The adjusted financial statements at 30 September 2003
                (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 7.4236). 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.




                NOTE 4     -     OTHER EXPENSES

                Other expenses recorded during the period under report included,
                among other things, a non-recurring expense amounting to NIS 2
                million, resulting from the shutting down of the Barkan plant
                and a reserve for decline in asset value in an amount of NIS 7
                million. The reserve was made in accordance with Standard No. 15
                of the Israel Accounting Standards Board, regarding decline in
                asset value, based on an asset valuation that was ordered by the
                Company from an external appraiser and adopted by the Company's
                board of directors for purposes of the merger with Kidron
                Plastics Ltd.


                       NOTES TO THE FINANCIAL STATEMENTS





                NOTE 5     -     STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

    A.     Nine month period - adjusted to NIS of September 2003

    (Unaudited)

                                              Share        Premium    Capital funds     Profit and         Total
                                             capital      on shares                   loss account(*)
                                            NIS' 000      NIS' 000       NIS' 000        NIS' 000        NIS' 000

    Nine month period ended
    30th September 2003

    Balances at 1st January 2003             42,899        43,786        328            (65,099)          21,914

    Loss for nine months                          -             -           -           (23,841)         (23,841)
    

                                             ______        ______        ____           ______            ______
                                             42,899        43,786        328            (88,940)          (1,927)
        Balances at
        30th September 2003
                                             ______        ______        ____           ______            ______
                                             ______        ______        ____           ______            ______


B.     Nine month period - convenience translation


    (Unaudited)

                                              Share        Premium    Capital funds     Profit and         Total
                                             capital      on shares                   loss account(*)
                                             #' 000        #' 000         #' 000          #' 000          #' 000

    Nine month period ended
    30th September 2003

    Balances at 1st January 2003             5,779         5,898         44             (8,769)           2,952
                                          
    Loss for nine months                        -             -           -             (3,211)           (3,211)

                                            _____         ______        ___            ______            _____
                                            5,779         5,898         44             (11,980)          (259)
        Balances at
        30th September 2003                 _____         ______        ___            ______            _____
                                            _____         ______        ___            ______            _____


C.     Three month period - adjusted to NIS of September 2003

(Unaudited)

                                              Share        Premium    Capital funds     Profit and         Total
                                             capital      on shares                   loss account(*)
                                            NIS' 000      NIS' 000       NIS' 000        NIS' 000        NIS' 000

    Three month period ended
    30th September 2003

    Balances at 1st July 2003              42,899        43,786        328            (82,359)          4,654
                                          
    Loss for three months                 -             -             -              (6,581)           (6,581)

                                          ______        ______        ____           ______            ______
                                          42,899        43,786        328            (88,940)          (1,927)
        Balances at
        30th September 2003
                                          ______        ______        ____           ______            ______
                                          ______        ______        ____           ______            ______


(*)     Reclassified.


                       NOTES TO THE FINANCIAL STATEMENTS





       NOTE 5     -     STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (cont.)

D.     Three month period - convenience translation

(Unaudited)

                                              Share        Premium    Capital funds     Profit and         Total
                                             capital      on shares                   loss account(*)
                                             #' 000        #' 000         #' 000          #' 000          #' 000

    Three month period ended
    30th September 2003

Balances at 1st July 2003                     5,779         5,898         44             (11,094)          627
                                              -             -             -              (886)             (886)
    Loss for three months

                                              _____         _____         ___            ______            ______
                                              5,779         5,898         44             (11,980)          (259)
        Balances at
        30th September 2003
                                              _____         _____         ___            ______            ______
                                              _____         _____         ___            ______            ______


E.     Adjusted to NIS of September 2003

(Unaudited)

                                              Share        Premium     Capital fund     Profit and         Total
                                             capital      on shares                   loss account(*)
                                            NIS ' 000     NIS' 000       NIS' 000        NIS' 000        NIS' 000

    Nine month period ended
    30th September 2002

Balances at 1st January 2002              42,899        43,786        328            (48,202)          38,811
                                          -             -             -              (10,145)          (10,145)
    Loss for nine months

                                          ______        ______        ____           ______            ______
                                          42,899        43,786        328            (58,347)          28,666
        Balances at
        30th September 2002

                                          ______        ______        ____           ______            ______
                                          ______        ______        ____           ______            ______


(Unaudited)

                                              Share        Premium     Capital fund     Profit and         Total
                                             capital      on shares                   loss account(*)
                                            NIS' 000      NIS' 000       NIS' 000        NIS' 000        NIS' 000

    Three month period ended
    30th September 2002

Balances at 1st July 2002                 42,899        43,786        328            (53,966)          33,047
                                          -             -             -              (4,381)           (4,381)
    Loss for three months

                                          ______        ______        ____           ______            ______
                                          42,899        43,786        328            (58,347)          28,666
        Balances at
        30th September 2002

                                          ______        ______        ____           ______            ______
                                          ______        ______        ____           ______            ______


(*)     Reclassified.


                       NOTES TO THE FINANCIAL STATEMENTS





                NOTE 5     -     STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                (cont.)

E.     Adjusted to NIS of September 2003 (cont.)

(Audited)

                                          Share        Premium        Capital       Profit and         Total
                                          capital      on shares      funds      loss account(*)
                                          NIS' 000     NIS' 000       NIS' 000        NIS' 000        NIS' 000
Year ended 31st December 2002
Balances at 1st January 2002              42,899        43,786         328           (48,202)          38,811
                                          -             --             -             (16,897)          (16,897)
    Net loss for the year
                                          ______        ______         ______        ______            ______
                                          42,899        43,786         328           (65,099)          21,914
        Balances at
        31st December 2002                ______        ______         ______        ______            ______
                                          ______        ______         ______        ______            ______


    (*)     Reclassified.




                NOTE 6     -     BUSINESS SEGMENTS

                    A.     General

                         Group companies are engaged in three main business
                    segments:

                         Manufacture of Smart warehouses and products for the
                    construction industry, manufacture and marketing for
                    subcontractors (including Z.A.G.), and manufacture of self
                    manufactured products.


                    B.     Business segments

                    Adjusted to NIS of September 2003

                              Production      Production &    Smart warehouses  Cancellations        Total
                               of self         marketing -     & construction                    consolidated
                             manufactured    subcontracting       industry
                               products        (including         products
                                                 Z.A.G.)
                               NIS'000           NIS'000          NIS'000          NIS'000          NIS'000

    Nine month period
    ended 30 September
    2003 (unaudited)       34,939           29,394            40,725           (775)            104,283
    Segmental turnover
                           ______           ______            ______           ____             ______
                           ______           ______            ______           ____             ______

    Segmental results      (6,166)          (2,066)           (7,377)          -                (15,609)
                           ______           ______            ______           ____             ______
                           ______           ______            ______           ____             ______




                  NOTES TO THE CONDENSED FINANCIAL STATEMENTS

                NOTE 6     -     BUSINESS SEGMENTS (cont.)

                    B.     Business segments (cont.)

                    Convenience translation

                    (unaudited)

                              Production      Production &    Smart warehouses  Cancellations    Total consoli
                               of self         marketing -     & construction
                             manufactured    subcontracting       industry
                               products        (including         products
                                                 Z.A.G.)
                                # '000           # '000            # '000           # '000          # '000

    Nine month period
    ended 30 September
    2003 (unaudited)


    Segmental turnover     4,706            3,959             5,486            (104)            14,047
                           _____            _____             _____            ___              _____
                           _____            _____             _____            ___              _____                   
                           
    Segmental results       (831)            (278)             (994)            -                (2,103)

                           _____            _____             _____            ___              _____
                           _____            _____             _____            ___              _____


                    Adjusted to NIS of September 2003

                              Production      Production &    Smart warehouses  Cancellations        Total
                               of self         marketing -     & construction                    consolidated
                             manufactured    subcontracting       industry
                               products        (including         products
                                                 Z.A.G.)
                               NIS'000           NIS'000          NIS'000          NIS'000          NIS'000

    Three month period
    ended 30 September
    2003 (unaudited)


                           10,187           11,980            13,492           (405)            35,254
    Segmental turnover

                           ______           _____             ______           ____             ______
                           ______           _____             ______           ____             ______

                           (1,135)          (554)             (3,117)          -                (4,806)
    Segmental results

                           ______           _____             ______           ____             ______
                           ______           _____             ______           ____             ______


                    Convenience translation

                    (unaudited)

                              Production      Production &    Smart warehouses  Cancellations        Total
                               of self         marketing -     & construction                    consolidated
                             manufactured    subcontracting       industry
                               products        (including         products
                                                 Z.A.G.)
                                # '000           # '000            # '000           # '000          # '000

    Three month period
    ended 30 September
    2003 (unaudited)


    Segmental turnover     1,372            1,614             1,817            (54)             4,749
    

                           _____            ______            ______           ____             ______
                           _____            ______            ______           ____             ______

    Segmental results      (153)            (75)              (419)            -                (647)
    

                           _____            ______            ______           ____             ______
                           _____            ______            ______           ____             ______


                  NOTES TO THE CONDENSED FINANCIAL STATEMENTS





                NOTE 6     -     BUSINESS SEGMENTS (cont.)

                    B.     Business segments (cont.)

                    Adjusted to NIS of September 2003

                              Production      Production &    Smart warehouses  Cancellations        Total
                               of self         marketing -     & construction                    consolidated
                             manufactured    subcontracting       industry
                               products        (including         products
                                                 Z.A.G.)
                               NIS'000           NIS'000          NIS'000          NIS'000          NIS'000

    Nine month period
    ended 30 September
    2002 (unaudited)


                           34,769           34,719            52,285           (532)            121,241
    Segmental turnover

                           ______           ______            ______           ____             _______
                           ______           ______            ______           ____             _______

                           (8,464)          (1,959)           4,537            -                (5,886)
    Segmental results

                           ______           ______            ______           ____             _______
                           ______           ______            ______           ____             _______


                    Adjusted to NIS of September 2003

                              Production      Production &    Smart warehouses  Cancellations        Total
                               of self         marketing -     & construction                    consolidated
                             manufactured    subcontracting       industry
                               products        (including         products
                                                 Z.A.G.)
                               NIS'000           NIS'000          NIS'000          NIS'000          NIS'000

    Three month period
    ended 30 September
    2002 (unaudited)


                           12,096           12,125            13,711           5                37,937
    Segmental turnover

                           ______           ______            ______           ____             ______
                           ______           ______            ______           ____             ______

                           (3,051)          (559)             676              -                (2,934)
    Segmental results

                           ______           ______            ______           ____             ______
                           ______           ______            ______           ____             ______


                    Adjusted to NIS of September 2003

                              Production      Production &    Smart warehouses  Cancellations        Total
                               of self         marketing -     & construction                    consolidated
                             manufactured    subcontracting       industry
                               products        (including         products
                                                 Z.A.G.)
                               NIS'000           NIS'000          NIS'000          NIS'000          NIS'000

    Year ended 31 December
    2002 (audited)


                           43,505           50,586            56,958           (1,017)          150,032
    Segmental turnover

                           ______           ______            ______           _____            _______
                           ______           ______            ______           _____            _______

                           (10,712)         (2,939)           524              -                (13,127)
    Segmental results

                           ______           ______            ______           _____            _______
                           ______           ______            ______           _____            _______




                  NOTES TO THE CONDENSED FINANCIAL STATEMENTS





                NOTE 7     -     EVENTS DURING THE REPORTING PERIOD

                    A.     In February 2003, the Company signed a long-term
                    agreement pertaining to real estate it owns in the Barkan
                    industrial zone. In respect of this agreement, the Company
                    will receive annual rents (linked to changes in the exchange
                    rate of the U.S. dollar) in an amount of U.S.$ 140 thousand.


                    B.     The Company owns 25.1% of the shares of AFIC. At the
                    end of 2001, the Company wrote off the entire investment in
                    AFIC which amounted to NIS 1.1 million.

                         The year 2002 and the first quarter of 2003 were
                    characterised by a significant increase in AFIC's activities
                    and a transition from loss to profit.

                         On 27 March 2003, Itamar Patishi and Moshe Latz were
                    appointed to the board of AFIC.

                         In view of the above, Company management decided to
                    include the investment in AFIC in the financial statements,
                    on the equity basis.


                    C.     During the period, a fixed pledge, first degree
                    mortgage, and assignment of rights (in favor of banks) were
                    recorded on all of the monies and monetary rights of any
                    kind due to the subsidiary, Smart Modular Storage Ltd.
                    (hereinafter - SMS), from SMS Smart Storage Enterprises
                    Inc., USA, a wholly owned subsidiary of SMS. In addition, a
                    fixed pledge was placed on all of the shares of SMS USA held
                    by the subsidiary, as well as on related rights.

                         In addition, floating charges were recorded on all of
                    the assets of the subsidiary, its rights and other assets,
                    as well as a fixed pledge on the unpaid-in capital, the
                    goodwill, monies, notes, securities and other pledges that
                    currently exist or will exist in the future, and on the
                    rights deriving from pledged property insurance.


                    D.     On 27 April, 2003, the general shareholders meeting
                    of the Company authorized an increase in the share capital
                    of the Company by an amount of NIS 100,000,000 by creating
                    an additional 100,000,000 ordinary shares, par value NIS 1
                    each.


                    E.     On 30th September 2003, the general shareholders
                    meeting of the Company passed a number of resolutions
                    regarding an increase in the registered share capital of the
                    Company by an amount of NIS 315,000,000, by registering
                    315,000,000 ordinary shares, par value NIS 1 each, and by
                    converting all of the ordinary shares of the Company
                    (including those deriving from the capital increase) into
                    ordinary shares with no par value.

                         Any and all rights that the par value NIS 1 ordinary
                    share of the Company had, without exception, will pass over
                    to the non-par valve shares

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

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