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UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

FORM 20-F

(Mark One)

|| _ | | REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES       EXCHANGE ACT OF 1934
|----- | ----------------------------------------------------------------------------------------------------

OR

|| X | | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE       ACT OF 1934 For
the fiscal year ended December 31, 2002
|----- | --------------------------------------------------------------------------------------------------------------------------------------

OR

|| _ | | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the transition period from _________________ to ________________
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Commission file number 333-100683

BARAN GROUP, LTD.(Exact name of Registrant as specified in its charter)

BARAN GROUP, LTD.(Translation of Registrant's name into English)

ISRAEL(Jurisdiction of incorporation or organization)

BARAN HOUSE
8 OMARIM STREET INDUSTRIAL PARK
OMER 84965
ISRAEL
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class                              Name of each exchange on which registered

NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act.

ORDINARY SHARES, NIS 1.00 PAR VALUE PER SHARE
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

NONE

As of March 24, 2003, the Registrant had 8,375,884 Ordinary Shares issued and outstanding

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

| X | Yes            | _ | No

Indicate by check mark which financial statement item the registrant has elected
to follow.

| _ | Item 17            | X ] Item 18



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# TABLE OF CONTENTS

|                            | Page
|--------------------------- | ----
|Forward -Looking Statements | 3   

PART I

|        |                                                           |               
|------- | --------------------------------------------------------- | --------------
|Item 1  | Identity of Directors, Senior Management and Advisors     | Not Applicable
|Item 2  | Offer Statistics and Expected Timetable                   | Not Applicable
|Item 3  | Risk Factors                                              | 4             
|Item 4  | Information on the Company                                | 17            
|Item 5  | Operating and Financial Review and Prospects              | 32            
|Item 6  | Directors and Senior Management                           | 49            
|Item 7  | Major Shareholders and Related Party Transactions         | 55            
|Item 8  | Financial Information                                     | 58            
|Item 9  | The Offer and Listing                                     | 58            
|Item 10 | Additional Information                                    | 59            
|Item 11 | Quantitative and Qualitative Disclosure about Market Risk | 73            
|Item 12 | Description of Securities Other Than Equity Securities    | Not Applicable

PART II

|        |                                                                              |               
|------- | ---------------------------------------------------------------------------- | --------------
|Item 13 | Defaults, Dividends Arrearages and Delinquencies                             | Not Applicable
|Item 14 | Material Modifications to the Rights of security Holders and Use of Proceeds | None          
|Item 15 | Control and Procedures                                                       | 78            
|Item 16 | [Reserved]                                                                   |               

PART III

|        |                      |               
|------- | -------------------- | --------------
|Item 17 | Financial Statements | Not Applicable
|Item 18 | Financial Statements | F-1 - F-114   
|Item 19 | Exhibit Index        | 79            

2

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# FORWARD LOOKING
STATEMENTS

The Securities and Exchange
Commission encourages companies to disclose forward-looking information so that investors
can better understand a companys future prospects and make informed investment
decisions. This Form 20-F contains such forward-looking statements. These
statements may be made directly in this Form 20-F referring to Baran and it may also be
made a part of this Form 20-F by reference to other documents filed with the Securities
and Exchange Commission by Baran Group Ltd. ,which is known as incorporation by
reference. These statements may include statements regarding the future events.
Words such as anticipate, estimate, expects,
projects, intends, plans, believes and words and
terms of similar substance used in connection with any discussion of future operating or
financial performance, identify forward-looking statements. All forward-looking statements
are managements present expectations of future events and are subject to a number of
factors and uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. In addition to the risks related to the
businesses of Baran Group Ltd., discussed under Risk Factors, among others,
could cause actual results to differ materially from those described on the
forward-looking statements. Shareholders are cautioned not to place undue reliance on the
forward-looking statements, which speak only of the date of this Form 20-F or the date of
the document incorporated by reference in this Form 20-F. Baran Group Ltd. is under no
obligation, and each expressly disclaims any obligation, to update or alter any
forward-looking statements, whether as a result of new information, future events or
otherwise.

3

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# PART I

# ITEM 1. IDENTITY OF
DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not Applicable

# ITEM 2. OFFER STATISTICS
AND EXPECTED TIMETABLE

Not Applicable

# ITEM 3.

The selected financial data is
incorporated by reference to Item 5 of this annual report.

# Risk Factors

This Annual Report and statements
that we make from time to time may contain forward-looking information. There can be no
assurance that actual results will not differ materially from our expectations,
statements, or projections. Factors that could cause actual results to differ from our
expectations, statements or projections include, among other things, the risks and
uncertainties related to our business described below. See Item 4  Information on
the Company- History and Development of the Company for a definition of the term
Baran as used in this Annual Report.

Barans operation could be
disrupted as a result of war with Iraq.

There is high probability that Israel
will be involved in any military action taken against Iraq. As a result of the war in
Iraq, many businesses will close, industry will not operate regularly, destruction may
result and economic and business activity in Israel may cease.

# The markets in which
Baran competes are highly competitive.

The telecommunications network
services market and other markets in which Baran competes are highly competitive and are
served by numerous companies. Many of these competitors have significantly greater
financial, technical and marketing resources, generate greater revenues and have greater
name recognition and international experience than Baran. Baran believes that the
principal competitive factors in its markets include the ability to deliver services
within budget and on time, pricing, reputation, accountability, project management
expertise, industry experience and expertise in new and evolving technologies. Baran many
not be able to compete effectively on these or other bases, and, as a result, it may not
be able to maintain current customer relationships or develop new customer relationships.

4

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Baran must continually enhance its
technical abilities and areas of expertise to remain competitive.

Baran believes that its future
success depends, to a significant extent, upon its ability to enhance its existing
technical abilities and to meet the requirements of its customers in rapidly developing
and evolving markets. Although Baran is currently devoting significant resources to enter
additional areas of project management and operation, and is planning to develop new areas
of expertise, Barans present or future abilities may not satisfy the evolving needs
of customers in the sectors it services. If Baran is unable to anticipate or respond
adequately to those demands, due to resource, technological or other constraints, its
business and results of operations could be materially adversely affected.

Barans businesses are highly
dependent on a limited number of significant customers.

The loss of any significant customer
of Barans, a significant decrease in business from any of those customers or the
conclusion or termination of significant projects, without securing other significant
projects or customers, could have a material adverse effect on the results of operations
and financial condition of Baran. Although Baran has more than one thousand customers,
revenues derived from its three largest customers accounted for approximately 21% of
revenues in the year ended, December 31, 2002 (fiscal 2002) and 55% and 71% of
revenues in the years ended December 31, 2001 (fiscal 2001) and 2000
(fiscal 2000), respectively. Barans major customers do not have any
obligation to purchase additional services and, therefore, may not continue to purchase
services in amounts similar to previous years. In addition, customers may terminate a
project before it is completed, and will be obligated to pay Baran only for the work
performed up to termination. Early termination of one or more projects by one of
Barans major customers could have a material adverse effect on Barans
business, financial condition and results of operations.

Baran performs credit evaluations of
its customers and does not generally require collateral from its customers. If any of its
major customers or a significant portion of its existing customers becomes insolvent or is
otherwise unable to pay its debts, it could have a material adverse effect on Barans
business, financial condition and results of operations.

Barans success depends on
its ability to develop long-term relationships with its customers.

Baran believes that its future
success depends significantly on its ability to develop long-term relationships with
successful network operators, service providers and other clients in the markets and
industrial sectors it services. Baran may be unable to develop new customer relationships,
and its new customers may be unsuccessful in their own businesses. Barans failure to
maintain customer relationships or the failure of new customers to be successful could
affect Barans ability to receive additional work from the same customers in the
future, which could reduce Barans revenues.

5

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Barans directors, executive
officers and principal shareholders will be able to exert substantial influence
Barans affairs.

As of December 31, 2002, Barans
directors, executive officers and principal shareholders currently beneficially own, in
the aggregate, approximately 31.32% Barans ordinary shares. These shareholders,
acting together under voting agreements or otherwise, have the ability to exert
substantial influence over all matters requiring approval by Barans shareholders.
These matters include the election and removal of Barans directors and any merger,
consolidation or sale of all or substantially all of Barans assets. In addition,
they may be able to dictate the management of Barans business and affairs. This
concentration of ownership could have the effect of delaying, deferring or preventing a
change in control, or impeding a merger or consolidation, takeover or other business
combination that might otherwise be approved.

The skilled employees that Baran
needs may be difficult to hire and retain.

Barans success depends in large
part on its ability to continue to attract, train, motivate and retain highly skilled
engineers and other professional employees. These types of qualified personnel are in
great demand and are likely to remain a limited resource for the foreseeable future. While
Baran believes that it currently has few employees that would be very difficult to
replace, the ability of Baran to expand its business depends upon its success in
recruiting qualified technical personnel and its ability to manage and coordinate its
worldwide development efforts. Baran may be unable to continue to attract and retain the
skilled employees it requires. Any inability to do so could adversely impact Barans
ability to manage and complete its existing projects and to compete for new customer
contracts. Barans failure to attract and retain qualified personnel may have a
material adverse effect on Barans business, results of operations and financial
condition. Baran believes that the continuity of its management team is an important
element in the stability of its operations and that its success depends, to a certain
extent, upon the continued active participation of a relatively small group of senior
management personnel who have been with Baran for a long period of time. The loss of the
services of all or some of these key employees could have a material adverse effect
Barans business, result of operation and financial condition.

Baran may make additional
acquisitions that increase leverage and pose other risks.

Baran has evaluated and continues to
evaluate potential acquisitions, joint ventures and other relationships that would extend
its geographic markets, expand its products and services or enlarge its capacity to
service customers. Some of these transactions may be considerably larger than the
transactions it has completed in the past. If Baran completes any such transaction, it
could result in Baran increasing its leverage, issuing additional ordinary shares or both.
There can be no assurance, however, that Baran will able to find suitable acquisition
candidates or, if desirable candidates are found, it may be unable to complete any desired
acquisition on favorable terms.

6

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Any acquisition that Baran completes will likely also involve some or all of the following operating risks:

| | o | the
difficulty of assimilating the acquired operations and personnel;
| | - | ---------------------------------------------------------------------

| | o | the
potential disruption of Baran's ongoing business;
| | - | -----------------------------------------------------

| | o | the
diversion of management's time and other resources;
| | - | -------------------------------------------------------

| | o | the
 possible  inability  of  management  to maintain  uniform  standards,  controls,
 procedures  and          policies;
| | - | -------------------------------------------------------------------------------------------------------------------------

| | o | the
possible difficulty of managing growth;
| | - | -------------------------------------------

| | o | the
risks of entering markets in which Baran has little experience; and
| | - | -----------------------------------------------------------------------

| | o | the
potential impairment of relationships with employees or customers.
| | - | ----------------------------------------------------------------------

Government regulation and industry
standards in different countries increase Barans costs of doing business, limit its
potential markets, require cooperation with local companies, and may delay or prevent the
sale of its services.

When providing its services, Baran
must comply with regulatory requirements and industry standards in each country in which
such services are performed. The need to comply with prevailing regulatory requirements
and standards requires Baran to invest in time-consuming and expensive procedures that may
result in Barans inability to compete effectively with other service providers. For
example, employees in many countries in which Baran operates may not begin work without
first obtaining a work permit from the local authorities. The issuance of work permits is
a time-consuming process, which can delay employees ability to commence work, and
which can consequently result in Barans inability to staff a project adequately and
in a timely manner. In addition, government regulations in several countries in Western
Europe prohibit employers such as Baran from dismissing employees without advance notice
to the employees. This may result in a delay in Barans ability to remove employees
who are not performing well from working on a project.

7

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Fundamental changes in the markets
which Baran targets could reduce demand for Barans services.

Future developments in the
telecommunications, cellular, Semiconductors, biotechnology, high technology, chemical,
pharmaceutical and other industries serviced by Baran, such as budget reductions,
unavailability of funding, termination of projects and development plans, industry
consolidation and a general reduction in expansion programs, could materially adversely
affect Barans existing or potential customers. This could reduce the demand for
Barans products and services. As a result, Baran may be unable to effectively market
its services to potential customers in the industries it targets. In addition, cuts in
government budgets that are allocated to infrastructure projects in which Baran
participates may adversely affect Barans operational results. Many of the markets
served by Baran, including the Semiconductors and communications markets, are currently in
the midst of recessions. If this economic climate persists, it could have a material
adverse effect on Barans business and results of operations. In fiscal 2002,
Barans Semiconductors Division and Communications Division were responsible for 13%
and 38% respectively, of Barans overall revenues.

Part of Barans success is
dependent on continued growth in the deployment of wireless networks.

The wireless telecommunications
industry experienced significant growth in Israel, the United States and internationally
throughout the 1990s. More recently, access to capital markets has become more
difficult and more expensive for many of the carriers, thereby slowing their capital
spending commitments. Presently, there is significant uncertainty related to the economies
of the United States, Israel and other countries throughout the world. If the rate of
growth in the telecommunications industry continues to slow or remains stagnant, and
carriers continue to reduce their capital investments in wireless infrastructure or fail
to expand into new territories, Barans business and results of operations will
suffer. The pace of network deployment has sometimes been slower than expected due in part
to difficulties experienced by holders of licenses in raising the necessary financing, and
there can be no assurance that future bidders for licenses will not experience similar
difficulties. There has also been substantial regulatory uncertainty regarding continued
ownership of wireless licenses awarded by the U.S. government to successful bidders, and
such uncertainty has delayed network deployments. Factors such as overall economic
conditions, a slowdown in wireless subscriber growth, costs of integrating technologies,
as well as future legislation, legal decisions and regulations, may slow or delay the
deployment of wireless networks, which, in turn, could harm Barans business, results
of operation and financial condition.

The consolidation of equipment
vendors or carriers could adversely affect Barans communication business.

In recent years, the wireless
telecommunications industry has been characterized by significant consolidation activity.
Consolidation of equipment vendors or carriers could:

| | o | lead
to a greater  ability  among  equipment  vendors  or  carriers  to provide a full line of
network          services and could  simplify  integration  and  installation,  which may
lead to a reduction in demand          for Baran's services;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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| | o | reduce
the number of Baran's  current or potential  customers,  which could increase their
 bargaining          power; and
| | - | --------------------------------------------------------------------------------------------------------------------------

| | o | create
competitive  pressures whereby a particular  customer may request Baran's exclusivity
within in          a  particular  market  or  other  terms  and  conditions  which  Baran
 may  not be able to or want to          accommodate.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Any of the foregoing developments
could adversely affect Barans business, results of operation and financial
condition.

Barans lengthy sales cycle
makes it difficult to anticipate the timing of sales.

The sales cycle associated with the acquisition
of Barans services related to projects is lengthy, with the time between the making
of an initial proposal to a prospective customer and the signing of a services agreement
ranging between 3 and 12 months. Barans services for its customers are relatively
complex, and their purchase generally involves a significant commitment of capital, with
attendant delays frequently associated with large capital expenditures and implementation
procedures. Moreover, the purchase of such services typically requires coordination and
agreement across a potential customers entire organization. Delays associated with
the sales cycle for Barans services may reduce Barans revenues in a particular
period without a corresponding reduction in its costs.

The provision of services by Baran
on a turnkey project basis creates special risks.

Baran performs a significant and
increasing portion of its services on a turnkey project basis. In providing services in
this manner, Baran serves as a single contact point for the design, planning, quality
control and delivery of the applicable project and is responsible for the quality of work
performed by subcontractors and materials provided by suppliers. Any defaults in the
performance of the work by its subcontractors or defects in the materials provided by such
suppliers may expose Baran to claims, including failure to meet timetables for the
completion of projects or failures to adhere to quality standards committed to by Baran.
In addition, Baran typically provides a 12 to 24 month warranty to its customers, pursuant
to which it may have additional liability. Projects performed by Baran on a turnkey basis
typically generate lower gross margins due to increased expenses servicing a customer in
this manner. Baran anticipates that the number of projects it performs on a turnkey basis
will continue to increase.

9

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The high profile nature of the
projects in which Baran is involved may result in increase costs or claims.

Many of our engagements involve
projects that are significant to the operations of our customers businesses. Our
failure to meet a customers expectations in the planning or implementation of a
project or the failure of unrelated third party contractors to meet project completion
deadlines could damage our reputation and adversely affect our ability to attract new
business. We frequently undertake projects in which we guarantee performance based upon
defined operating specifications or guaranteed delivery dates. Unsatisfactory performance
or unanticipated difficulties or delays in completing such projects may result in a direct
reduction in payments to Baran, or in the payment of damages by us, which could harm our
business, results of operations and financial condition.

Government grants received by
Baran for research and development expenditures restrict its ability to manufacture some
products and transfer technologies outside of Israel and requires Baran to satisfy
specified conditions. If Baran fails to satisfy these conditions, it may be required to
refund grants previously received together with interest and penalties, and may be subject
to criminal charges.

From 1998 to 2002, Baran received
grants from the Government of Israel through the Office of the Chief Scientist of the
Ministry of Industry and Trade for the financing of a portion of Barans research and
development expenditures in Israel, the remain outstanding Baran has to pay back is an
approximate amount of NIS 4 million ($0.85 million), which shall constitute 2%-3% of the
incomes, if any. The terms of these grants prohibit Baran from manufacturing products or
transferring technologies developed using these grants outside of Israel without special
approvals. Even if Baran receives approval to manufacture the products developed by it
outside of Israel, they may be required to pay an increased amount of royalties, which may
be up to 300% of the grant amount plus interest, depending on the manufacturing volume
that is performed outside of Israel. Transfer of the developed technologies out of Israel
may be prohibited altogether. This restriction may impair Barans ability to
outsource manufacturing or engage in similar arrangements for those products or
technologies. In addition, if Baran fails to comply with any of the conditions imposed by
the Office of the Chief Scientist, it may be required to refund any grants previously
received together with interest and penalties, and may be subject to criminal charges. In
recent years, the Government of Israel has accelerated the rate of repayment of Office of
Chief Scientist grants and may further accelerate repayments in the future.

Under current Israeli law, Baran
may not be able to enforce covenants not to compete and therefore may be unable to prevent
its competitors from benefiting from the expertise of its former employees.

Baran currently has non-competition
agreements with most of its employees. These agreements prohibit such employees, if they
cease working for Baran, from directly competing with Baran or working for its
competitors. Recently, Israeli courts have required employers seeking to enforce
non-compete undertakings of a former employee to demonstrate, among other things, that the
competitive activities of the former employee will harm one of a limited number of
material interests of the employer that have been recognized by the courts, such as the
secrecy of a companys confidential commercial information or its intellectual
property. If Baran cannot demonstrate that harm would be caused to it, it may be unable to
prevent its competitors from benefiting from the expertise of its former employees.

10

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# Barans quarterly
operating results may fluctuate.

Baran's quarterly operating results may fluctuate as a result of many factors, including:

| | o | the
size and timing of significant customer projects;
| | - | -----------------------------------------------------

| | o | increased
competition;
| | - | ----------------------

| | o | cancellations
of significant projects by customers;
| | - | ---------------------------------------------------

| | o | changes
in operating expenses;
| | - | ------------------------------

| | o | changes
in Baran's strategy;
| | - | ----------------------------

| | o | personnel
changes;
| | - | ------------------

| | o | foreign
currency exchange rates; and
| | - | ------------------------------------

| | o | general
economic and political factors.
| | - | ---------------------------------------

Given Barans reliance on a
limited number of significant customers and projects, its quarterly results may be
significantly affected by the size and timing of projects and its progress in completing
such projects. The placement of customer orders has from time to time been concentrated in
specific quarterly periods due to the time requirements and budgetary constraints of its
customers. Although Baran recognizes revenue as projects progress, progress may vary
significantly from project to project, and variations in quarterly revenue are sometimes
attributable to the timing of initial order placements.

The market for Barans shares
may be harmed due to the fact it is an Israeli company.

Certain investors may be reluctant to invest
in Baran due to the fact Baran is an Israeli company which may adversely affect the price
of its shares. Even investors that are willing to invest in Israeli companies may be
unwilling to invest in Baran because it provides services in Israel and may be adversely
affected by the political situation that currently exists in Israel in particular and in
the Middle East in general.

11

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Conditions in Israel affect
Barans operations and may limit its ability to provide and sell its services.

Baran is incorporated under Israeli
law and its principal offices and the majority of its facilities and employees are located
in Israel. Political, economic and military conditions in Israel directly affect
Barans operations. Since the establishment of the State of Israel in 1948, numerous
armed conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying in degree and intensity, has led to security and economic problems for
Israel. Despite the progress towards peace between Israel and its Arab neighbors in the
last two decades, the future of these peace efforts is uncertain. Since October 2000,
there has been a significant increase in violence primarily in the West Bank and Gaza
Strip and negotiations between Israel and Palestinian representatives have ceased. Any
future armed conflict, political instability or continued violence in the region would
likely have a negative effect on Barans business condition, harm its results of
operations and adversely affect the share price of publicly traded Israeli companies such
as Baran. Furthermore, several countries still restrict trade with Israeli companies,
which may limit Barans operations in those countries. These restrictions may have an
adverse impact on Barans operating results and financial condition.

Barans business may be
adversely affected by the decrease of the Israeli Banks ranking

Baran obtains short and long term
loans from Israeli Banks, and may borrow larger amounts in the future for the purpose of
financing large monetary scope projects. Any decrease in the ranking of Israeli banks may
adversely affect Baran in that securing such additional credit may become more difficult.

Barans operations could be
disrupted as a result of the obligation of key personnel in Israel to perform military
service.

Generally, all male adult citizens
and permanent residents of Israel under the age of 54 are obligated to perform military
reserve duty annually unless exempt. Many of Barans officers and employees are
currently obligated to perform annual reserve duty. Barans operations could be
disrupted by the absence for a significant period of a number of its officers or employees
due to military service. Any disruption to Barans operations could materially
adversely affect the development of its business and its financial condition.

The termination or reduction of
certain government programs and tax benefits in Israel could adversely affect Barans
overall effective tax rate.

Baran benefits from certain Israeli
government programs and tax benefits, which benefits, between the years 1998 and 2002,
have amounted to approximately NIS 2.5 million. For example, some of Barans
subsidiaries that are designated as approved enterprises receive tax benefits
under the Israeli Law for Encouragement of Capital Investments. To be eligible for these
programs and tax benefits, Barans subsidiaries must meet certain conditions, such as
those relating to the location of Barans subsidiaries facilities, location of
certain subcontractors and the extent to which the subsidiaries may outsource portions of
their work. If Barans subsidiaries fail to meet these conditions, Baran could be
required to refund tax benefits already received in the amount of NIS 2.5 million,
including interest. Additionally, some of these programs and the related tax benefits are
available to Baran for a limited number of years, and these benefits expire from time to
time.

12

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Any of the following could result in a material increase in the overall effective tax rate of Baran:

| | o | some
 programs may be  discontinued  or may not be available at their  current  levels,  such
that the          Government  of Israel may reduce or eliminate the tax benefits
 available to "approved  enterprises'';          and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Baran's
 subsidiaries  may be unable to meet the  requirements  for  continuing  to  qualify  for
some          incentive tax programs.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

Upon the expiration of a particular
benefit, Baran may not be eligible to participate in a new program or qualify for a new
tax benefit that would offset the loss of the expiring tax benefit.

The rights of shareholders of
Israeli corporations differ in some respects from those of shareholders of United States
corporations.

Baran is incorporated under the laws
of Israel. The rights of holders of ordinary shares are governed by Israeli law, including
the Israeli Companies Law, and by Barans Articles of Association. These rights
differ in some respects from the rights of shareholders in corporations incorporated in
the United States. See Item 10 below.

The new Israeli Companies Law may
cause uncertainties regarding corporate governance.

The new Israeli Companies Law, which became
effective on February 1, 2000, has resulted in significant changes to Israeli corporate
law. Because this new law has been recently enacted, uncertainties may arise regarding
corporate governance in some areas. For example, the law obligates a controlling
shareholder, defined as a shareholder who knows that its vote can determine the outcome of
a shareholder vote and any shareholder who, under Barans articles of association,
can appoint or prevent the appointment of an office holder, to act with fairness towards
Baran. The Israeli Companies Law does not specify the substance of this duty and there is
no binding case law that addresses this subject directly. These and other uncertainties
could exist until this law has been adequately interpreted, and these uncertainties could
adversely affect Barans ability to engage in various types of corporate transactions
and inhibit other corporate decisions.

13

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It may be difficult to enforce a
United States judgment against Baran, its officers and directors and to assert United
States securities laws claims in Israel, or to serve process on such officers or
directors.

Baran is incorporated in Israel. The
majority of its executive officers and directors are not residents of the United States,
and the majority of its assets and the assets of these persons are located outside the
United States. Therefore, it may be difficult for a shareholder, or any other person or
entity, to enforce a United States court judgment based upon the civil liability
provisions of the United States federal securities laws in an Israeli court or in a United
States court against Baran or any of these persons or to effect service of process upon
these persons. Additionally, it may be difficult for a shareholder, or any other person or
entity, to assert United States securities law claims in original actions instituted in
Israel. Israeli courts may refuse to hear a claim based on a violation of United States
securities laws because Israel is not the most appropriate forum in which to bring such a
claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that
Israeli law and not United States law is applicable to the claim. If United States law is
found to be applicable, the content of applicable United States law must be proved as a
fact in the court proceeding which can be a time-consuming and costly process. Certain
matters of procedure will also be governed by Israeli law. There is little binding case
law in Israel addressing the matters described above.

Inflationary conditions in Israel
may result in Baran being forced to pay higher prices for the goods and services it needs.

Recently, Israel has been suffering
from a high inflation rate (the yearly inflation rate grew from1.4% in 2001 to 6.5% in
2002). Such inflation has resulted in an increase in prices and an increased unemployment
rate. These factors may materially adversely affect Baran in that Baran may be required,
in an inflationary economy, to pay substantially higher prices to compensate personnel and
obtain the materials that it needs to complete projects for its customers, and it may not
have adequately reflected those costs in the pricing for some of its projects. Similarly,
Baran could be adversely affected by inflation in the United States or other countries in
which it operates.

Since most of Barans expenses
relate to personnel costs, changes in employees compensation due to cost of living
adjustments or other market conditions may increase the costs incurred by Baran in
providing its services, without a corresponding increase in its revenues.

Because Baran is a foreign private
issuer, it is required to provide less information to its shareholders than a United
States public issuer is required to provide.

As a foreign private issuer under the
United States securities laws, Baran currently is not subject to the proxy rules of
Section 14 of the Securities Exchange Act of 1934 (the Exchange Act). This
means that Baran is not obligated to provide proxy materials to its security holders,
including United States residents, in connection with annual and special meetings of
holders of Baran ordinary shares. In addition, the officers, directors and principal
shareholders of Baran are not subject to the insider short-swing profits recovery and
reporting obligations of Section 16 of the Exchange Act. This means that the officers,
directors and principal shareholders of Baran are not required to is report their
transactions in the ordinary shares of Baran, nor are they subject to potential
short-swing trading liability to Baran if they buy and sell Baran ordinary shares within a
six-month period.

14

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In addition, while foreign private
issuers are required to file an annual report on Form 20-F, which is comparable to the
Annual Report on Form 10-K which United States public issuerd are required to file, there
is no comparable form for foreign private issuers to the Quarterly Report on Form 10-Q
required to be filed by United States public issuers. A foreign private issuer such as
Baran is required to furnish material information regarding its business and operations
that it makes or is required to make public pursuant to the law of the jurisdiction of its
domicile or in which it is incorporated or organized, files or is required to file with a
stock exchange on which its securities are traded and which was made public by that
exchange, or distributes or is required to distribute to its security holders.

Holding shares of a foreign issuer
such as Baran has certain tax and other implications.

Transactions in shares of a foreign
issuer have tax implications that do not exist when investing in shares of a domestic
issuer. For example, dividends paid by an Israeli company to shareholders residing outside
Israel are currently subject to withholding of Israeli income tax at a rate of up to 25%.
In the case of Baran, the applicable withholding tax rate will depend on the particular
facilities which have generated the earnings that are the source of the dividend and,
accordingly, the applicable rate may change from time to time. The rate of tax withheld on
Barans dividends has typically been at 25%. United States persons who become owners
of Baran ordinary shares must include the entire amount of any dividend paid by Baran with
respect to the Baran ordinary shares (not reduced by any Israeli income taxes withheld) in
their gross income for United States federal income tax purposes. United States
corporations holding Baran ordinary shares will not be entitled to the 70% dividends
received deduction under the United States Internal Revenue Code. Residents of the United
States generally will have withholding tax in Israel deducted by Baran from dividend
payments. Such persons may be entitled to relief from United States taxation under the
Code, using the tax either as a reduction of taxable income or as a dollar-for-dollar
credit against United States tax subject to limitations.

15

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Fluctuations in foreign currency
exchange rates could adversely affect Barans business.

A significant portion of Barans
operating costs are incurred outside the United States, and therefore fluctuations in
exchange rates between the currencies in which such costs are incurred and the U.S. dollar
may result in a decrease in revenues or an increase in operating expenses as measured in
U.S. dollars. Foreign currency exchange rates have recently fluctuated significantly as
compared to prior years (the lowest rate in 2002 has been NIS 4.437 per $1 and the highest
rate has been NIS 4.994 per U.S. $1). Currently, most of Barans income is received
and its costs of operations are incurred in New Israeli Shekels. Accordingly, the income
and costs of Baran from its operations in Israel, as expressed in dollars, could be
adversely affected by the extent to which any devaluation of the Israeli currency in
relation to the dollar is not offset by the rate of inflation in Israel (or is offset on a
lagging basis). As a result of this differential, from time to time Baran experiences
increases in the costs of its operations in Israel, as expressed in dollars, which could
in the future have a material adverse effect on the business, results of operations and
financial condition of Baran. Baran currently does not hedge its currency exposure through
the use of any financial instruments. The imposition of exchange or price controls or
other restrictions on the conversion of foreign currencies could also have a material
adverse effect on the business, results of operations and financial condition of Baran.

Barans stock price has been
and likely will continue to be volatile, which may cause the value of your investment to
decline.

The market prices for securities of
companies quoted on the Nasdaq National Market, including Barans, have in the past
been, and are likely to continue in the future to be, very volatile. The Nasdaq Composite
Index has declined significantly since April 2000 and remains very volatile. As set forth
in greater detail below see item 9, the market price of Baran ordinary shares both in the
Tel Aviv Stock Exchange and on the Nasdaq National Market has been, and likely will
continue to be subject to substantial volatility depending upon many factors, many of
which are beyond Barans control, including:

| | o | announcements
 regarding the  acquisition of  technologies or companies by Baran or its competitors or
         by Baran's customers;
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| | o | technological
innovations or new products developed by Baran or its competitors;
| | - | --------------------------------------------------------------------------------

| | o | issuance
of new or changed securities analysts' reports and/or recommendations applicable to Baran;
| | - | ---------------------------------------------------------------------------------------------------

| | o | additions
or departures of Baran's key personnel;
| | - | -------------------------------------------------

| | o | operating
losses by Baran;
| | - | --------------------------

| | o | actual
or anticipated  fluctuations in Baran's  quarterly  financial and operating  results and
degree          of trading liquidity in its shares;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | o | continued
economic uncertainty in Israel; and
| | - | ---------------------------------------------

| | o | continued
instability in the Israeli political and security situation.
| | - | ----------------------------------------------------------------------

16

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One or more of these  factors  could  significantly  harm Baran's  business and cause a decline in the price of
its ordinary  shares in the public market.  Securities  class action  litigation has often been brought against
companies  following  periods of volatility in their stock prices.  Any  securities  litigation  claims brought
against Baran could result in substantial expense and divert management's attention from Baran's business.

ITEM 4. INFORMATION ON THE COMPANY

History and Development of the Company

The Baran Group Ltd. was incorporated in Israel as a private company on April 23, 1990. Baran is a global
provider of engineering, technology and construction solutions. Baran specializes in handling complex,
challenging and unconventional projects and delivering creative solutions to address clients' individual
needs. Baran serves a broad range of industries through six professional divisions: Communications,
Construction, Consulting, Industrial, Semiconductors and Technology & Investments. Each division utilizes the
services of a number of subsidiaries and/or affiliated companies (please see a listing of such entities
below). Unless otherwise indicated, when the term "Baran" is used throughout this Annual Report, it shall
mean The Baran Group Ltd., together with its subsidiaries and affiliates. Baran's principal executive offices
are located in the Baran House, 8 Omarim St. Industrial Park, Omer 84965, Israel, and its telephone number is
972-8-6200-200 and its worldwide web site is located at www.barangroup.com.

On April 8,  1992,  Baran  registered  its  shares  for  trading  on the Tel Aviv  Stock  Exchange  and  raised
approximately  NIS 16.7  million (in 1992 $6 million) in an initial  public  offering of its shares.  Following
the initial  offering of its shares,  Baran was involved  primarily in providing  engineering,  procurement and
construction  management  services  for various  manufacturing  companies,  and provided  consulting  and human
resources  services for the  day-to-day  operations  of existing  plants.  The  proceeds  raised in the initial
public  offering of Baran's shares  allowed Baran to implement a strategic  plan for expanding its  engineering
activities as well as to develop  expertise and perform projects in new areas,  such as  infrastructure  design
and  implementation  for  the  telecommunications   industry  and  design  and  construction  of  manufacturing
facilities in the Semiconductors, biotechnology, pharmaceuticals, petroleum and gas industries.

Baran  further  implemented  its  strategic  plan  by  establishing   subsidiaries  and  acquiring   businesses
specializing  in the group's  fields of  operations,  as well as other areas into which Baran decided to expand
its operations,  and by investing in a variety of technologies and technology  ventures.  Since 1992, Baran has
considerablyexpanded its scope of operations. In 1997 Baran was included in the Tel Aviv 100 index.

At the end of 1999,  Baran underwent  strategic  internal  restructuring,  pursuant to which it reorganized the
group's  operations by  separating  its various  companies  into six  divisions  with each  division  operating
independently under the instruction and supervision of that group's management.

17

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Baran  plans to expand its  operations  both in the types of  projects  with which it is  involved  and through
geographical  expansion.  As to its first  objective,  Baran  intends to intensify its  involvement  in turnkey
projects,  including  those that are on a building,  operation  and  transfer of ownership  (B.O.T.)  basis and
those that are on a building,  operation and  ownership  (B.O.O.)  basis.  As to its second  objective,  and in
light of the  substantial  reduction in overall  investments in Israeli  industry,  Baran intends to expand its
international  operations to approximately  50% of its total  operations by 2004,  compared with 9% in 2001 and
approximately  1% in 2000. It plans to perform  projects in regions  outside  Israel,  such as in the Far East,
Eastern Europe and the United States.  Baran,  through its subsidiaries and affiliates,  is currently active in
Germany,  Thailand,  the United  States and several  other  countries.  In order to advance its goal of further
penetrating  foreign  markets,  including  the United  States,  in the first half of 2001 Baran  separated  its
business development unit from the operations of its various divisions.

In November 2002,  Baran  completed its acquisition of o2Wireless  Solutions Inc. a corporation  existing under
the laws of the State of Georgia.  The acquisition was structured as a merger and the surviving  entity,  Baran
Telecom, Inc., maintains an office in Cumming, Georgia.

In January 2003,  Baran acquired of 50% of Elco  (Thailand)  Ltd., a Thailand based  company.  Elco  (Thailand)
Ltd.  specializes  in the energy field and the  acquisition  will help Baran expand its  activities  to the Far
East.

In the beginning of 2003,  Baran acquired 50% of In Time Software  Systems Ltd. which  specializes in providing
solutions  which improve  costumer  profitability  and operating  performance  through  expert  systems,  image
analysis  systems and controls  systems.  The services  offered by In time  Software are  complementary  to the
services currently rendered by Baran's Industrial division.

In the beginning of 2003, Baran and two partners  established  Yesodot Baraniv Ltd.,  which  specializes in the
communications field and acts as a performing contractor. Baran holds 80% of Yesodot Basrniv Ltd.

As a result of its efforts to expand,  Baran now has offices in Israel,  the United States,  England,  Germany,
The Netherlands, Romania and Thailand, and employs approximately 1,675 individuals worldwide.

Business Overview

Baran is a global  engineering  and  contracting  firm and is a market  leader  among  Israeli  companies  that
provide engineering  services.  Its core business is providing  engineering,  construction,  project management
and consulting  services,  either as full project and engineering solution on a turnkey basis or as tailor-made
engineering,  procurement and construction management services, to the telecommunications  industry and various
other industry  sectors.  Baran's  services are provided through six divisions:  Communications,  Construction,
Consulting, Industrial, Semiconductors and Technology & Investments.

18

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| | o | The
 Communications  division provides fast track  implementation of integrated network
solutions on a          turnkey or customized services basis for the design,  deployment
and maintenance of  telecommunication          network infrastructure,  including
equipment installations,  to the global telecommunication  industry          in general
with specific  expertise in wireless  networks.  This  division  also  provides
 outsourced          integrated  network  solutions  for the wireless  telecommunications
 industry  through the  planning,          designing,  deployment,  maintaining  and
 optimizing  of networks  for  wireless,  wireless  data and          broadband.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The
Construction  division implements civil engineering,  construction and infrastructure
 projects in          variety  of  areas,  including  general  construction,
  transportation  (including  roads,  railways,          seaports and airports),security
and defense infrastructure and regional planning.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The
Consulting  division  consists of a group of  subsidiaries  and affiliated  companies,
 including:          Tefen  Industrial  Engineering  and  Systems  Analysis  Ltd.,  a
 company  operating  in the  field of          industrial and management  engineering
 and plant  administration,  whose shares are traded on the Tel          Aviv Stock
 Exchange;  and Advanced  Logistics  Development  Ltd., a company that  specializes  in
the          development of software tools for  reliability  and quality  control,  whose
shares also are traded on          the Tel Aviv Stock Exchange.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The
Industrial  division offers  engineering and detailed design,  construction and project
management          services for process-oriented  industries such as chemicals,
 petrochemicals,  energy,  biotechnology,          pharmaceuticals and food processing.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The
Semiconductors  division specializes in supplying  integrated  solutions for design,
 construction          and  equipment  installation  of  Semiconductors,   biotechnology
 and  pharmaceutical   manufacturing          facilities and production  lines.  This
division  consists of  Meissner-Baran  Ltd.,  which is a joint          venture with M&W Zander,
 a German  engineering  firm that  specializes in the design and construction          of
"clean room'' facilities for the Semiconductors and pharmaceutical industries.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The
 Technologies  and  Investments  division  develops,   produces  and  sells  unique
 products  and          technologies,  such as products based on  piezo-electric
 switches and cellular  parking  systems.  In          addition,  this division  operates
in the fields of recycling  organic waste and livestock  feed,  and          develops and
finances          real estate projects such as commercial malls,  office buildings and
build-to-suit  communication base          stations, being implemented by other companies
of the group.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

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Although Baran conducts its
activities through separate divisions, Barans management considers the divisions and
the companies operating within the divisions as an integrated, consolidated business
deriving its revenues primarily from consulting and engineering services. The division
structure merely affords Baran a convenient way to market its services based upon the type
of customer and the type of services being rendered. Baran does not restrict the flow of
funds or resources (including personnel) from one division or company to another, except
where a restriction is imposed under local legal or tax laws.

The list below set forth Baran
Groups subsidiaries, proportionately consolidated companies, proportionately
consolidated and associated companies, as of the date of this Annual Report 2003:

# BARAN GROUP LTD.

|Name of company                                                                         | Percentage
shareholding
|--------------------------------------------------------------------------------------- | -----------------------
|Subsidiaries:                                                                           |                        
|Baran Projects Construction Ltd. ("Baran Construction")                                 | 100                    
|Baran Inbar Projects (1987) Ltd. (Inbar Projects) - 99% owned                          
|directly and 1% owned through Baran Construction                                        | 100                    
|Baran Advanced Technologies (1986) Ltd. ("Baran Technologies")                          | 100                    
|Baran Technology Products Management and Marketing Ltd. ("Baran Management")            | 100                    
|Baran Industries (91) Ltd. ("Baran Industries")                                         | 100                    
|Baran International Energies Ltd. ("Baran Energies")                                    | 100                    
|Baran - Raviv Telecom Ltd. ("Baran Raviv") - 50% owned directly and 50% owned through   | 100                    
|Baran Construction                                                                      |                        
|Yesodot Barniv Ltd. (since 2003)                                                        | 80                     
|Baran Infrastructure & Construction Ltd. ("Baran Infrastructure")                       | 100                    
|Baran Engineering and Projects (1983) Ltd. ("Baran Engineering")                       
|(formerly - Baran Petrochemical Engineering Ltd.)                                       | 100                    
|Enco Projects Systems (1997) Ltd. ("Enco") - through Baran Industries                   | 100                    
|A. Etzion Consultants and Engineers Ltd. ("A. Etzion") - through Enco                   | 100                    
|Mobipower Ltd.                                                                          | 63.64                  
|                                                                                        |                        
|Mobipower B.V. - through Mobipower Ltd.                                                 | 100                    
|B & W Projects Inc. ("B&W")                                                             | 100                    
|BMEC Limited - through B&W                                                              | 100                    
|Barantec Inc. ("Barantec") - through Baran Technologies                                 | 100                    
|Notev Management and Operation Ltd. ("Notev")                                           | 100                    
|H.A.J.I. Ltd. ("H.A.J.I".) - through Baran Energies                                     | 100                    
|Industrial Centers E.O.D. Ltd. ("E.O.D.") - through Baran Energies                      | 50(3)                  
|Baran Group B.V. ("Group B.V.") - through Baran Group                                   | 100                    
|Baran Raviv (Netherlands) International B.V. ("Baran Raviv B.V.") - through Baran Raviv | 100                    

20

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|                                                                          |         
|------------------------------------------------------------------------- | --------
|Baran Raviv GmbH - through Baran Raviv B.V                                | 100     
|LEAD Control Ltd.                                                         | 50.1    
|Westmontage Kabel und Netzwerk GmbH ("Westmontage") -                    
|through Group B.V                                                         | 54.9    
|Nejeva Holding B.V - through Group B.V                                    | 50      
|Baran Raviv Telecom (Thailand) Limited - through Group B.V                | 100     
|Baran Telecom Inc.                                                        | 100     
|Proportionately Consolidated Companies:                                  
|Nes-Pan Ltd. ("Nes-Pan") - through Baran Management                       | 50      
|A.R. - A.D.Y.R. Constructions Ltd. ("A.R. - A.D.I.R.")                    | 50      
|Meissner Baran Ltd. ("Meissner Baran") - through Baran Industries         | 46.5(1) 
|Elco (Thailand) Ltd. - through Baran Engineering(since 2003)              | 50      
|InTime - Software Systems LTD. - through Baran Engineering (since 2003)   | 50      
|Green Anchors Ltd. - through Nes Pan                                      | 25      
|Associated Companies:                                                    
|Tefen Industrial Engineering and System Analysis Ltd. ("Tefen") - through
|Baran Industries                                                          | 31.19   
|A.L.D. - Advanced Logistics Developments Ltd. (hereafter - A.L.D.)        | 55.32(2)
|(1)Percentage of control -                                               
|50%                                                                      
|(2)Percentage of control -                                               
|33.33%                                                                   
|(3)Percentage of control-                                                
|60%                                                                       |         

# Services Provided by
Baran

Baran offers its customers
engineering and consulting services, which can be divided into three main categories:

| | o | Engineering,
  Procurement  and  Construction  Management  (EPCM)  Services.  This  category  includes
         engineering  services,   procurement  services,  and  construction  management
 services.  Engineering          services  include  preparing  engineering  drawings  and
 designs  for  large-scale   process-oriented          production          facilities,
 as well as providing process  engineering,  civil  engineering,  electrical
 engineering,          piping  design,  equipment  design,  mechanical  engineering  and
other types of specific  engineering          services.  Procurement  services include
performing cost and other comparisons for assisting customers          in  selecting
  subcontractors   and  suppliers,   preparing   proposal  and  bid   documentation  for
         subcontractors  and  suppliers  and  providing  technical  assistance  for the
 placement  of  orders.          Construction  management  services include  coordination
 between the various elements of the project,          supervision of suppliers and
         contractors,  scheduling  construction,   maintenance  and  other  activities,
 budget  control,  site          management,  quantities inspection, invoice approval,
and commissioning and certification.  The actual          services  provided  under  this
 category  may vary  and are  tailored  to the  specific  project  and
         customers'  requirements.  Baran provides its customers with  end-to-end
 solutions to implement their          projects,   while   allowing  the  customer  to
 maintain  a  direct  legal   relationship   with  its          subcontractors and
suppliers.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | o | Turnkey
 Services.  This  category  provides  the  customer  with a complete  end-to-end
 solution for          implementing complicated projects based on the customer's
 requirements.  In providing these services,          Baran serves as a single  contact
point for the customer on all aspects of a project,  from its design          and
planning through its  construction,  commissioning  and timely delivery,  and retains all
required          services from  subcontractors  and suppliers.  When providing  turnkey
 services,  Baran  typically is          responsible  for the quality of work  performed
by the  subcontractors  and the materials  provided by          the  suppliers.  Baran
also  provides  warranties  for  materials  supplied and work  performed  for a
         predetermined  period of time  (normally  between 12 and 24 months  from the
date of  delivery  of the          project). Usually Baran obtains back-to-back
warranties from its suppliers and subcontractors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Outsourced
 Engineering Services.  Baran outsources teams of engineers and technicians to customers
to          assist their  in-house  workforces  on specific  projects or  assignments.
 Typically,  the  customers          manage and supervise the assigned  teams.  All
services are provided under  framework  agreements that          stipulate the period of
time during which the services will be provided.  Contract  periods  generally
         range between  several  months and several  years.  The prices for these
services often are based upon          hourly  rates.  The services  provided by Baran in
the  framework of each project are tailored to meet          the  specific  needs of the
customer and may consist of any  combination  of services  included in the          above
categories. Ssubsidiaries of Baran which provide such services  are ISO 9001 certified.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Breakdown of Revenues by
Type of Service

EPCM services generally produce gross
margins between 17% and 29%, outsourced services typically produce gross margins between
12% and 19% and turnkey services generally produce gross margins between 7% and 14%. Even
though turnkey services generate lower margins than the other two types of services it
provides, Baran has placed more emphasis on turnkey projects in recent years, due to the
fact, that the overall profit generated from turnkey projects is generally higher than the
overall profit derived from EPCM and outsourced services.

22

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# Geographical Breakdown

In fiscal 2002, Baran derived
approximately 71% of its revenues from projects performed in Israel, approximately 21%
from projects performed in Europe, approximately 4% from the sale of products in the
United States, and approximately 4% from projects performed in Thailand. In fiscal 2001,
Baran derived approximately 91% of its revenues from projects in Israel, approximately
8.5% from projects in Europe and approximately 0.5% from sale of products in the United
States. In fiscal years 2000 and 1999, Baran derived approximately 98-99% of its revenues
from projects in Israel. This increase in the scope of activity outside of Israel is
attributable primarily to implementation of a strategic policy adopted by the groups
management to expand the groups global activities. This policy has been implemented,
among other things, through the merger completed on November 2002, between Barans
subsidiary and o2wireless Solutions Inc., the acquisition in September 2001 of Westmontage
Kable und Netzwerk GmbH, the establishment in March 2002 of Baran Raviv Telecom (Thailand)
Ltd. and the establishment in the first half of 2001 of the business development unit
which focuses, among other things, on expansion of the Barans worldwide operations.

Baran believes there is substantial
potential for growth of its business outside of Israel. In the past two years Baran has
taken steps to expend its activities outside of Israel. Today, Baran is a worldwide
company, which renders services in Asia, Europe, Africa and North America. Baran intends
to seek to continue to expand its operations outside Israel and believes that in the
foreseeable future the revenues it derives from activities outside of Israel will exceed
those derived within Israel.

# Competition

There are a number of engineering
companies that operate in Israel and provide services of the kind provided by Baran. These
competitors include Ludan Engineering Co., Tahal Consulting Engineers Ltd. and Bateman
Projects (1993) Ltd. Internationally, there are a number of engineering companies that are
substantially larger than Baran, including Bechtel Group, Ltd., Tetra Tech,Inc.,CH2M Hill
Companies Ltd., Camp Dresser & McKee Inc., URS Corporation, and AECOM Technology
Corporation. However, Baran believes that its extensive engineering capabilities, coupled
with its excellent workforce, places Baran in a position to successfully compete in the
area of engineering services for relevant projects around the world. There are many other
companies in Israel and in the United States that provide services in the consulting areas
in which Baran operates, including, Aman Organization and Management Sciences Consultants
Ltd., Relex Software Corporation, Mashik Business Promotion Research & Methods Ltd.,
Aviv Management Engineering &Information Systems Ltd., Dialog-Organizational,
Development &Training Ltd., Program Logistics Systems Ltd., Tetra Tech, Inc., Camp
Dresser & McKee Inc., and AECOM Technology Corporation. Many other companies in Israel
provide services of the kind provided by Baran Raviv Telecom Ltd. Significant Israeli
competitors of the communications division are the subsidiaries of H. Mar Industries Ltd.
Internationally, there are many companies that provide services of the kind provided by
the Communications division, including Bechtel Group, Inc., Tetra Tech, Inc., Camp Dresser
& McKee Inc., and Quanta Services, Inc.

23

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The network infrastructure services
marketplace in the US is highly competitive. Numerous network infrastructure services
providers services offer services and solutions comparable to those provided by
Baran Telecom Inc. The ongoing introduction of new technologies and products, new
alternatives for the delivery of wireless voice and data services, and regulation foster a
dynamic, rapidly changing environment. Growth in wireless customers and voice traffic on
wireless networks, introduction of new technologies, the cost and timing of implementing
those technologies, the availability and cost of capital to finance network expansion,
regulation, and general economic conditions all influence demand for network
infrastructure services. These conditions have a significant effect on competitive
conditions and the success of market participants, including this Baran Telecom.

In most markets in which Baran
Telecom operates, we compete with:

| | o | Wireless
 carriers and tower  companies,  and  equipment  suppliers who employ  in-house
 personnel to          provide network infrastructure services;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Local,
national, and multi-national engineering firms;
| | - | ------------------------------------------------------

| | o | Larger
companies serving regional, national, and international markets; and
| | - | ---------------------------------------------------------------------------

| | o | Smaller
companies providing specialized services to local markets.
| | - | ------------------------------------------------------------------

Baran competes for new projects based
primarily on its ability to deliver a full range of network infrastructure services at
competitive prices. Baran Telecom strives to capture new business opportunities by
offering competitively priced bundles of services that provide our customers a single
source for several services. In this way Baran Telecom can offer customers economies and
efficiencies that may be lost when one supplier provides engineering services, another
site development services, and a third construction services. There are a number of
communication companies that operate in US and provide services of the kind provided by
Baran. These competitors include: AFL Telecommunications, Wireless Facilities Inc.,
LCC International, SBA Communications Corporation and Tetra Tech.

# Dependence on Suppliers
and Customers

Baran is not dependent on a single
supplier or customer, mainly due to the variety and geographical locations of its
activities. However, every year Baran performs large- scale projects for a limited number
of customers that comprise a significant portion of Barans revenues and net income.
In the fiscal 2002, Baran had three major customers that comprised approximately 21.4% of
Barans aggregate revenues. Aggregate revenues from Barans three major
customers constituted approximately 55% and 71% of Barans aggregate revenues for
fiscals 2001, 2000 respectively. The decrease in the percentage of aggregate revenues from
major customers is attributable primarily to the termination of a large-scale project
performed for a major customer of the Communications division, and to the completion of a
large-scale project performed for a major customer in the Semiconductors division.

24

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# Organizational Structure
and Main Activities of Each Division

Communications Division 
The Communications division employs
extensive know-how and experience in providing fast rollout turnkey solutions and
engineering services for planning, designing and deployment of telecommunication network
infrastructures, installation of telecommunications equipment and other
telecommunications-related projects in the global telecommunication markets. Baran
provides integrated network solutions for large-scale infrastructure projects in the
fields of cellular networks, microwave backbone networks, metropolitan line networks,
switches and communication centers and control hubs. This division offers its customers
comprehensive end-to-end solutions and services covering every aspect of the project, from
project definition to feasibility studies, design and engineering, site acquisition,
zoning, permitting, construction, equipment installation, commissioning, integration and
maintenance. This division also provides outsourced integrated network solutions to the
telecommunications industry. Its services include network planning, design, deployment and
maintenance. It customizes its services to fit individual customer needs by offering both
bundled and unbundled network solutions.

The Communications division maintains
offices in Israel and in the US. Baran Raviv Telecom Ltd., an Israeli company, is the
largest company in the division. This division also maintains offices in Germany and the
Asian Pacific region in order to provide services to its customers worldwide. The German
offices were established through the acquisition, in September 2001, of Westmontage Kable
und Netzwerk GmbH, a leading German company with over 40 years of experience in the
communications infrastructure market. The Asian-Pacific offices were established in
Thailand through the incorporation in March 2002 of Baran Raviv Thailand. The Northern
America offices were established in November 2002 as a result of the merger with
o2wireless Solutions Inc., which is now, called Baran Telecom Inc.

In Israel, the Communications
division provides a wide range of services to all three cellular carriers: Partner
Communications Company Ltd., Cellcom Israel Ltd. and Pelephone Communications Ltd. During
the year 2001, The Communications division completed a turnkey project for nationwide
deployment of DBS Satellite Services (1998) Ltds services in Israel, which included
establishing the first satellite TV infrastructure layout and customer service centers in
the country and generated more than NIS935.3 (million $ 197.5 million) in revenues over
two years. The Communications division is also engaged a project for the implementation of
the infrastructure for Partner Communications Company Ltd.s Global System for Mobile
Communication (GSM) network in Israel. Internationally, the division had been
engaged, during 2002, with Nokia GmbH in a turnkey project for the deployment of Mobilcom
Multimedia GmbHs universal Mobile Telecommunications System (UMTS) networks in
Germany. In Thailand, Baran Raviv Telecom (Thailand) Ltd., during 2002, the division
entered into an agreement with Motorola (Thailand) Ltd. for the construction of cellular
sites in Thailand. If completed, this project would generate revenues of up to million $40
million over three years. In the year of 2002, the revenues generated from this project
were approximately NIS 38.5 million ($8 millions). In addition, the division has performed
turnkey projects for Palestinian Telecommunications Co. PLC, the telecommunication
provider in the Palestinian Authority, BASE (formerly known as KPN-Orange Ltd.) in
Belgium, and turnkey projects for two of the cellular operators in Turkey. In addition to
achieving a strong track record of numerous large-scale projects, this division has
established long-term business relationships with leading international companies such as
Deutsche Telekom AG, Alcatel Telecom Israel Ltd., Siemens AG, Arcor AG &Co., Ericsson
and Nokia. Baran is qualified as an approved subcontractor of those entities and either
currently or in the past, performs work for those entities.

26

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Construction Division The Construction division primarily
provides construction management and supervision services in civil infrastructure and
general construction projects, as well as project management services for governmental
agencies and institutions. This division engages in general construction projects on a
turnkey basis and specializes in providing the above services in the transportation area
(such as seaports, airports, railways and train stations, roads and bridges), construction
of military bases, security and defense infrastructures, production facilities, energy
centers laboratories and regional planning.

The Construction divisions two main
wholly owned subsidiaries in Israel are Baran  Projects Construction Ltd. and Baran
Infrastructure & Construction Ltd.

The Construction division also has a
one-third interest in a joint venture for the establishment of the Nachshonim
project, a turnkey project for the construction of a modern military base designed to
serve as a dry storage facility for the Israeli Defense Forces. This division assisted in
the design and construction of the Nesher cement plant in Ramla, Israel (generating
approximately NIS 46.76 million ($9.9 million) in revenues for the division over two
years), the bromine facility project for the Dead Sea Bromine Company (generating
approximately NIS 116.9 million ($24.7 million) in revenues for the division over
approximately five years),the construction of a power station in the Haifa Chemicals South
factory in Rotem Plain, Israel (generating approximately NIS 46.7 million ($10 million)in
revenues for the division over an 18-month period)and other production facilities. The
division currently is involved in the management and supervision of the construction of
the Millennium Seaport in Ashdod, Israel, which is expected to generate
approximately NIS 93.5 million ($19.7 million) in revenues over a five-year period, if
completed.

Baran also has a one-third interest
in a joint venture for the establishment of the Nachshonim project, a turnkey
project for the construction of a modern military base designed to serve as a dry storage
facility for the Israeli Defense Forces. Although the project is classified to the
Construction division, the essence of this project is the render of consulting services in
the construction field, therefore the revenues derived from this project belong to the
consulting division. Baran expects to generate approximately NIS 196.4 million ($41.5
million) in revenue from the project over a three-year period. Other customers of the
Construction division include the Israeli Ministry of Defense, the Israeli Ministry of
Industry and Trade, the Israeli Ministry of Housing and Construction, the Israeli Ports
and Railways Authority, the Israeli Department of Public Works (Maatz), the Israel
Railways, the Israel Police Force, the Israel Lands Administration, the Israeli Prison
Service, Maccabi Healthcare Services and leading food chains in Israel.

26

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Industrial Division
The Industrial division offers global
engineering and detailed design services as well as project implementation and management,
for process-oriented industries such as chemicals, petrochemicals, energy and energy
generation, biotechnology, pharmaceuticals and food processing. The division consists,
among others, of the following companies, all of which are direct or indirect wholly-owned
subsidiaries of Baran, except for Lead Control Ltd., which is 50.1% owned:

| | o | Baran
 Engineering  & Projects  (1983)  Ltd. is a  multidisciplinary  company  providing
 engineering,          procurement  and  construction  management  services and
 performing  projects on a turnkey  basis for          process oriented  industries.
 This subsidiary performs services primarily in the central and southern          regions
of Israel.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Baran
Energies  International Ltd. is an engineering  company  specializing in the fields of
refining,          petrochemicals,  natural gas and electricity  production as well as in
other energy-related  areas. It          has  executed  projects  outside  Israel and
provides a full range of global  engineering  and project          management services in
cooperation with other Baran entities.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Baran
Inbar Projects (1987) Ltd. is a  multidisciplinary  engineering  company providing
 engineering,          procurement and construction management services for industrial
projects.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Baran
 Industries  (91) Ltd.  usually acts as a turnkey  contractor  with general
 responsibility  for          projects in the high-technology  industry and in
process-oriented  industries.  It also specializes in          providing  a full
 complement  of design and  construction  management  services  for  "clean  rooms''
         environment and other complex industrial systems.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Notev
Management & Operation Ltd. provides outsourcing  operational services,  production
 management,          maintenance, quality engineering and safety and logistics
management.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Lead
 Control  Ltd. is a global  provider of design and  implementation  services as well as a
product          developer for automation and control systems for the oil, gas, water,
 chemicals,  pharmaceuticals and          biotechnology industries.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Industrial division is part of a
consortium with two other leading companies, Dor Chemicals Ltd. and Ionics Ltd., which, in
August 2002, won a bid for the planning, construction, operation and maintenance of a
desalination plant in Haifa, Israel. The expected scope of the project is approximately
NIS 426 million ($90 million). Baran will be responsible for approximately 40% of the
planning and construction activities and approximately 33%of the maintenance activities of
the project.

27

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Semiconductors Division 
The Semiconductors division
specializes in supplying integrated solutions for the design, construction and equipment
installation of Semiconductors, biotechnology and pharmaceutical manufacturing facilities
and production lines. The Semiconductors divisions projects include various aspects
of the construction and management of Semiconductors manufacturing plants, including
systems integration, engineering, plant design, implementation and installation of
high-precision equipment in a clean-room environment and other engineering,
procurement and construction management services. This division performs large-scale
projects, primarily in Israel, as well as other limited assignments throughout the world.

Baran participates in the
Semiconductors sector almost exclusively through Meissner-Baran, Ltd., an Israeli company
established in 1997 as a joint venture between Baran and M&W Zander. Meissner-Baran
has two classes of shares; one class confers the right to receive dividends, the other the
right to vote. Baran owns 50% of the voting shares and the balance are owned by M&W
Zander. Baran and M&W Zander each own 46.5% of the dividend shares; the balance is
owned by a company held by the general manager of Meissner-Baran.

The Semiconductors division has been
involved in the formation, engineering, construction and commissioning of the Tower
Semiconductors FAB2 Plant in Migdal HaEmek, Israel on a fast-track (12 months)
turnkey basis. The first phase of this project was completed at the end of 2002.
Meissner-Baran generated approximately NIS 853 million ($180 million) in revenues from the
first phase of this project. The second phase of the FAB2 Plant includes increasing the
manufacturing capabilities of FAB2. Meissner-Baran was recently awarded the contract to
complete the second phase. The estimated value of the Phase II Project is $35.8 million
US, and it will be performed in five sub phases. The first sub phase, for approximately $4
million US, will start immediately. During 2001, the Semiconductors division completed a
project in Israel for the management, planning and installation of equipment of a
Semiconductors production line, a project that generated NIS 608 million ($128 million) in
revenues over a 33-month period.

Consulting Division 
This Consulting division provides
consulting services in the fields of industrial and management engineering, plant
administration, and quality control and logistics. The division performs most of its
activities in Europe and the United States. Tefen Industrial Engineering Management and
Systems Analysis Ltd., the most prominent company in this division, provides consulting
services in the fields of industrial management engineering and plant administration.
Through Tefen offers its clients in the Semiconductors, Communications, electronics and
pharmaceutical industries comprehensive consulting services from the inception of the
business through construction and operations. Tefen also offers a variety of consulting
services, such as identifying, prioritizing and implementing performance improvement
opportunities, with the goal of achieving more efficient utilization of resources,
increasing profitability, and improving service levels. The Consulting division conducts
substantially all of its activities outside Israel, through subsidiaries in the United
States (Tefen U.S.A. Inc.) and England (Tefen U.K.). Tefens shares are traded on the
Tel Aviv Stock Exchange. Baran owns 31.19% of the shares conferring a right to dividends
in Tefen and 40% of shares conferring voting rights.

28

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A.L.D Advanced Logistics Development
Ltd., another significant member of the Consulting division, is a leading consulting firm
and software company in the fields of reliability and quality assurance testing, software
testing and professional training for commercial and military clients. Since 1984,
Advanced Logistics has been engaged in developing software tools that provide solutions
for assessment of reliability and quality of manufacturing processes and systems, during
the development and manufacturing process. Its software tools facilitate the scientific
forecasting of system failures and the formation of recommendations for improvement of
development and manufacturing processes. Advanced Logistics shares are traded on the
Tel Aviv Stock Exchange. Baran owns 55.32% of the shares conferring a right to dividends
in A.L.D, and 33.33%of shares conferring voting rights. Nejeva Holding B.V., another
company in the Consulting division, was established as a joint venture with another
Israeli partner in order to explore possible projects in Eastern Europe.

Technologies and
Investments Division 
The Technologies and Investments
division includes companies that are engaged in the design and production of products
based on piezo-electric switches, the development of parking systems utilizing cellular
networks, the recycling of organic waste into livestock feed, and importing and marketing
products for livestock feed. In this division Baran operates through, among other
subsidiaries and affiliates, the following companies: Baran Advanced Technologies (1986)
Ltd. develops produces and markets sophisticated, weather-proof, durable keyboards for a
variety of applications. Mobipower Ltd. was founded in 1997 to market a proprietary
cellular parking system known as Mobipower for which it has obtained a worldwide license.
This system utilizes an existing cellular network to allow municipalities to manage their
parking demands. It eliminates the need for conventional supervision, payment and parking
enforcement methods, by providing an in-vehicle user-friendly system of parking fee
collection. Barantec Inc., a wholly-owned subsidiary of Baran Advanced Technologies (1986)
Ltd., is a technology sales and marketing company based in New Jersey. The company
primarily markets and sells the access control systems and the Everswitch solution, all
manufactured by its parent company, as well as the Mobipower cellular parking system.
Industrial Centers E.O.D. Ltd. specializes in recycling of organic waste materials into
fowl and cattle feed additives and in importing and marketing various products relating to
the livestock industry. The company is one of the leaders in its field in Israel. Nes-Pan
Ltd. specializes in developing, financing and operating real estate projects, such as
commercial malls and office buildings for rent and build-to-suit base stations. Baran has
been involved in the acquisition from Azorim Investments in Construction and Developments
Ltd. of 50% of the lease rights in a 24,000 square meter plot in Beit Dagan, Israel. The
real estate rights purchased include rights in a capitalized development agreement, which
was signed with the Israel Land Authority. Baran Industries (91) Ltd. signed an agreement
with a third party for the establishment of a joint venture for a NIS 95.9 million ($20.2
million), project on a cost-plus basis for the planning, construction and maintenance of
approximately 17,500 square meters of commercial office space on this plot of land. Baran
leased 10,400 square meters in the project for a period of 10 years, with an option to
extend the lease for additional 10 years. This space will concentrate the activities of
Baran in the center of Israel. Nes-Pan is also the owner of a commercial mall in Beer
Sheva, Israel, that is currently being leased to unrelated tenants and generates annual
revenues of approximately NIS 13 million (US $ 2.8 million).

29

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Green Anchors Ltd. was founded at the
end of 2001 to manage and maintain telecommunication sites and base stations, which it
owns and leases to wireless communication carriers.

Business Development Unit 
Barans business development
unit focuses on two main areas: the telecommunications market and the establishment of
strategic alliances through acquisitions and partnerships with leading international
companies, in the real estate field.

The unit led the acquisition of
Barans German subsidiary in 2001 and the establishment in 2002 of Barans
subsidiary in Thailand. This unit initiated the proposed merger with o2wireless, and is
responsible for integrating o2wireless intoBaran.

The business development unit is
currently engaged in negotiating several international projects, such as the negotiations
on behalf of Nejeva B.V. of an investment and participation in a project for the
construction of a plant for production of metal additives in Russia. Baran has deposited
$2.5 million for the project. This amount will be converted into an equity investment once
the project is financed in full. Barans equal Israeli partner in Nejeva B.V.
deposited the same amount for the project. Pursuant to the original agreement, if
financing for the project is raised, Baran will have a right of first refusal to perform
the project on a turnkey basis and Nejeva B.V. will hold 33%of the rights to receive
dividends from, and 50% of the control over, the plant. However, the project is still
developing and until it will be finalized changes may occur with respect to each
partners scope of responsibility, in accordance with the developments which may
occur in practice.

The following diagram summarizes the
ownership interests in Baran Group Ltd., as of the date of this Annual Report:

30-A

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30-B

---

30-C

---

30-D

---

30-E

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# Properties

| | o | Since
1997,  Baran - Industries  (91) Ltd., a  wholly-owned  subsidiary of Baran,  has leased
from the          Israeli  Lands  Authority a 6,400  square meter plot in the  industrial
 area in Omer,  Israel,  where          Baran's  headquarters in Southern Israel are
located,  in a 5,200 square meter facility.  The lease is          for a period of 49
years.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Baran
signed a development  agreement with the Israeli Lands Authority  regarding a 5,080
square meter          plot  in  the  industrial  area  in  Omer,  Israel,  pursuant  to
 which  it had  to  satisfy  certain          construction  milestones and complete
 construction  of a 2,032 square meter facility by April 1, 2002          (with
 additional  rights  to build up to  4,572  square  meters).  Once  all  conditions  are
met and          construction is completed, Baran expects to sign a lease agreement for
49 years.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Commencing
 April  2002,  Baran has leased  10,400  square  meters in a project  under  which
 Nes-Pan          acquired from Azorim  Investments in Construction  and Development
 Ltd. half of its lease rights in a          24,000  square  meter plot in Beit  Dagan,
 Israel,  for a period of 10 years.  Baran has an option to          extend the lease for
an additional 10 years.  This space will  concentrate  the activities of Baran in
         the center of Israel.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Advanced
 Logistics  Development  Ltd. owns and conducts its operations  from a building of 700
square          meters in the industrial zone in Rishon Le'Zion, Israel.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Westmontage
 Kable und Netzwerk  GmbH, an indirect  majority-owned  subsidiary of Baran,  owns a
7,000          square meter plot in Essen,  Germany,  on which an 850 square meter office
 building is located,  from          which it conducts its operations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Baran
Telecom's Inc.  principal  executive offices are located in approximately  11,000 square
feet of          office space in Cumming,  Georgia.  The lease for such space expires in
December  2005.  Baran Telecom          Inc. also leases office and, in some  instances,
 warehouse  space in California,  Georgia,  Kentucky,          Maryland,  North  Carolina
 and Texas.  The leases on these  spaces  expire at various  times  through
         November, 2004. Baran Telecom Inc. also owns office space in Kentucky.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Baran's
main offices in North  America are located in  approximately  110 square meter of office
space          in Manhattan, New York. The lease for such space expires in June 2005.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Other
 subsidiaries of the group hold a leasehold  interest in number of other buildings,  as
required          for their ordinary operation.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

31

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# ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

# Cautionary Notice
Regarding Forward-Looking Statements

The following managements
discussion and analysis of financial condition and results of operations contains
forward-looking statements, which involve risks and uncertainties. Barans actual
results could differ materially from those anticipated in these forward-looking statements
as a result of several factors, including those set forth under Risk Factors.
Baran does not assume any obligation to update the forward-looking statements or the risk
factors. Although Baran conducts its activities through separate divisions, Barans
management considers the divisions and the companies operating within the divisions as an
integrated, consolidated business deriving its revenues primarily from consulting and
engineering services. In preparing the following discussion, management is of the opinion
that a discussion of segmented information is not necessary or appropriate to an
understanding of Barans business. Moreover, management believes that separate
reporting of information relating to the divisions on a segment basis will not contribute
significantly to an investors understanding of Baran, because the divisions and the
companies within them have characteristics so similar (e.g., substantially all of the
business consists of consulting and engineering services rendered) that they can be
expected to have essentially the same future prospects. Moreover, Baran does not restrict
the flow of funds or resources between divisions or the companies operating within the
divisions. To the extent any division or company within a division, in any particular
period, contributes in a materially disproportionate way compared to any other described
period to Barans revenues, profitability or cash, or where management believes
discussion of a certain division or company within the division could assist to present a
more complete picture of Barans business, specific description of said division or
company within the division is included. You should read the following discussion in
conjunction with Barans consolidated financial statements and related notes included
herein.

# Selected Financial Data

The selected consolidated statements
of operations and consolidated balance sheet data set forth in this section with respect
to the fiscal years ended December 31, 2000, 2001, and 2002, have been derived from the
consolidated financial statements of Baran, which have been prepared in accordance with
Israeli GAAP with reconciliation for U.S. GAAP, and audited by Kesselman & Kesselman,
independent accountants in Israel and members of PricewaterhouseCoopers International
Limited. The Kesselman & Kesselman report on the financial statements is based in part
on the reports of other independent accountants. All the other independent
accountants reports appear elsewhere in this Form 20-F. Israeli and U.S.GAAP vary in
certain respects, as detailed in note (20) to the financial statements included herein.
The selected consolidated financial data set forth below should be read in conjunction
with the audited consolidated financial statements and notes thereto included elsewhere in
this Annual Report. Baran has traditionally prepared its financial statements in
accordance with Israeli GAAP, and its 2002, 2001 and 2000 financial statements were
originally prepared using Israeli GAAP principles.

32

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# Selected Consolidated
Financial Data

|                          | Year Ended December 31.
|------------------------- | -----------------------
|
|
|Statement of Income Data: |                        
|                          |                        
|Israeli GAAP:            
|Revenues                  | 502,863                
|Operating Income          | 53,096                 
|Net Income                | 26,525                 
|Earnings per share:      
|Basic and diluted         | 3.72                   
|U.S. GAAP:               
|                          |                        
|Revenues                  | -                      
|                          |                        
|Operating Income          | -                      
|                          |                        
|Net Income                | -                      
|Earnings per share:      
|                          |                        
|Basic                     | -                      
|                          |                        
|Diluted                   | -                      

|                                             | Year Ended December 31.
|-------------------------------------------- | -----------------------
|
|
|Balance Sheet Data:                          |                        
|                                             |                        
|Israeli GAAP:                               
|Total assets                                 | 279,841                
|Shareholders' equity (net assets)            | 116,663                
|Outstanding common shares (in thousands)     | 6,930                  
|U.S. GAAP:                                  
|Total assets                                 |                        
|Shareholders' equity (net assets)            |                        
|Outstanding common shares (in thousands) (1) |                        
|Other financial data:                       
|Israeli GAAP:                               
|                                             |                        
|Dividend declared per share                  | -                      
|U.S. GAAP:                                  
|                                             |                        
|Dividend declared per share                  | -                      

|(1) | Excludes
nonvested contingently returnable shares in the amount of 408,000,
                    568,000 and 474,000 as of December 31, 2000, 2001 and 2002,
respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33

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Baran currently operates through
six divisions. Each divisions relative contribution to the aggregate revenues of
Baran during the years 2000, 2001 and 2002, was as follows:

|                                      |          |            |         
|------------------------------------- | -------- | ---------- | --------
|
|
|Division                              | 2002     | 2001*      | 2000*   
|Communications Division               | 38%      | 42%        | 65%     
|Construction Division                 | 5%       | 3%         | 4%      
|Industrial Division                   | 17%      | 16%        | 16%     
|Semiconductors Division               | 13%      | 28%        | 10%     
|Consulting Division                   | 7%       | 1%         | 1%      
|Technologies and Investments Division | 20%      | 10%        | 4%      
|Total                                 | 100%     | 100%       | 100%    
|Revenues                              | NIS 908M | NIS 1,030M | NIS 916M

(*)The relative contribution ascribed
to each division during these years is estimated, based on the assumption that the
divisional structure of Baran during the years 2000 and 2001 are similar to the divisional
structure in the year of 2002.

# The following table sets
forth statements of income in thousand US$:

|                                                 | December 31
|------------------------------------------------ | -----------
|
|Revenues                                         | 193,386    
|Cost of Sales                                    | 162,868    
|                                                 |            
|Gross Profit                                     | 30,518     
|% Gross Profit                                   | 16%        
|                                                 |            
|Research and Development                         | 717        
|Selling and Marketing                            | 1,192      
|Administrative Expenses                          | 10,775     
|                                                 |            
|Operating Profit                                 | 17,834     
|Operating Profit %                               | 9%         
|                                                 |            
|Financing Income (Expenses)                      | 1,271      
|Other Income (Expenses)                          | 1,542      
|                                                 |            
|Income before Taxes                              | 20,647     
|                                                 |            
|Taxes on Income                                  | 6,193      
|                                                 |            
|Income after Taxes                               | 14,454     
|Taxes %                                          | 30%        
|                                                 |            
|Company's Share in Profits of Investee Companies | 1,370      
|Minority Interest in Profits                     | 416        
|                                                 |            
|Net Income                                       | 16,240     

34

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Comparison of year ended
December 31, 2000 to year ended December 31, 2001Revenues 
Barans revenues for the fiscal
years 2001 and 2000 were NIS 1,030.4 million ($217.5 million) and NIS 916.1 million
($193.4 million). Revenues increased in 12.5% in 2001 compared to the revenues in 2000, as
a result of an increase in revenues generated by the Industrial and Semiconductors
divisions. Industrial division revenues from unaffiliated customers increased by 13.7%
from NIS 146.7 million ($31 million) in fiscal 2000, to NIS 166.7 million ($35 million) in
fiscal 2001. This increase was primarily due to revenues generated from the Beit Dagan
construction project performed by the division. Semiconductors division revenues increased
by over 218%, from NIS 90.6 million ($19.2 million) fiscal 2000, to NIS 288.5 million
($60.9 million) fiscal 2001, primarily due to revenues generated in 2001 from the NIS 607
million ($128.2 million) project for the management, planning and installation of a
Semiconductors production facility in Israel. The overall increase in Barans
revenues was also attributable to the acquisition in 2001 of Westmontage Kable und
Netzwerk GmbH and Lead Control Ltd. and consolidation of revenues generated by such
companies into Barans financial statements as well as due to the full consolidation
in the last quarter of 2001 into Barans financial statements of the results of
Industrial Centers E.O.D. Ltd., which until that quarter were only partially consolidated.

The overall increase in Barans
revenues were partially offset by the 26.6% decrease in the revenues of the Communications
division from NIS 594 million ($125.4 million) for fiscal 2000, to NIS 435.8 million ($92
million) for fiscal 2001, due to a significant economic downturn in the telecommunications
industry, as well as the completion of the DBS Satellite Services (1998) Ltd. project,
which its main revenues generated on fiscal 2000.

35

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Cost of Revenues and
Gross MarginCost of revenues increased 10% to NIS
848.5 million ($179.1 million) in fiscal 2001 from NIS 771.5 million ($162.3 million) in
fiscal 2000.

This increase was consistent with the
increase in the level of revenues generated by Baran and also reflects the full
consolidation in the last quarter of 2001 into Barans financial statements of the
results of Industrial Centers E.O.D. Ltd.

Gross margin in fiscal 2001 was 18%
as compared to 16% in fiscal 2000. This increase was primarily due to relatively high
profitability rates derived from two large-scale projects performed by the Semiconductors
division during 2001.

Divisional Highlights.
Despite a reduction in Barans
profits, the prifits for the Communications division increased by NIS 5.4 million ($1.14
million), or 8.7%, from NIS 61.4 million ($13 million) for fiscal 2000, to NIS 66.8
million ($14.1 million) for the year ended December 31, 2001. This increase in
profitability was due primarily to initial consolidation in 2001 of Westmontage Kable und
Netzwerk GmbHs results with the divisions results. The Industrial
divisions profits decreased by NIS 2.2 million ($0.5 million), or 16.1%, from NIS
13.5 million ($2.85 million) for fiscal 2000, to NIS 11.3 million ($2.4 million) for
fiscal 2001. This decrease in profitability was primarily due to the recession and
economic downturn in the industries in which the division operates. The Semiconductors
divisions profits increased from NIS 8 million ($1.7 million) for fiscal 2000, to
NIS 30.8 million ($6.5 million) for fiscal 2001, which increase was primarily due to
profits generated from the completion of a project for the management, planning and
installation of a Semiconductors production facility in Israel, which generated NIS 607
million ($128.2 million) during 2001.

Research and development.
Research and development expenses
increased 10% to NIS 3.7 million ($0.8 million) in 2001 from NIS 3.4 million ($0.7
million) in 2000. This increase was due to investments in the Technologies and Investments
division, and in particular from an investment in Barans auxiliary parking system
network.

Selling and marketing.
Selling and marketing expenses
increased 71% to NIS 9.6 million ($2.04 million) in 2001 from NIS 5.6 million ($1.2
million) in 2000. This increase was primarily attributable to expenses incurred by the
group for the establishment, in the first half of 2001, of the business development unit
and recruitment and transfer of employees to that division, as well as to the extensive
business development activity performed by such unit.

General and
administrative.General and administrative expenses
increased 18% to NIS 60.2 million ($12.7 million) in 2001 from NIS 51 million ($10.8
million) in 2000. This increase was primarily due to the acquisition in 2001 of new
companies, the establishment in 2001 of the new business development unit.

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Net financing income.
Net financing income increased to NIS
8 million ($ 1.7 million) in 2001 from NIS 6 million ($1.3 million) in 2000. In 2001, net
financing income, primarily from the communications and Semiconductors divisions, was NIS
16.7 million ($3.5 million), and financing expenses, primarily from the technologies and
investments division, was NIS 8.4 million ($1.8 million). The increase was primarily due
to high liquidity surplus maintained by Baran during 2001, limited use by Baran of
external financing and low inflation rates in Israel during 2001.

Comparison of year ended
December 31, 2001 to year ended December 31, 2002Revenues
Barans revenues for fiscal
years 2002 and 2001 were NIS 907.5 million ($191.6 million) and NIS 1,030.4 ($217.5
million), respectively. The 12% decrease in revenues in fiscal 2002 to revenues in fiscal
2001, is primarily the result of the revenues generated from the Semiconductors division.
At the end of 2002, a large-scale Semiconductors project had come to its final stages,
which are characterized by a decrease in revenues as opposed to an increase in expenses
and allowances for the completion of the project. The decrease in Barans revenues is
also attributable to the Communications division, which has completed a large-scale
project with DBS Satellite Services (1998) Ltd. and due to the termination of the
agreement with Nokia GmbH in the middle of 2002.

Cost of Revenues and
Gross MarginCost of revenues decreased 9% to NIS
768.6 million ($162.3 million) in fiscal 2002 from NIS 848.5 million ($179.1 millions) in
fiscal 2001. This decrease was consistent with the decrease in the level of revenues
generated by Baran and in the scope of projects, especially in the Semiconductors and
Communications divisions.

Gross margin in 2002 was 15% as
compared to 18% in 2001. This decrease can be attributed to the economic downturn, which
led to a decrease in the scope of projects and to a decrease in project prices, as well as
a relative increase in project related expenses due to completion of large-scale projects.
Additionally, the consolidation of Baran Telecom Inc. (formerly o2wireless Solutions Inc.)
operating results into Barans financial statements for the last quarter of 2002,
contributed to the decrease in gross margin.

Divisional Highlights.
The largest portion of Barans
revenues in 2002 was produced by the Communications division, which accounted for 38% (NIS
348.8 million; $73.6 millions) of Barans overall revenues for fiscal 2002, and 42%
(NIS 435.8 million; $92 millions), of its revenues for fiscal 2001. Revenues in the
Communications division are generated from EPCM and turnkey services for planning,
designing and deployment of telecommunication network infrastructures, installation of
telecommunications equipment and other telecommunications projects. Revenues of the
Communication division decreased from fiscal 2001 to 2002, due to significant declines in
the telecommunications market worldwide, as well as the completion of DBS Satellite
Services (1998) Ltd. project and the termination of the agreement with Nokia GmbH.
Revenues of the Communications division are expected to increase during 2003, as a result
of a new project in the Far East and new established and acquired companies within the
division, Including o2wireless Solution Inc., which is now part of the Communications
division.

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During fiscal 2002, the Industrial division generated revenues of NIS 153.9
million ($32.5 millions), 17% of Barans total revenues in fiscal 2002, compared to
NIS 166.7 million ($35 millions), 16% of Barans total revenues in fiscal 2001.
Revenues in the Industrial division have increased steadily over the past few years,
primarily due to the addition of several new projects in the fields of biotechnology,
chemicals and construction. In the beginning of 2002, Baran transferred one of its
subsidiaries (Baran Industries (91) Ltd.) from the Construction division to the Industrial
division; however, 2000 and 2001 divisional data in the financial statements were restated
to reflect this change.

During fiscal 2002, the
Semiconductors division was accounted for revenues of NIS 116.4 million ($24.5 million),
which constituted 13% of Barans total revenues in 2002, and NIS 288.5 million ($60.9
millions), which constituted 28% of Barans total revenues of Bran in fiscal 2001.
The Semiconductors divisions revenues peaked in 2001, primarily as a result of the
completion of a long-term project for the management, planning and installation of a
Semiconductors production facility in Israel that generated over NIS 607 million ($128
millions) in revenues over 33 months. The decrease during 2002 also reflects the
completion of the phase one of the Tower FAB 2 plant in Migdal Haemek. This division
traditionally generates profit margins that are customary for turnkey projects, as the
majority of the divisions projects are performed on a turnkey basis.
During fiscal 2002, the Technologies
and Investments division was accounted for revenues of NIS 182.7 millions ($38.6
millions), which constituted 20% of Barans total revenues in fiscal 2002 and NIS 100
millions ($20.9 millions), which constituted 10% of Barans total revenues in fiscal
2001. The increase in this division is primarily attributable to a full consolidation of
Industrial Centers E.O.D Ltd. into Barans financial statements.

Research and development.
Research and development expenses
increased by 63.8% to NIS 6.1 millions ($1.3 millions) in fiscal; 2002 from NIS 3.7
million ($0.8 million) in fiscal 2001. This increase was due to investments in the
development of a cellular parking system network, as well as the acquisition of Mobipower
B.V. at the end of 2002, whose main activity is the implementation and marketing of a
cellular parking system network.

Selling and marketing.
Selling and marketing expenses
increased 144% to NIS 23.6 millions ($5 millions) in fiscal 2002 from NIS 9.7 million
($2.04 million) in fiscal 2001. This increase is primarily attributable to marketing
expenses incurred by the Technologies and Investment division, which is responsible for
the marketing of the Everswitch technology and the cellular parking systems. Additionally,
the expenses incurred in relation to the commencement of activity in the US, including but
not limited to the registration on the Nasdaq, resulted in an increase in the marketing
expenses as well.

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General and
administrative.
General and administrative expenses
decreased 11% to NIS 53.5 million ($11.3 million) in 2002 from NIS 60.2 million ($12.7
million) in 2001. This decrease is primarily due to a policy, implemented in the beginning
of 2002, to reduce by 10%-15% the salaries paid to the senior management, as well as a
substantial decrease in the bonuses received by senior management at the end of fiscal
2002 Item 6.

Net financing income.
Net financing income decreased to a
net loss of NIS 17.5 million ($3.7 million) in fiscal 2002 from net income of NIS 8
million ($1.7 million) in fiscal 2001. The net increase of financing expenses over
financing income in 2002 is primarily attributable to two reasons. The first is the
interest on a long term loan, in the aggregate amount of NIS135 million, taken by Baran
continue its strategy of penetrating new markets and acquiring new companies. As well as,
the fluctuations in the Israeli economic indexes, such as the devaluation of the US $ and
Euro rates and the high inflation rate. The high increase in those economic indexes
resulted in depreciation of monetary items and a substantial increase in financing
expenses.

# Liquidity and Capital
Resources

Barans primary source of funds
in 2000, 2001 and 2002 was cash generated from operations and its retained earnings. Baran
generated negative cash flow from current operations in fiscal 2002 in the amount of NIS
154.5 million ($32.6 million), primarily as a result of large cash payments to
subcontractors (mainly in connection with two projects), after generating positive cash
flow from operations of NIS 155.6 million ($32.8 million) in the previous year. The
negative cash flow during fiscal 2002 reflects a decrease in payables due to suppliers and
service providers, mainly due to exceptionally large payments in a project in the
Semiconductors division which exceeded revenues derived from that project in 2002. Overall
cash and cash equivalents including short-term investments decreased NIS 49.5 million
($10.5 million), during fiscal 2002. One of the main reasons for the decrease is a
settlement Baran reached with Yes (D.B.S. Satellite Services (1998) Ltd.) in connection
with a dispute between the parties over a project performed by Baran for Yes. Under the
settlement agreement, which was approved by the court, Yes agreed to pay Baran NIS 55.5
million over a period lasting until 2004. By the end of 2002, Yes had paid Baran NIS 28.5
million due pursuant to the settlement and an adjusted amount of NIS 27 million, for which
Baran has obtained credit insurance, remains outstanding as of December 31, 2002. 
In fiscal 2001 Baran generated
positive cash flows from operations of approximately NIS 155.6 million ($32.8 million). As
a result, cash and cash equivalents at the end of fiscal 2001 were NIS 222.8 million ($47
million), as compared to NIS 100 million ($21 million) at the end of fiscal 2000. The cash
balances are net of cash dividends of approximately NIS 13.3 million ($2.8 million) paid
to shareholders in 2002, NIS 32.7 million ($6.9 million) paid to shareholders in 2001 and
NIS 40.7 million ($8.6 million) paid to shareholders in 2000.

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Trade payables at December 31, 2002
were NIS 99 million ($20.9 million), as compared with NIS 255.7 million ($54 million) at
December 31, 2001. The decrease in trade payables is due mainly to substantial payments
made to suppliers during 2002 and payments of debts in the Yes project and exceptional
payments to suppliers in a specific project of the Semiconductors division, accrued during
fiscal 2001 and paid during fiscal 2002. Short term credit from banks and others was NIS
101 million ($21.3 million) at December 31, 2002 as compared with NIS 71.2 million ($15
million) at December 31, 2001. Long-term credit from banks was NIS 166.9 million ($35.2
million) at December 31, 2002 as compared to NIS 34.6 ($7.3 million) at December 31, 2001.
The increase in the short-and long-term credit during 2002 is due primarily to loans from
banks taken to finance planned acquisitions of plants and operations in Europe, the United
States and the Far East. The main source of financing of Baran is its accrued profits,
which as of December 31, 2002 were NIS 166.5 ($35 million) as compared to NIS 154 million
($32.5 million) at the end of December, 2001. However, taking advantage of the low
interest rates, on February 10, 2002 Baran entered into a loan agreement with Bank Leumi
LeIsrael B.M., whereby the bank granted Baran a NIS 45 million loan for a period of three
years, linked to the consumer price index and bearing an interest rate of 3.8%. On
February 11, 2002 Baran entered into an additional loan agreement with Bank Hapoalim
B.M.whereby the bank granted Baran a NIS 90 million loan for a period of five years,
linked to the Israeli consumer price index and bearing an interest rate of 3.9%. Because
these loans are linked to the Israeli consumer price index, when the index goes up, the
amount to be repaid on the loan increases proportionately. 
Baran has financed the growth in its
operations and investments from 2000 through 2002 mainly from operations, accrued profits
and long-term debt. The debt financing was used primarily to finance construction and real
estate projects of the Technology and Investment division, as well as to finance
commodities used by this division. Construction and real estate projects were financed
mainly by loans from financial institutions and shareholders, while the importation of
commodities was financed by bank credit. Additionally, the cash used in connection with
the acquisition of o2wireless Solutions Inc., during 2002, was provided by long-term loans
from banks.

Corporate Tax

During the years 2001, 2000 and 1999
Baran was subject to an effective tax rate of 40%, 30% and 30% on its profits,
respectively, while in the uear 2002 Barans corporate tax rate was 44%.Israeli
companies are generally subject to income tax at a corporate rate of 36% and dividends are
taxed at 25%. The higher tax rate in 2001 and 2002 is due to the inability to offset
losses of certain companies (including those acquired and combined in the balance sheet
for the first time) against profits from other companies. The lower tax rates in 1999 and
2000 are due to the utilization of net operating losses that were carried forward and
offset against taxable income. In addition, the grant and exercise (or no exercise) of
options to employees in certain years affect the overall tax liability of the company for
those years.

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Two of Barans subsidiaries, Baran Energies International Ltd. and Baran
Advanced Technologies (1986) Ltd., were granted an approved enterprise status for some of
their activities and are eligible for tax benefits under the Law for the Encouragement of
Capital Investments, 1959. Subject to compliance with applicable requirements, the portion
of Baran Energies income derived from its approved enterprise activity is subject to
a reduced corporate tax rate of 25% and dividends paid out of such income are subject to a
reduced tax of 15%; Baran Technologies income derived from its approved enterprise
activity will be exempt from Israeli corporate tax (unless dividends are paid, in which
case the corporate tax rate will be 25% and the rate of tax on dividends will be 15%). The
beneficial tax treatment will remain in effect for a limited period. The approved
enterprise status imposes certain requirements on these subsidiaries, such as the location
of their manufacturing facility, location of certain subcontractors and the extent to
which they may outsource portions of their production process. These requirements limit
their freedom to pursue other, more favorable production arrangements. If these
subsidiaries do not continue to meet these requirements, the law permits the authorities
to cancel the tax benefits retroactively.

As of December 31, 2001, the
undistributed income derived from Baran Energies approved enterprise program for the
years 1998-2001 amounted to approximately NIS 13.3 million, after payment of the reduced
corporate tax rate of 25%.On May 7, 2002, Baran Energies distributed the entire amount of
NIS 13.3 million or $2.8 million, as dividends to Baran, which distributed the dividend to
its shareholders, who paid a reduced dividend tax of 15%. Baran Technologies has not yet
generated distributable income from its approved enterprise program, and may not be able
to utilize the tax benefits prior to the expiration of the benefit period.

The aggregate losses for tax purposes
in Baran for December 31, 2002 are NIS 60.714 million ($12.8 million). NIS 5.042 million
($1.064 million) losses have been reported as deferred taxes, out of NIS 14.006 million
($2.957 million) losses, in some of Barans subsidiaries. Due to the fact, Baran
expects future exploitation of those tax losses. Nevertheless, losses in an aggregate
amount of NIS 46.708 million ($9.86 million) have not been reported as deferred taxes as
they represent losses, which Bran does not expect their future exploitation.

Government Grants
Mobipower Ltd. (formerly known as
T.P.S. Teleparking Systems Ltd.) and Baran Advanced Technologies (1986) Ltd. have been
financed, in part, through grants from the Office of the Chief Scientist of the Israeli
Ministry of Industry and Commerce. Royalties on the revenues derived from sales of
products for which these grants were received are payable to the Israeli government, at a
rate ranging from 2% to 3%. The technology developed with the governmental funding is
subject to several legal restrictions, including the obligation to manufacture the product
based on this technology in Israel and to obtain the Office of the Chief Scientists
consent to transfer the technology to a third party. These restrictions, which continue to
apply even after both Mobipower and Baran Technologies have paid the full amount of
royalties payable for the grants, may impair Mobipower and Baran Technologies
ability to outsource manufacturing or enter into similar arrangements for some of their
products or technologies. If the Office of the Chief Scientist consents to the manufacture
of the products outside Israel, the regulations allow the Office of the Chief Scientist to
require an increase in the royalty rate as well as the aggregate amount of royalties to be
paid to an amount ranging from 120%to 300%of the amount of the grant plus interest
(depending on the percentage of foreign manufacturing).The aggregate amount received by
Mobipower and Baran Technologies was $1,051,000 of which $205,000 was repaid and $846,000
remains outstanding.

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Patents and Licenses
Part of Barans product
development strategy is to seek, when appropriate, protection for its products and
proprietary technology through the use of various Israeli, United States and foreign
patents and contractual arrangements.

Baran Advanced Technologies (1986)
Ltd., a wholly-owned subsidiary of Baran, holds the following patents or has applied for
patent protection in the following jurisdictions: a patent in Europe (No. 0 343 685) and
in the United States (US No. 4896060) on its Everswitch technology; a patent application
in the United States (US No. 814113/09) and an international patent application (No.
EP02/0987) for an optical mouse for deployment on a keyboard, produced on the basis of the
Everswitch technology; and patents in Israel (No. 115531 and 116336), Europe (No. 0 855
067) and the United States (US No. 6226337 and 6249233),and several pending
patents in the United States (US No. 09/816126 and 09/828126 and 09/775604), Europe (No.
99203380.3 and 00200036.2) and internationally (IL02/ 00099), for the Mobipower cellular
parking system. In February 2000, Baran Advanced Technologies (1986) Ltd. entered into an
agreement with Mobipower, pursuant to which Baran Advanced Technologies (1986) Ltd.
licensed to Mobipower the exclusive, worldwide right, in perpetuity to use all of its
knowledge and technology in connection with the patents for the Mobipower, as well as the
rights in all future developments on this system in exchange for payment of royalties from
the amounts derived by Mobipower from the system as follows: of amounts received by
Mobipower in each calendar year up to $10,000,000, royalties equal to 3%; and of amounts
received by Mobipower in each calendar year in excess of $10,000,000, additional royalties
equal to 1%. These royalties will continue to be paid to Baran Advanced Technologies
(1986) Ltd. so long as the patent remains in force. In addition, Baran Advanced
Technologies (1986) Ltd. has undertaken to bear all expenses in connection with the patent
registration and to pay all fees due to the Israeli Chief Scientist, if any, in connection
with the development of the Mobipower, Baran holds 63.6% of the outstanding capital of
Mobipower. Advanced Logistics Development Ltd., a subsidiary of Baran, holds patents in
Israel (No. 112513), Europe (No. 96300715.8) and the United States (U.S. No. 5826008) for
a system for the collection and reporting of errors and failures in the Internet and
Intranet through voice and video technologies, known as Favoweb. Advanced Logistics
protects its other technological products through a special plug (a hardware based
software protection system) that prevents unauthorized users from using its software, and
through an internally developed device integrated within its software.

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In addition, Baran protects its
technological products and know-how through confidentiality agreements typically executed
with employees, subcontractors and suppliers. Certain proprietary information and
intellectual property rights enjoy the protection of Israeli law and Israeli case law.
Most of Barans activities and sales are performed in Israel, European countries and
in the United States, where broad protection for intellectual property rights is
available. Baran has also obtained patents in other countries worldwide, including those
where intellectual property protection is not as broad as in the United States and Europe,
such as countries in Asia. Barans patents have expiration dates ranging between the
years 2010 and 2015.

Trend information
Throughout the 1990s, the
telecommunications and Semiconductors industries enjoyed tremendous growth as
telecommunications carriers made large capital investments in order to expand the presence
and capacity of their networks, and upgrade their existing networks. In addition,
Semiconductors manufacturers made large capital investments to expand their production
capacity to meet the demands of the growing market. However, with the economic downturn
that began in 2001, the recession, weakened economy and tightened capital markets caused
telecommunication carriers and Semiconductors manufacturers to substantially limit their
capital investments, reducing demand for deployment of new telecommunications networks and
implementation of new projects in the Semiconductors industry. According to Barans
current estimates, these industries are expected to begin a recovery no earlier than the
second half of 2003. First signs of this recovery might be seen in the declarations of
large companies and organizations, of their intent to initiate projects, including, among
others, the plans of the American Government in respect of its Home Land Security Project.

Baran believes that traditional
process-oriented industries, such as chemicals, petrochemicals, energy, biotechnology,
pharmaceuticals and food processing, which are the target markets of Barans
Industrial and Consulting divisions, face a prolonged slowdown and recession both in
Israel and worldwide. The current economic climate has resulted in a decrease in the
number of new projects for these divisions, and the number of new large-scale engagements
for these divisions has consequently declined.

To address the challenges presented
by the economic slowdown, Barans Industrial and Consulting divisions have expanded
their areas of expertise to fields that have been less impacted by recent economic
difficulties, such as the biotechnology and pharmaceutical industries. Baran believes that
traditional process- oriented industries will recover with the general recovery of the
economy.

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The Israeli market in which the
Construction division operates has been relatively stable over the last few years and,
absent of negative impacts of a war in the Middle East on these industries in Israel,
Baran expects the market to grow in the coming years due to a number of large
infrastructure and construction projects planned by the Israeli government. Since the
beginning of 2002, most of the industries in which Barans divisions operate have
experienced a deep recession. These factors materially adversely affect businesses of each
of Barans divisions although Barans divisions are not equally affected;
Barans Semiconductors division was the most seriously affected, while the
construction divisions results were actually improved.

Impact of inflation and
currency fluctuationsFor existing projects in Israel,
changes in exchange rates are not of material significance for Baran, since the related
income and expenses are in Israeli currency, so that there is no exposure to currency
fluctuations. Accordingly, Baran does not use any special hedging transactions to protect
its operations.

With respect to large projects and
special projects where the consideration is linked to the U.S. dollar or the currency of
another country, Baran endeavors to create a correlation between the bases of income and
expenses, to prevent exposure to fluctuations in the exchange rates. In such projects,
receipts and advances are usually linked to the currency in which most of the related
expenditures will be incurred. The activities of Barans foreign subsidiaries are
carried out in the local currencies of their countries of residence, which limits to some
degree their exposure to fluctuations in exchange rates.

Israel has experienced high inflation
as compared to other countries. The Israelis government policy is to decrease and
stabilize inflation to a rate of 3% a year. From 1998 until 2001, the Israeli
governments policy with respect to inflation was implemented successfully and the
inflation rate decreased from 8.6% to 1.4%. In 2002 due to the economic downturn,
recession and severe political situation, the Israeli government eased its
anti-inflationary policy. Baran was adversely affected by the high inflation rate in 2002,
and suffered from depreciation in project prices and devaluation of short-term
investments. Brans policy is to include in its agreements with costumers, provisions
with respect to the linkage of each agreements monetary items to the CPI, except for
agreements which include US$ monetary items.

Nevertheless, due to credit terms
granted to customers and the increasing difficulty of correlating its liquid monetary
balance and the interest and inflation rates in short term, net financing expenses are
increasing.

The inflation rate in Israel in the recent five years:

|During 1998 | 8.6%
|----------- | ----
|During 1999 | 1.3%
|During 2000 | 0%  
|During 2001 | 1.4%
|During 2002 | 6.5%

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# Critical Accounting
Policies and Significant Accounting Estimates

Management is required to make a
number of assumptions and estimates that directly impact the consolidated financial
statements and related disclosures. Those assumptions and estimates form the basis for
certain of Barans accounting policies described in note 1 to Barans
consolidated financial statements. The accounting policies that are most important to the
portrayal of Barans financial condition and results of operations, and require
managements most difficult, subjective or complex judgments, are considered to be
critical accounting policies. Because of the uncertainties inherent in making assumptions
and estimates regarding unknown future outcomes, future events may result in significant
differences between Barans estimates and actual results. Management believes that
each of Barans assumptions and estimates are appropriate in the circumstances, and
represent the most likely future outcome. Baran believes its critical accounting policies
relate to its estimates of costs to complete projects and revenue recognition on its
contracts, the collectibility of its contracts and trade receivables, and warranty
provisions. See Significant Estimates Used in Preparing Barans Consolidated
Financial Statements.

Recently issued
accounting pronouncements in Israel
In October 2001, the Israeli
Accounting Standards Board (the IASB) issued Israel Accounting Standard No. 12
 Discontinuance of Adjusting Financial Statements for inflation, which
provided for the discontinuance of adjusting financial statements for the effects of
inflation, as of January 1, 2003. In December 2002, Accounting Standard
No. 17 was issued that postponed the date from which Accounting Standard No. 12 is to
be applied until January 1, 2004. The inflation-adjusted amounts as of
December 31, 2003 will be the base for the nominal-historical financial reporting in
the following periods. The implementation of Standard No. 12 will mainly effect the
financial expenses item. Upon implementation of Standard No. 12, Clarifications Nos. 8 and
9 to Opinion 36 of the Institute of Certified Public Accountants in Israel will be
canceled and will be replaced with effect from January 1, 2004 by Israel Accounting
Standard No. 13, which was issued at the same time as Standard No. 12. Most of the
provisions of Standard No. 13 correspond to the provisions, which appeared in the
above-mentioned clarifications.
In February 2003, Accounting Standard
No. 15 of the IASB  Impairment of Assets, became effective. This
standard, which is based on International Accounting Standard No. 36, requires a
periodic assessment  at each balance sheet date  to evaluate the need for a
provision for the impairment of the companys non-monetary assets  fixed assets
and identifiable intangibles, including goodwill, as well as investments in associated
companies. As promulgated by the standard, its provisions are to be applied as of
January 1, 2003. Pursuant to the provisions of the standard, if any events have
occurred or changes in circumstances have taken place, which might indicate that there has
been an impairment of one or more of the above assets, the company is required to evaluate
whether the carrying value of the investment in the asset is recoverable from the cash
flows anticipated from that asset, and, if necessary, to record an impairment provision up
to the amount needed to adjust its carrying amount to its recoverable amount. The
impairment loss is carried directly to income.
The recoverable amount of an asset is
determined as being the greater of the assets net selling price and its value in use
to the company. The assets value in use is determined according to the present value
of anticipated cash flows from the continued use of the asset, including those expected at
the time of its future retirement and disposal. The Company is making the necessary
preparations in order to apply this standard commencing with its first interim financial
statements in 2003, and is currently reviewing the expected implications, if any, on its
financial statements.

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Recently Issued
Accounting Pronouncements in the United StatesFAS 143 
In July 2001, the FASB issued FAS
143, Accounting for Asset Retirement Obligations. FAS 143 prescribes the
accounting for retirement obligations associated with tangible long-lived assets,
including the timing of liability recognition and initial measurement of the liability.
FAS 143 requires that an asset retirement cost should be capitalized as part of the cost
of the related long-lived asset and subsequently allocated to expense using a systematic
and rational method. FAS 143 is effective for Ñfiscal years beginning after June
15, 2002 (January 1, 2003 for Baran). Baran does not believe that the adoption of FAS 143
will have any material effect on its consolidated financial statements.

FAS 145 
In May 2002, the FASB issued FAS 145,
Revision of FAS Nos. 4, 44 and 64, Amendment of FAS 13 and Technical Corrections as
of April 2002". FAS 145 is effective for fiscal periods beginning after May 15, 2002
(as applicable to the Company, January 1, 2003). Baran does not believe that the adoption
of FAS 145 will have any material effect on its consolidated financial statements.

FAS 146
In June 2002, the FASB issued
SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities
(FAS-146). FAS-146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF 94-3 Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". FAS-146 required that a
liability for a cost associated with an exit or disposal activity to be recognized when
the liability is incurred. Under EITF 94-3, a liability for an exit cost as generally
defined in EITF 94-3 was recognized at the date of the commitment to an exit plan. FAS 146
states that a commitment to a plan, by itself, does not create an obligation that meets
the definition of a liability. Therefore, FAS 146 eliminates the definition and
requirements for recognition of exit costs in EITF 94-3. It also establishes that fair
value is the objective for initial measurement of the liability. 
FAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31. 2002. Baran
does not expect the adoption of FAS 146 to have a material effect on its consolidated
financial statements.

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FAS 148 
In December 2002, the FASB issued FAS
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure
 an Amendment of FASB Statement No. 123". FAS 148 amends FAS 123 to provide
alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, FAS 148 amends the
disclosure requirements of FAS 123 to require prominent disclosures in the financial
statements about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition guidance and annual
disclosure provisions of FAS 148 are effective for financial statements issued for
fiscal years ending after December 15, 2002. Baran has elected to continue
accounting for employee stock-based compensation in accordance with APB 25 and
related interpretations.

FIN 45 
In November 2002, the FASB issued
FASB Interpretation No. 45 Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN
45). FIN 45 requires the guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the guarantee. It
also elaborates on the disclosures to be made by a guarantor in its financial statements
about its obligations under certain guarantees that it has issued. Disclosures required
under FIN 45 are already included in these financial statements. However, the initial
recognition and initial measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. 
Baran does not expect the adoption of
FIN 45 to have a material effect on its consolidated financial statements.

FIN 46 
In January 2003, the FASB issued FASB Interpretation
No. 46 Consolidation of Variable Interest Entities (FIN 46). Under
this FIN, entities are separated into two populations: (1) those for which voting
interests are used to determine consolidation (this is the most common situation) and (2)
those for which variable interests are used to determine consolidation. The FIN explains
how to identify Variable Interest Entities (VIE) and how to determine when a business
enterprise should include the assets, liabilities, noncontrolling interests, and results
of activities of a VIE in its consolidated financial statements. The FIN is effective as
follows: for variable interests in variable interest entities created after January 31,
2003, the FIN shall apply immediately; for variable interests in variable interest
entities created before that date, the FIN shall apply  for public entities 
as of the beginning of the first interim or annual reporting period beginning after June
15, 2003.Baran does not expect the adoption of
this FIN to have a material effect on its consolidated financial statements.

47

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Significant Estimates
Used in Preparing Barans Consolidated Financial StatementsRevenue recognition from
contracting work in progress.
Baran recognizes revenue from such
work by the percentage-of-completion method, provided the following conditions are met:
collection of revenues is expected, revenues and costs can be estimated reasonably, and
there is a likelihood that the project will be completed and that contractual obligations
to customers will be met. When estimating the final outcome is impractical, Baran uses a
zero estimate of profit (i.e. equal amounts of revenue and cost are recognized until
results can be estimated more precisely) (zero profit method). 
In addition to the above mentioned
revenues recognition conditions, profits from contract work on buildings is recognized by
the percentage of completion method if the stage of completion has reached at least 25%;
prior to this stage  by the zero profit method. Baran measures progress toward
completion based on the output measure of value added for its turnkey project. Baran
determines the relative value added of each component to the total project value added
based on the ratio of costs of the component to total expected costs, at the commencement
of the project. Such ratio of relative value of each component remains unchanged during
the project. Relevant component output measures are used to determine progress toward
completion of each component. The project percentage of completion (weighting the
appropriate components) are applied to the total estimated project revenues and project
costs to determine the amount of revenue and costs recognized, on a cumulative basis.
Changes in estimates for revenues, costs, and profits are recognized in the period in
which they are determinable using the cumulative catch-up method of accounting. In respect
of work for which a loss is anticipated, a provision for the entire loss is made
immediately.Baran shares held by Baran and its subsidiaries.
These shares are presented as a
reduction of shareholders equity, at their cost, under the item Cost of
Company shares held by Baran and its subsidiaries in the Baran financial statements.
Gains on sale of such shares are carried to capital surplus. Allowance for doubtful
accounts.
The allowance is determined for
specific debts of which collection is doubtful.Research and development expenses.
Research and development expenses are
charged to income as incurred. Grants from government departments for approved projects is
recognized as a reduction of expenses as the related cost is incurred (see also note 15g
to Barans financial statements). Warranty provisions. A warranty provision is provided in
Barans financial statements for:

| | o | those
projects where a warranty period is defined in the relevant agreement, or
| | - | -------------------------------------------------------------------------------

| | o | based
on past  experience  with a specific  project where expenses were incurred for a customer
during          the warranty period.
| | - | ------------------------------------------------------------------------------------------------------------------------------------

The warranty period is typically
between one and two years and is determined by each particular agreement. The amount of
the warranty is calculated based on engineering estimates which are based on projected
expenses and costs, and on past experience. Every quarter, the provision is re-examined
and updated based on both the remaining warranty period, and on the expected cost of
fulfilling the warranty obligation.

48

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# ITEM 6.

# Directors and Senior
Management

Barans executive officers and
directors and their ages and positions are as follows:

|Name           | Age | Principal Position                               
|-------------- | --- | -------------------------------------------------
|
|Meir Dor       | 56  | Chairman of the Board of Directors and CEO       
|Yom Tov Samia  | 49  | President, Chief Operation Officer and Director  
|Menachem Gal   | 55  | Senior Executive Officer and Director            
|Aviel Raviv    | 58  | Senior Executive Officer and Director            
|Israel Gotman  | 56  | Chief Projects Officer and Director              
|Jonathan Inbar | 60  | Director                                         
|Isaac Friedman | 53  | Director, Vice President of Construction Division
|Israel Scop    | 52  | Director                                         
|Shuki Shor     | 55  | Director                                         
|Shlomo Sharf   | 54  | Director                                         
|Liora Ofer     | 49  | Director                                         
|Arieh Shaked   | 53  | Outside Director                                 
|Tami Gottlib   | 46  | Outside Director                                 
|Sasson Shilo   | 48  | Chief Financial Officer and Secretary            

The business experience, principal
occupation and employment, as well as the periods of service, of each of the board members
and executive officers of Baran are set forth below:

Meir Dorhas served as a
director of Baran since 1991 and has served as the chairman of the board of directors of
Baran since 1992. Mr. Dor is also a director of the following Baran subsidiaries: Baran
Advanced Technologies (1986) Ltd., Baran Technical Products Management and Marketing Ltd.,
Baran Raviv Telecom Ltd., H.A.J.I Ltd., Mobipower Ltd., A.R.- A.D.Y.R. Constructions Ltd.,
Meissner-Baran Ltd., Industrial Centers E.O.D. Ltd., A.L.D. Advanced Logistics Development
Ltd., Tefen Industrial Engineering Management and Systems Analysis Ltd. and Baran
Acquisition Sub, Inc. Mr. Dor received his BSC in Management and Industrial Engineering
from the University of Tel-Aviv, Israel in 1978.

49

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Yom Tov Samiahas served as a
director of Baran since 2001. Until 2001 Mr. Samia has served in senior positions in the
Israeli army, such as the Chief Officer of the Southern Command. Since 2001, Mr. Samia has
served as a co-managing director of Baran, head of operations of various divisions in
Baran, and director of the following subsidiaries of Baran: Baran Project Construction
Ltd., Baran Inbar Projects (1987) Ltd., Baran Advanced Technologies (1986) Ltd., Baran
Technical Products Management and Marketing Ltd., Baran Industries (91) Ltd., Baran
Energies International Ltd., Baran Raviv Telecom Ltd., Baran Infrastructure and
Construction Ltd., Notev  Management and Operations Ltd., H.A.J.I. Ltd., Baran
Engineering and Projects (1983) Ltd., Meissner-Baran Ltd., Industrial Centers E.O.D. Ltd.,
LEAD Control Ltd. and Green Anchors Ltd. Mr. Samia also serves as the Chairman of the
Council for Regulating of Sports Betting. Mr. Samia holds a B.A.in General Studies from
the University of Tel Aviv, Israel, (1988) and an M.A. in Political Science from the
University of Haifa, Israel (1992).

Menachem Galhas served as a
director of Baran since 1991, and has served as co-managing director and head of business
development of Baran since the second half of 2001. Mr. Gal also serves as a director of
the following Baran subsidiaries: Baran Inbar Projects (1987) Ltd., Baran Advanced
Technologies (1986) Ltd., Baran Technical Products Management and Marketing Ltd., Baran
Energies International Ltd., Baran Raviv Telecom Ltd., Notev  Management
&Operation Ltd., Enco Systems Projects (1997) Ltd., A. Etzion Consultants
&Engineers Ltd., H.A.J.I. Ltd., Baran Engineering and Projects (1983)Ltd. and Nes-Pan
Ltd.

Aviel Ravivhas served as a
director of Baran since 1997, and has served as co-managing director since 1994. Mr. Raviv
served as a co-managing director of Baran Raviv Startup and Entrepreneur Ltd. until 1997.
Until 1999, Mr. Raviv served as the head of Barans telecommunications division. Mr.
Raviv serves as a director of the following Baran subsidiaries: Baran Project Construction
Ltd., Baran Raviv Telecom Ltd., Enco Systems Projects (1997) Ltd., Baran Engineering and
Projects (1983)Ltd. and Baran Acquisition Sub, Inc. Mr. Raviv received his B.Sc. in
Mechanical Engineering from Technion, Israel Institute of Technology in 1970 and an M.Sc.
in Mechanical Engineering (Turbomechanics) from Union College, Schenectady, New York, in
1974.

Israel Gotmanhas served as a
director of Baran since 1991. Between the years 1990 and 2001, Mr. Gotman served as chief
executive officer of several of Barans subsidiaries. Mr. Gotman currently serves as
a director of Baran Industries (91) Ltd. Mr. Gotman holds a B.Sc. in Mechanical
Engineering from the Faculty of Mechanical Engineering, Moscow (1972).

Jonathan Inbarhas served as a
director of Baran since 1991.Between the years 1995 and 2000 Mr.Inbar served as a
co-managing director of Baran and was responsible for engineering outside Israel. Mr.
Inbar received his BSC in Chemical Engineering from the Technion, Institute of Technology,
Haifa, Israel in 1967, his M.Sc. in Chemical Engineering from the Technion, Institute of
Technology, Haifa, Israel in 1971, and his M.Sc. in Industrial Management from Technion,
Institute of Technology, Haifa, Israel in 1985.

50

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Isaac Friedmanhas served as a
director of Baran since 1991, and currently is the head of the construction division of
Baran. Between the years 1990 and 1999, Mr. Friedman served as vice president of Baran
Project Construction Ltd., where he currently serves as chief executive officer. Mr.
Friedman serves as a director in the following Baran subsidiaries: Baran Project
Construction Ltd. and Baran Infrastructure &Construction Ltd. Mr. Friedman graduated
as a Practical Construction Engineer from the Technical College of the Negev, Beer-Sheva,
Israel in 1975, and received his B.Sc. in Business Management from Champlain College,
Illinois, in 2000.

Israel Scophas served as a
director of Baran since 1991.Until 1998, Mr. Scop served as vice president in
Baran-Project Construction Ltd. Between 1998 and 2000, Mr.Scop acted as chief engineer of
Barans engineering companies. As of 2000, he is responsible for community relations
and special engineering projects for Baran. Mr. Scop holds a B.Sc. in Mechanical
Engineering from the Technion, Institute of Technology, Haifa, Israel (1972).

Shuki Shorhas served as a
director of Baran since 2001. For the past five years, Mr. Shor has served as vice
president, Electra (Israel) Ltd., and he also serves as a director in number of other
Israeli companies: A. Hertz Cooling and Air-conditioning Ltd., Electra Financing and
Investments Ltd., Electra Real Estate Ltd., G.S.K.O. Marketing Company Ltd., Tal Elevators
(Tel Aviv) Ltd.,and Kedar Air-conditioning Systems (1989) Ltd. Mr. Shor holds a BA in
Mechanical Engineering from the Ben Gurion University, Beer-Sheva, Israel (1972).

Shlomo Sharfhas served as a
director of Baran since 1998.In the past five years he has served as chief executive
officer and director in Electra (Israel) Ltd. and held various senior positions and
directorships in several Israeli companies, including the position of director in Shekem
Ltd., Elko Industries Ltd., Milgam Ltd. and Mendelson Ltd. Mr. Sharf holds a BA in
Mechanical Engineering from the Ben Gurion University, Beer-Sheva, Israel (1974).

Liora Oferhas served as a
director of Baran since 1999.During the past five years Ms. Ofer has served in different
roles in the Ofer Brothers group of companies, including Israel Chemicals Ltd. and its
subsidiaries, and has served as the managing director of Almog Eilat Shore Ltd. Ms. Ofer
also serves as a director of a number of Israeli companies: United Mizrahi Bank Ltd., Ofer
Development and Investments Ltd., Malisron Ltd., Almog Eilat Shore Ltd., Neot Almog Shore
(1990) Ltd., Almog Hotel Management Ltd., Almog Shore Haifa (1996) Ltd., Neve Almog Shore
Ltd., Laguna Hotel Ltd., Oro Investments Ltd., Oro Foreign Investments (1999) Ltd.,
Halidor Entrepreneurs Ltd., and Ofer Brothers Assets (1957) Ltd.

51

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Arieh Shakedhas served as an
outside director of Baran since 2000.During the past five years Mr. Shaked has served as
chairman of the board of directors of a number of Israeli companies: Enosh Security and
Maintenance Ltd., Enosh Building Maintenance Ltd., Enosh Human Resources Services and
Security Eilat Ltd. Mr. Shaked is also a director of Arami Shaked 2000 Ltd. and Nehushtan
Investments Ltd. Mr.
          Shaked holds a BA in Political Sciences, Business Management from Bar-Ilan
          University, Tel-Aviv, Israel (1982) and an MA in Social Sciences and Mathematics
          from the University of Haifa, Israel (1989).

Tami Gottlibjoined Baran as
an outside director on July 4, 2002. Between 1997 and 2001, Ms. Gottlib served as
co-managing director and director of Investec General Management and Underwriting Ltd.
Since 2001, Ms. Gottlib has acted as an independent consultant. Ms. Gottlib currently
serves as a director in a number of Israeli companies: Sahar Development and Investments
Ltd., Ishpro Israeli Company for the Security of Buildings Ltd., Emilia Cracking (M.O.F.)
Ltd., RoboGroup Ltd., he Provident Funds of Mercantile Discount Bank Ltd., T.R.A. Tel Aviv
Radio Ltd., Dan Transportation Company Ltd., Incredimail Ltd., and Credit
Information Association (CIA) Ltd. Ms. Gottlib holds a BA in International Relations from
The Hebrew University, Jerusalem, Israel (1978) and an MA in Economics from Indiana
University Bloomington, Indiana, USA (1980).

Sasson Shilojoined Baran in
1992 and serves as Barans vice president of finance and as secretary of Baran. Mr.
Shilo serves as a director in the following Baran subsidiaries: Baran Technical Products
Management and Marketing Ltd., Baran-industries (1991) Ltd., Enco Systems Projects (1997)
Ltd., A. Etzion Consultants &Engineers Ltd. and Industrial Centers E.O.D. Ltd. Mr.
Shilo holds a BA in Economics from the Ben Gurion University, Beer-Sheva, Israel from 1984
and an MBA in Business Management from the Ben Gurion University, Beer-Sheva, Israel
(1989).

# Compensation

During 2002 Baran paid to all its
directors and senior management as a group an aggregate amount of NIS 3.3 million ($0.7
million) in salaries, fees and bonuses. Other than the payment to non-employee directors
of NIS 139,000 (approximately $29,000) for their participation in board meetings, no
directors received cash compensation in the year ended December 2002.

On September 24, 1998 and August 24,
2000, the general meetings of the shareholders of Baran approved a yearly cash bonus for
the years 1998, 1999 and 2000 to Meir Dor, Menachem Gal, Israel Gotman, Israel Scop, Isaac
Friedman, Jonathan Inbar and Aviel Raviv, and a cash bonus for the years 1999 and 2000 to
Electra Investments (1998) Ltd., as well. The amount of the cash bonus for the year 1999
to each of the above, including Electra investments (1998) Ltd., was NIS 1.06 million, and
for the year 2000 was NIS 0.66 million.

52

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In November 2001, Barans
general meeting approved bonuses and the grant of an aggregate of 120,000 shares and
100,000 options to certain related parties. On January 3, 2002 and February 4, 2002 the
Israeli Securities Authority notified Baran that the issuance of the shares and options as
well as the granting of the bonuses were not duly authorized by the general meeting.
Although, based on the advice of legal counsel, Baran believed that the transactions were
properly authorized, it has nevertheless frozen the performance of the transactions from
the day it received the Israel Securities Authoritys notification. By that date, the
related parties already received an aggregate of NIS 6,350,000 as advances on said
bonuses, however no shares or options were issued. The related parties have signed
waivers, whereby they agreed to waive their rights to receive the securities and the cash
bonuses, except for the advances, which they had already received. Baran intends to
continue to grant incentives to its managers in a similar manner in the future.

# Board Practices

Barans articles of association
provide that Barans board shall consist of no less than three and no more than 13
directors. Each director who is not an outside director is elected at an annual general
meeting or a special meeting of Barans shareholders by a vote of the holders of a
majority of the voting power represented and voting at that meeting. Outside directors are
elected and may be removed only in accordance with the provisions of the Israeli Companies
Law. Barans board currently consists of 13 directors, two of whom are outside
directors. Each director who is not an outside director will hold office until the next
annual general meeting of Barans shareholders, unless terminated earlier by a simple
majority vote of the shareholders at a general meeting, or if he or she becomes insane, is
declared bankrupt, or resigns, or upon his or her death. 
A simple majority of Barans
shareholders voting at a general meeting may remove any of Barans directors, other
than outside directors, from office and may elect replacement directors or fill any
vacancy in the board, other than vacancies created by an outside director. Outside
directors may be appointed only in accordance with the provisions of the Israeli Companies
Law. Directors hold office until the next general meeting of Barans shareholders.
Each of Barans co-managing directors are considered to be executive officers, serve
at the discretion of the board and hold office until his or her successor is elected or
until his or her earlier resignation or removal. 
Other executive officers are
appointed by management, and terms of their employment are subject to the approval of the
board of directors. There are no family relationships among any of Barans directors
or executive officers.

Under the Israeli Companies Law,
companies incorporated under the laws of the State of Israel whose shares are listed on an
exchange, including the Tel Aviv Stock Exchange or the Nasdaq National Market, are
required to appoint two outside directors. Arieh Shaked and Tami Gottlib were appointed as
Barans outside directors under the Israeli Companies Law. The Israeli Companies Law
provides that a person may not be appointed as an outside director if the person, or the
persons relative, partner, employer or any entity under the persons control
has or had during the two years preceding the date of appointment any affiliation with the
company or any entity controlling, controlled by or under common control with the company.

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The term affiliation includes:

| | o | an
employment relationship;
| | - | ---------------------------

| | o | a
business or professional relationship maintained on a regular basis;
| | - | ----------------------------------------------------------------------

| | o | control;
and
| | - | ------------

| | o | service
as an office  holder,  excluding  service  as a  director  for a period of not more than
three          months during which the company first offered its shares to the public.
 The term "office  holder'' is          defined as a director,  general manager, chief
business manager,  deputy general manager, vice general          manager,  executive vice
president, vice president,  other manager directly subordinate to the general
         manager or any other person assuming the responsibilities of any of the
foregoing  positions,  without          regard to such person's title.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

No person can serve as an outside
director if the persons position or other business creates, or may create a conflict
of interests with the persons responsibilities as an outside director or may
otherwise interfere with the persons ability to serve as an outside director. If at
the time an outside director is appointed all current members of the board of directors
are of the same gender, then that outside director must be of the other gender.

Until the lapse of two years from
termination of office, a company may not engage an outside director to serve as an office
holder and cannot employ or receive services from that person, either directly or
indirectly, including through a corporation controlled by that person.

Outside directors are elected by a
majority vote at a shareholders meeting, provided that either:

| | o | the
 majority  of  shares  voted  at the  meeting,  including  at least  one-third  of the
 shares  of          non-controlling  shareholders  voted at the  meeting,  vote in favor
of the  election  of the  outside          director; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the
total number of shares  voted  against the  election of the outside  director  does not
exceed one          percent of the aggregate voting rights in the company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

The initial term of an outside director
is three years. The outside director may be reelected to one additional term of three
years by a majority vote at a shareholders meeting, subject to the conditions
described above for election of outside directors. outside directors may only be removed
by the same percentage of shareholders as is required for their election, or by a court,
and even then only if the outside directors cease to meet the statutory requirements for
their appointment or if they violate their duty of loyalty to the company. If an outside
directorship becomes vacant, a companys board of directors is required under Israeli
Companies Law to call a shareholders meeting immediately to appoint a new outside
director.

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Each committee of a companys
board of directors is required to include at least one outside director and the audit
committee is required to include both outside directors. An outside director is entitled
to compensation as provided in regulations adopted under Israeli Companies Law and is
otherwise prohibited from receiving any other compensation, directly or indirectly, in
connection with services provided as an outside director.

# Employees

As of December 31, 2002, Baran and
its subsidiaries, had employed approximately 1,675 employees, approximately 1,144 of whom
were based in Israel, 305 in United States, 30 in United Kindom, 140 in Germany and 56 in
Thailand. The breakdown of Barans employees by division is as follows:

|                                      |       |       |      
|------------------------------------- | ----- | ----- | -----
|
|Year ended December 31,               | 2000  | 2001  | 2002 
|Baran management                      | 30    | 29    | 32   
|Business development                  | ----  | 10    | 10   
|Communications division               | 440   | 380   | 645  
|Construction division                 | 130   | 125   | 134  
|Industrial division                   | 375   | 350   | 406  
|Semiconductors division               | 100   | 140   | 60   
|Consulting division                   | 350   | 330   | 324  
|Technologies and Investments division | 55    | 60    | 64   
|Total                                 | 1,480 | 1,424 | 1,675

# Share Ownership

There are currently no outstanding
options to purchase shares of Baran.

# ITEM 7.

# Major Shareholders

The following table sets forth
information as of March 24th, 2003 concerning the beneficial ownership of the
Baran ordinary shares by each shareholder known by Baran to be the beneficial owner of
more than 5% of the outstanding shares, each current member of the board of directors of
Baran, certain Baran executive officers, and all directors and current executive officers
as a group. Except as otherwise indicated, the business address for each of the following
persons is Baran House,8 Omarim St. Industrial Park, Omer 84965,Israel.

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|Name of Beneficial Owner                                   | Number of Shares
Beneficially
Owned | Percentage
Beneficially
Owned
|---------------------------------------------------------- | ----------------------------------- | -----------------------------
|
|Menahem Gal                                                | 129,252                             | 1.54%                        
|Aviel Raviv                                                | 183,100                             | 2.19%                        
|Isaac Friedman                                             | 88,615                              | 1.06%                        
|Meir Dor                                                   | 1,351,914                           | 16.14%                       
|Electra Investments (1998) Ltd.(1)                         | 1,053,738                           | 12.58%                       
|1 Sapir St.,Rishon Letzion,Israel                         
|Bank Leumi LeIsrael B.M.Funds(2)                           | 596,053                             | 7.12%                        
|24 Yehuda Halevi St.,Tel Aviv,Israel                      
|Israel Gotman(3)                                           | 301,923                             | 3.60%                        
|Jonathan Inbar(3)                                          | 177,719                             | 2.12%                        
|Israel Scop(3)                                             | 185,719                             | 2.22%                        
|Yom-Tov Samia                                              | 51,000                              | 0.61%                        
|Liora Ofer                                                 | 140,000                             | 1.67%                        
|The Liora Ofer House, Shavei Zion, Israel                 
|Sasson Shilo                                               | 13,734                              | 0.16%                        
|Shuki Shor                                                 | 0                                   | ____                         
|Shlomo Sharf                                               | 0                                   | ____                         
|Arieh Shaked                                               | 0                                   | ____                         
|Tami Gottlib                                               | 0                                   | ____                         
|All current officers and directors as a group (14 persons) | 2,622,976                           | 31.32%                       

(1)Electra Investments (1998) Ltd. is
a wholly-owned subsidiary of Electra (Israel) Ltd. The interested shareholders of Electra
(Israel) Ltd. and their respective percentages of holdings therein are Elco Holdings Ltd.
(52.3%), Bank Hapoalim B.M. (6.25%) and Bank Discount B.M. (6.09%). The interested
shareholders of Elco Holdings Ltd. and their respective percentages of holdings therein
are Mr. Gershon Zelkind (who holds an aggregate of 59.36% of Elco Holdings Ltd.s
issued share capital, 44.49% of which are held directly by him and 14.87% of which are
held through a wholly-owned foreign company) and Elco Holdings Ltd., which holds 16.88% of
its own share capital due to repurchase of its own shares.
(2)Bank Leumi LeIsrael B.M. controls
the voting shares of various investment and other funds that own the Baran ordinary
shares. These numbers of shares are based on reports provided to Baran by the Bank.
(3)Israel Gotman, Jonathan Inbar and Israel Scop are directors of Baran and have entered
into a voting agreement pursuant to which they have agreed to vote their shares to elect
directors of Baran.

# Related Party
Transactions

On July 7, 1998, Baran and Baran
Industries (1991) Ltd. entered into an agreement with several shareholders of Tefen
Industrial Engineering Management and Systems Analysis Ltd. under which the parties
granted each other several rights with respect to their disposition and purchase of shares
in Tefen, and agree to coordinate their voting with respect to the election of directors
as well as other matters to be voted on at Tefens general meetings.

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On January 31, 2000 Baran entered
into an agreement with a shareholder of A.L.D. Advanced Logistics Development Ltd.,
whereby the parties granted each other several rights with respect to the disposition of
their shares, determined the dividend distribution policy in the company and agree to
coordinate their voting with respect to the election of directors as well as other matters
to be voted on at Advanced Logistics general meeting of shareholders.

In addition, Baran has oral
agreements with all its wholly owned subsidiaries, pursuant to which Baran receives
management fees from the subsidiaries in amounts ranging between 4% to 5% of each
subsidiarys annual revenues. Baran has a written agreement with Tefen, pursuant to
which Baran receives consulting fees from Tefen in an amount equal to the cost of the
yearly compensation of a co-managing director in Tefen (NIS 758,080 in 2001). Baran has a
written agreement with A.L.D., pursuant to which Baran receives consulting fees from
Advanced Logistics in an amount equal to the cost of the yearly compensation of the
president of Advanced Logistics (NIS 369,692 in 2001).

In an agreement dated March 27, 1992
Meir Dor, Menachem Gal, Isaac Friedman, Israel Gotman, Jonathan Inbar and Israel Scop,
agree to coordinate their vote with respect to the election of directors to the Baran
board as well as other matters to be voted on at Barans general meetings of
shareholders and granted each other several rights with respect to the disposition of
their shares. The parties signed subsequent agreements with Aviel Raviv, dated October 21,
1997 and October 7, 1998 joining Mr. Raviv to the agreement, and modifying the manner in
which directors shall be elected to the Baran board. An addendum dated December 10, 2000
specified certain conditions for the effectiveness of these agreements.

On July 8, 1998, Electra Investments
(1998) Ltd. and Messrs. Dor, Gal, Friedman, Gotman, Inbar and Scop signed an agreement
pursuant to which the parties have undertaken, among other things, to determine
Barans dividend payment policy and to grant a right of Ñfirst refusal and a
tag along right on the sale of Baran shares owned by any of the parties, as described in
the agreement. In addition, the parties have agreed that the consent of each party is
required in order to change Barans articles of association in a manner that
adversely affects the rights of any of the parties, and in order to issue Baran ordinary
shares if the issuance is not equal to all parties. In the agreement, and in a separate
document to which Aviel Raviv was also a party, all parties agreed that Electra has a
right to appoint one director to the Baran board, as described in the agreement, and that
all parties will vote their shares to approve the appointment of Electras designee
and all other designees recommended by the other parties to the agreement.

On October 18, 1999, Mr. Raviv
transferred all his rights in connection with the appointment of directors of Baran to
Meir Dor. During the year 2001, Mr. Gal and Mr. Friedman transferred all their rights in
connection with the appointment of directors of Baran to Meir Dor, the above transfer
shall remain valid until its cancellation.

57

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# ITEM 8. FINANCIAL
INFORMATION

Our consolidated financial
statements are incorporated herein by reference to pages F-1 through F-114.

# ITEM 9. OFFERS AND
LISTING

# Market and Share Price
History

Baran ordinary shares have been
traded on the Tel Aviv Stock Exchange under the symbol BRAN since March 26,
1992.

The following table sets forth the
high and low sales prices, in NIS, of the Baran ordinary shares (in NIS) as quoted on the
Tel Aviv Stock Exchange for the periods indicated:

|            |        |      
|----------- | ------ | -----
|
|2001        | High   | Low  
|1st quarter | 119.75 | 67.38
|2nd quarter | 91.33  | 68.61
|3rd quarter | 94.89  | 60.95
|4th quarter | 91.06  | 68.16
|2002        |       
|1st quarter | 97.53  | 77.34
|2nd quarter | 79.49  | 43.30
|3rd quarter | 50.10  | 26.86
|4th quarter | 28.55  | 23.62

The annual high and low market prices
for Baran ordinary shares (in NIS) for the five most recent full fiscal years:

|     |        |      
|---- | ------ | -----
|
|     | High   | Low  
|2002 | 97.53  | 23.62
|2001 | 119.75 | 60.95
|2000 | 161.65 | 93.84
|1999 | 104.56 | 26.48
|1998 | 29.54  | 19.35

The high and low market prices for
Baran ordinary shares (in NIS) for the most recent six months:

|               |       |      
|-------------- | ----- | -----
|
|               | High  | Low  
|March 24, 2003 | 35    | 29.06
|February 2003  | 28.69 | 26.37
|January 2003   | 8.4   | 27.06
|December 2002  | 37.07 | 25.56
|November 2002  | 35.83 | 25.55
|October 2002   | 28.55 | 23.62

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On November 2002, our shares
commenced trading on the Nasdaq National Market, under the symbol BRAN the
following table sets forth, for the periods indicated and available, the high and low
reported sales prices of the ordinary shares on the Nasdaq National Market:

|               |      |     
|-------------- | ---- | ----
|
|               | High | Low 
|March 24, 2003 | 7.02 | 6.02
|February 2003  | 5.9  | 5.41
|January 2003   | 6.0  | 5.68
|December 2002  | 8.48 | 5.32
|November 2002  | 7.0  | 5.5 

# ITEM 10. ADDITIONAL
INFORMATION

# Articles of Association

Under Israeli law, the founders of a company
must present to the Israeli Registrar of Companies the companys articles of
association. Upon receipt of a certificate of registration from the Registrar of
Companies, the company is considered duly incorporated. Following incorporation, an
Israeli company must notify the Registrar of Companies of, among other things, all
issuance of shares, amendments to the articles of association and the name and addresses
of its shareholders of record and directors. A company must also submit to the Registrar
of Companies the annual reports and, as Baran is a publicly traded company, the audited
financial statements that it submits to its shareholders, which all become a matter of
public record. Brans Israeli incorporation number is 52- 003725-0.

Audit CommitteeUnder Israeli Companies Law, the
board of directors of any company whose shares are listed on any exchange must appoint an
audit committee comprised of at least three directors including all of the outside
directors, but excluding the:

| | o | chairman
of the board of directors;
| | - | -----------------------------------

| | o | general
manager;
| | - | ----------------

| | o | chief
executive officer (or managing director);
| | - | -----------------------------------------------

| | o | controlling
shareholder; and
| | - | ----------------------------

| | o | any
director employed by the company or who provides services to the company on a regular
basis.
| | - | ------------------------------------------------------------------------------------------------

Baran's board has appointed Tami Gottlib, Liora Ofer and Arieh Shaked as members of its audit committee.
Under Israeli Companies Law, the role of the audit committee is to identify irregularities in the business
management of the company, in consultation with the internal auditor and the company's independent
accountants, and suggest an appropriate course of action.

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Approval of Transactions with Office Holders and Controlling Shareholders
The approval of the audit committee is required to effect specified actions and transactions with office
holders and controlling shareholders. The term controlling shareholder includes a shareholder that holds 50%
or more of the voting rights in a public company; if the company has no shareholder that owns more than 50%
of its voting rights, then the term also includes any shareholder that holds 25%or more of the voting rights
of the company. An audit committee may not approve an action or a transaction with a controlling shareholder
or with an office holder unless at the time of approval the two outside directors are serving as members of
the audit committee and at least one of them was present at the meeting at which the approval was granted.

Internal Auditor
Under the Israeli Companies Law, the board of directors must appoint an internal auditor nominated by the
audit committee. The role of the internal auditor is to examine whether a company's actions comply with the
law and orderly business procedure. Under the Israeli Companies Law, the internal auditor may be an employee
of the company but may not be an interested party or an office holder, an affiliate, or a relative of an
interested party or an office holder, nor may the internal auditor be the company's independent accountant or
its representative. An interested party is defined in the Israeli Companies Law as a 5%or greater
shareholder, any person or entity who has the right to designate one director or more or the chief executive
officer (or managing director)of the company or any person who serves as a director or as a chief executive
officer (or managing director). Baran has appointed Mr. Haim Halfon of the Amit Halfon accounting firm as its
internal auditor.

Approval of Specified Related Party Transactions under Israeli Law
The Israeli Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company,
including directors and executive officers. The duty of care requires an office holder to act with the
degree of care with which a reasonable office holder in the same position would have acted under the same
circumstances. The duty of care includes a duty to use reasonable means to obtain:

| | o | information
on the  appropriateness  of a given action brought for his or her approval or performed
by          virtue of his or her position; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| | o | all
other important information pertaining to these actions.
| | - | ------------------------------------------------------------

The duty of loyalty of an office holder includes a duty to:

| | o | refrain
 from any  conflict of interest  between the  performance  of his or her duties to the
company          and his or her personal affairs;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| | o | refrain
from any activity that is competitive with the company;
| | - | ---------------------------------------------------------------

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| | o | refrain
 from  exploiting  any  business  opportunity  of the  company to receive a personal
 gain for          himself or herself or others; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| | o | disclose
to the company any information or documents  relating to a company's  affairs that the
office          holder received as a result of his or her position as an office holder.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Israeli Companies Law requires that an office holder promptly disclose any
personal interest that he or she may have and all related material information known to
him or her relating to any existing or proposed transaction by the company, and in any
event not later than the first meeting of the board of directors at which such
transaction is considered. If the transaction is an extraordinary transaction, the office
holder must also disclose any personal interest held by:

| | o | the
office holder's spouse, siblings,  parents,  grandparents,  descendants,  spouse's
descendants and          the spouses of any of these people; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | any
 corporation  in which the  office  holder is a 5% or  greater  shareholder,  director
 or general          manager or in which he or she has the right to appoint at least one
director or the general manager.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under the Israeli Companies Law, an
extraordinary transaction is a transaction:

| | o | other
than in the ordinary course of business;
| | - | ----------------------------------------------

| | o | that
is not on market terms; or
| | - | -------------------------------

| | o | that
is likely to have a material impact on the company's profitability, assets or liabilities.
| | - | -----------------------------------------------------------------------------------------------

Under the Israeli  Companies Law, once an office holder  complies with the above  disclosure  requirement,  the
board of directors  may approve a  transaction  between the company and an office  holder,  or a third party in
which an office  holder  has a personal  interest,  however,  a  transaction  that is adverse to the  company's
interest may not be approved.  If the  transaction is an  extraordinary  transaction,  both the audit committee
and the board of directors must approve the transaction.  Under specific  circumstances,  shareholder  approval
may also be required.  A director who has a personal interest in a transaction,  other than a transaction which
is not an  extraordinary  transaction,  and which is  considered  at a meeting of the board of directors or the
audit  committee,  may not be present at this meeting or vote on this matter unless a majority of the directors
or members of the audit committee have a personal  interest in the matter.  If a majority of the directors have
a personal  interest in the matter,  the  transaction  also  requires the approval of the  shareholders  of the
company.

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Under the Israeli  Companies Law, all  arrangements  as to compensation of office holders who are not directors
require  approval by the board of  directors,  and  undertaking  to indemnify or insure an office holder who is
not a director  requires  both board and audit  committee  approval.  In general,  arrangements  regarding  the
compensation,  indemnification and insurance of directors require audit committee and shareholders  approval in
addition to board approval.

Under the Israeli Companies Law, the disclosure  requirements,  which apply to an office holder,  also apply to
a controlling  shareholder of a public company.  Extraordinary  transactions with a controlling  shareholder or
in which a controlling  shareholder  has a personal  interest,  and the terms of  compensation of a controlling
shareholder who is an office holder,  require the approval of the audit  committee,  the board of directors and
a majority of the  shareholders of the company.  In addition,  the  shareholders'  approval must fulfill one of
the following requirements:

| | o | at
least  one-third  of the  shareholders  who have no personal  interest in the
 transaction  and are          present and voting,  in person,  by proxy or by written
 ballot,  at the meeting must vote in favor of          approving the transaction; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | the
 shareholders  who have no personal  interest in the  transaction who vote against the
transaction          may not represent more than 1%of the voting rights in the company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under Israeli Companies Law, a
shareholder has a duty to refrain from abusing his or her power in the company and to act
in good faith and in an acceptable manner in exercising its rights and performing its
obligations to the company and the other shareholders, including, among other things,
voting at general meetings of shareholders on the following matters:

| | o | an
amendment to the articles of association;
| | - | --------------------------------------------

| | o | an
increase in the company's authorized share capital;
| | - | ------------------------------------------------------

| | o | a
merger; and
| | - | -------------

| | o | approval
of related party transactions that require shareholder approval.
| | - | -------------------------------------------------------------------------

In addition, any controlling
shareholder, any shareholder who knows that his or her vote can determine the outcome of a
shareholder vote and any shareholder who, under the companys articles of
association, can appoint or prevent the appointment of an office holder, is required to
act with fairness towards the company. The Israeli Companies Law does not describe the
substance of this duty and there is no binding case law that addresses this subject
directly. The above also applies to any voting agreement among shareholders of the
company.

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# Exculpation, Insurance
and Indemnification of Directors and Officers

Under Israeli Companies Law, an
Israeli company may not exculpate an office holder from liability for a breach of the duty
of loyalty of the office holder. However, the company may approve an act which otherwise
will be treated as a breach of the duty of loyalty of an office holder provided that the
office holder is acting in good faith, the act or its approval does not harm the company,
and the office holder discloses the nature of his or her personal interest in the act and
all material facts and documents a reasonable time before discussion of the approval. An
Israeli company may exculpate an office holder in advance from liability to the company,
in whole or in part, for a breach of duty of care but only if a provision authorizing such
exculpation is inserted in its articles of association. Barans current articles of
association do not include such a provision. An Israeli company may indemnify an office
holder in respect of certain liabilities either in advance of an event or following an
event provided that a provision authorizing such indemnification is inserted in its
articles of association, and provided that the indemnification undertaking is limited to
foreseeable liabilities and was in reasonable amounts as determined by the board of
directors. Barans articles of association contain such a provision, and limit it
further by stating that the aggregate indemnification amount will not exceed 25% of
Barans net equity, as stated in its most recent financial reports before the actual
indemnification. Baran may indemnify an office holder against the following liabilities
incurred for acts performed as an office holder:

| | o | a
 financial  liability  imposed  on him or her in favor of another  person  pursuant  to a
 judgment,          settlement or arbitrator's award approved by court; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | reasonable
 litigation  expenses,  including attorneys' fees, incurred by the office holder or
imposed          by a court in proceedings  instituted  against him or her by the
company,  on its behalf or by a third          party,  or in connection  with criminal
 proceedings  in which the office holder was acquitted or as a          result of a
conviction for a crime that does not require proof of criminal intent.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

An Israeli company may insure an
office holder against the following liabilities incurred for acts performed as an office
holder:

| | o | a
breach of duty of loyalty to the company,  to the extent that the office  holder acted in
good faith      and had a reasonable basis to believe that the act would not prejudice
the company;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | a
breach of duty of care to the company or to a third party; and
| | - | ----------------------------------------------------------------

| | o | a
financial liability imposed on the office holder in favor of a third party.
| | - | -----------------------------------------------------------------------------

An Israeli company may not indemnify or insure an office holder against any of the following:

| | o | a
breach of duty of loyalty,  except to the extent that the office  holder acted in good
faith and had          a reasonable basis to believe that the act would not prejudice the
company;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | o | a
breach of duty of care committed intentionally or recklessly;
| | - | ---------------------------------------------------------------

| | o | an
act or omission committed with intent to derive illegal personal benefit; or
| | - | -------------------------------------------------------------------------------

| | o | a
fine levied against the office holder.
| | - | ----------------------------------------

Under the Israeli Companies Law,
exculpation, indemnification and insurance of office holders must be approved by the audit
committee and the board of directors of a company, and, in respect of its directors, by
the shareholders. Barans directors and office holders are currently covered by a
directors and officers liability insurance policy, which has an aggregate
claims limit of $15 million, no claims for directors and officers liability
insurance have been filed under this policy.

Baran has entered into agreements
with each of its office holders undertaking to indemnify them to the fullest extent
permitted by its articles of association. The procuring of insurance is subject to
Barans discretion depending on its availability, effectiveness and cost. In the view
of the U.S. Securities and Exchange Commission, however, indemnification of directors and
officers for liabilities arising under the Securities Act is against public policy and
therefore unenforceable.

Barans board may declare a
dividend to be paid to the holders of ordinary shares in proportion to the shares of the
company that they hold. Dividends may only be paid out of profits and other surplus funds,
as defined in the Israeli Companies Law, as of the end of the most recent fiscal year or
as accrued over a period of the most recent two years, whichever is higher, provided that
there is no reasonable concern that a payment of a dividend will prevent Baran from
satisfying existing and foreseeable obligations as they become due. In the case of a share
dividend or bonus shares, holders of each class of shares can receive shares of the same
class that confer upon the holder the right to receive the share dividend or shares of
another class whether the class was preexisting or was created for the purpose of issuing
the share dividend or bonus shares, or a combination of such classes of shares.
The Board of Directors may, before
offering any dividend whatsoever, set aside certain amounts from the Companys
profits as it sees fit, as a reserve to be kept for certain purposes, and the Board can
invest the sums that have been so set aside in such investments as it sees fit, and it may
from time to time deal with these investments and change them and use all or some of them
for the Companys benefit, and the Board may use the reserve or any part of it in the
Companys business, without being required to hold it separately from the
Companys other assets. 
Subject to all of the special or
limited rights attached to any of the shares, a cash dividend will be distributed to
shareholders proportionately to the paid-in capital on the par value of the shares held by
them, without regard for the premium paid for the shares.

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The Board of Directors may from time
to time determine the manner of the payment of the dividends or the distribution of stock
dividends and the arrangements relating to this with respect to the shareholders. Without
limiting the generality of the above, the Board of Directors may pay any dividends or
funds for shares by sending a check by mail to the shareholders address as it is
recorded in the shareholders register. The shareholder will bear the risk with
regard to any such mailing of a check.

On those occasions when the Board of
Directors provides for the payment of dividends, or the distribution of shares or
debentures out of the Companys capital, or the granting of a right to subscribe for
shares that have not yet been issued and which are offered to shareholders against the
delivery of an appropriate coupon which is attached to the shareholders share
certificates, such payment, distribution or granting of a right to subscribe against an
appropriate coupon to the holder of the said coupon will constitute a discharge of the
Companys debt with respect to such activity to any person claiming a right to such
payment, distribution, or granting of a right to subscribe, whichever is relevant.

The Board of Directors may defer the
payment of a dividend, benefit, or right that was to be paid for shares regarding which
the Company has a lien, and to use the consideration received upon the forfeiture of such
for the purpose of paying the debts for which the Company has the lien.

The transfer of a share will not give
the transferee the right to receive a dividend or any other distribution which is declared
after the date of the transfer of the share and before the transfer of the share is
recorded, except that in the event that the transfer of the share requires the approval of
the Board of Directors, the date of such approval will for this purpose take the place of
the date on which the transfer is recorded.If payment of a dividend is not
demanded within a period of 7 years from the date on which its distribution applies, the
party entitled to it will be viewed as having waived it and the payment will be restored
to the Companys ownership. The Board of Directors may deduct
from any dividend, grant or other monies that are to be paid in connection with shares
that are held by a shareholder, whether such shareholder is the sole owner or owns it
jointly with another shareholder, any amounts of money owed by the shareholder which he
alone is required to pay to the Company or which he is required to pay to the Company
together with any other person, such as payments to be made in response to demands for
payment, and such-like.In the event that there are joint
holders of a single share, either one of them can give a valid receipt for any dividend
that is paid on that share, or for any other funds or privileges given in relation to that
share.

Barans ordinary shares do not
have cumulative voting rights for the election of directors. As a result, the holders of
Barans ordinary shares that represent more than 50 percent of the voting power
present or represented at a shareholders meeting have the power to elect or remove any or
all of Barans directors, subject to special approval requirements for outside
directors described above.

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In the event of Barans
liquidation, after satisfaction of liabilities to creditors, Barans assets will be
distributed to the holders of ordinary shares in proportion to the nominal value of their
respective shares. This right may be affected by the grant of preferential dividend or
distribution rights to the holders of a class of shares with preferential rights that may
be authorized in the future.

The Board of Directors may, before
offering any dividend whatsoever, set aside certain amounts from the Companys
profits as it sees fit, as a reserve to be kept for certain purposes, and the Board can
invest the sums that have been so set aside in such investments as it sees fit, and it may
from time to time deal with these investments and change them and use all or some of them
for the Companys benefit, and the Board may use the reserve or any part of it in the
Companys business, without being required to hold it separately from the
Companys other assets.

Baran is required to convene an
annual meeting of its shareholders once every calendar year within a period of not more
than 15 months following the preceding annual general meeting. Barans board is
required to convene a special meeting of its shareholders at the request of two directors
or one quarter of the members of its board or at the request of one or more holders of 5%
or more of its share capital and 1% of its voting power or the holder or holders of 5% or
more of its voting power. Shareholder meetings require prior notice of at least 21 days,
or under certain circumstances, 14 days. The chairman of Barans board or any
director appointed the chairman or the secretary of Baran presides over its shareholder
meetings.

Under the Israeli Companies Law,
Baran is not required to send out proxy statements to its shareholders in connection with
an annual or special meeting. Baran must provide notice of any shareholders meeting,
which notice shall include the agenda for the meeting. The Israeli Companies Law permits a
company to allow its shareholders, if so permitted by its Articles of Association, to vote
by written proxy, by appointing a representative with a power of attorney to vote at the
shareholders meeting on behalf of the shareholders.

Baran has adopted a provision in its
Articles of Association permitting voting by proxy. When Baran solicits the votes of its
shareholders in the United States, it sends proxy cards to them. The Israeli Companies Law
also permits shareholders to vote by written ballot, by signing a voting instrument
attached to the proxy statement; however, this provision of the law is not yet in force,
and will only take effect once the Minister of Justice issues regulations providing the
procedure for such vote. Holders of Baran ordinary shares have one vote for each ordinary
share held on all matters submitted to a vote of shareholders at a shareholder meeting.
Shareholders may vote at shareholder meetings either in person or by proxy. Israeli law
does not provide for public companies such as Baran to have shareholder resolutions
adopted by means of a written consent in lieu of a shareholder meeting. Shareholder voting
rights may be affected by the grant of any special voting rights to the holders of a class
of shares with preferential rights that may be authorized in the future. The Israeli
Companies Law provides that a shareholder, in exercising his or her rights and performing
his or her obligations toward the company and its other shareholders, must act in good
faith and in an acceptable manner, and avoid abusing his or her powers.

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This is required,
when, for example, voting at shareholder meetings on matters such as changes to the
articles of association, increasing the companys registered capital, mergers and
approval of related party transactions. A shareholder must also avoid oppression of other
shareholders. In addition, any controlling shareholder, any shareholder who knows that his
or her vote can determine the outcome of a shareholder vote and any shareholder who, under
the companys articles of association, can appoint or prevent the appointment of an
office holder, is required to act with fairness towards the company. The Israeli Companies
Law does not describe the substance of this duty and there is no binding case law that
addresses this subject directly. Any voting agreement is also subject to observance of
these duties.

An ordinary resolution requires
approval by the holders of a simple majority of the voting rights represented at the
meeting, in person, by proxy or by written ballot (if permitted), and voting on the
resolution. Under the Israeli Companies Law, a resolution for the winding up of the
company or for changing its memorandum of association requires approval by holders of 75%
of the voting rights represented at the meeting, in person, by proxy or by written ballot
(if permitted) and voting on the resolution. Unless otherwise provided in the articles of
association or the Israeli Companies Law, all other resolutions of Baran shareholders
require a simple majority.

The quorum required for a shareholder
meeting consists of at least two shareholders present, in person or by proxy, who hold or
represent between them at least 25% of Barans issued share capital. If a quorum is
not present within 30 minutes from the time scheduled for the meeting, the meeting will be
cancelled.

All of Barans issued and
outstanding ordinary shares are duly authorized, validly issued and fully paid.
Barans ordinary shares are not redeemable and have no preemptive rights.

The ownership or voting of ordinary
shares by non-residents of Israel is not restricted in any way by Barans Articles of
Association, Barans articles of association or the laws of the State of Israel,
except that citizens of countries which are, or have been, in a state of war with Israel
may not be recognized as owners of ordinary shares.

Issuance of shares to a person
holding 5% or more of the companys shares or that will become 5% shareholder,
requires the approval of the general meeting, in addition to the board of directors
approval. Other issuance of shares to interested parties are subject to several
restrictions.

The approval of a merger of the
Company will be given in a resolution of the general meeting adopted by an ordinary
majority.

The Company, through a resolution
adopted by a regular majority, may: Enlarge its share capital in an
amount to be decided, through the creation of new shares at a par value, with terms and
rights as shall be decided. Such a decision can be taken whether or not all the existing
shares have been issued or a resolution has been made to issue them, or whether they have
not all been issued or a resolution has not been made to issue all of them.

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Issue shares whether they are
included in its original capital or are the result of an increase in the share capital,
giving them either preferential or subordinate rights, or issue shares from the capital
that has not yet been issued that will be redemption shares and redeem them, or issue
shares and give them special limited rights or limitations in connection with the
distribution of dividends, voting rights, repayment of capital, or in connection with
other matters as may be determined in the resolution.

Issue redemption shares and to redeem
them, to the extent permitted by law. Unless the terms of the issuance of such shares
provide otherwise, to convert, cancel, exchange, expand, add or change in any other manner
the rights, preferences, advantages, limitations and provisions connected to or that are
not at such time connected to any of the classes of shares.

Cancel authorized share capital that
has not yet been issued, to the extent permitted by law.

Combine and re-divide its share
capital into shares with larger par values than the existing par values. To re-divide all
or some of its share capital through a redistribution of the existing shares into shares
of smaller par value than that of the existing shares, in accordance with the provisions
of the law.

Reduce its share capital, in the same
manner and under the same conditions, and subject to having obtained the approvals as
required by law. The special rights granted to holders of shares or of a class of shares
that have been issued, including shares that have been issued with senior rights or other
special rights, will not be considered to have been changed by the creation or issuance of
additional shares of the same rank, unless otherwise provided in the terms of the issuance
of those shares.

Any change, conversion, cancellation,
expansion, addition or other change in the rights, preferences, advantages, limitations or
provisions connected with a specific class of shares that has been issued to shareholders
in the Company shall be subject to the consent of the holders of the outstanding shares of
that class, such consent to be given in writing by the owners of all outstanding shares of
that class, or by a resolution adopted by an ordinary majority at the meeting of
shareholders of that class  i.e., a class shareholder meeting.

The Board of Directors may, in its
discretion, resolve any difficulty that may arise in order to carry out any such
resolution. Without limiting the said authority of the Board of Directors, in the event
that as a result of a combination of shares, there are shareholders the combination of
whose shares leaves them with fractional shares, the Board of Directors may:

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Sell the total of all the fractional
shares, and appoint a trustee for this purpose in whose name the certificates will be
issued for the shares made up of the fractions, which will be sold and the consideration
for which will be distributed to the entitled shareholders, after deducting fees and
expenses; or

Allot to each of the shareholders
regarding whom the combination has left with fractional shares, shares of the same class
as were held before the combination, paid in full, in an amount, which after being
combined with the fractional share will come to a single full combined share. Such
allotment will be considered to have taken effect immediately before the combination;

To determine that the shareholders
will not be entitled to receive a combined share for any fraction of a combined share that
results from a combination of half or less than the number of shares the combination of
which creates one single combined share. Such shareholders will be entitled to receive one
combined share only for every fraction of a combined share that results from the
combination of shares that number more than half of the number of shares the combination
of which creates one single combined share.

In the event the board action taken
requires the issuance of additional shares, then the payment shall be done in the manner
in which dividend shares may be paid up. Such combinations and divisions will not be
considered to be a change in the rights of the shares that are the subject of the
combination and division.

In any event of a combination of
shares into shares with a larger par value, the Board of Directors may establish
arrangements for the purpose of overcoming any difficulty that may arise in connection
with the combination, and the board is in particular permitted to determine which shares
are to be combined into a particular share or into another. In the event of combination of
shares that are not owned by the same owners, the board may establish arrangements for the
sale of the combined share, the manner of its sale and the manner of distribution of the
net consideration received, and to appoint a person who shall carry out the transfer, and
every action taken by such person shall be valid and may not be challenged.

Subject to the provisions of the
Articles of Association, the Board of Directors may issue shares and other securities
which are convertible or which may be realized as shares, up to the limit of the
Companys authorized share capital. It may, within the scope of the authority thus
granted to it, and in return for cash or other form of consideration, issue shares (or
otherwise deal with them) to those persons, and with those reservations and conditions,
(whether regarding the premium paid, the par value or the deduction), and at those times
that it sees fit; and to grant to any person the right to demand the issuance of shares
during a particular period, and for such consideration as the Board of Directors may
determine.

In the event that the Companys
shares are offered for sale, there is no obligation to make a similar offer to all or to
some of the holders of the Companys shares.

69

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Upon the issuance of shares, the Board
of Directors may establish various conditions for the shareholders, with regard to
consideration, the amounts the payment of which is demanded and/or the time of the payment
of such shares.

# Exchange Controls

Under Israeli law, non-residents of
Israel who purchase ordinary shares with certain non-Israeli currencies (including
dollars) may freely repatriate in such non-Israeli currencies all amounts received in
Israeli currency in respect of the ordinary shares, whether as a dividend, as a
liquidating distribution, or as proceeds from any sale in Israel of the ordinary shares,
provided in each case that any applicable Israeli income tax is paid or withheld on such
amounts. The conversion into the non-Israeli currency must be made at the rate of exchange
prevailing at the time of conversion. Under Israeli law and our companys Memorandum
and Articles of Association both residents and non-residents of Israel may freely hold,
vote and trade ordinary shares.

# Israeli Taxation

The following discussion is not
intended to constitute a complete analysis of all tax consequences relating to the
receipt, ownership or disposition of Barans ordinary shares and does not address any
non-income tax or any non-Israeli tax consequences of the merger. On July 24, 2002, the
Law for Amendment of the Income Tax Ordinance (Amendment No. 132), 2002 (the
Amendment) was enacted by the Israeli authorities. This Amendment became
effective as of January 1, 2003.

# Taxation of Baran
Shareholders Capital Gains on Sales of Baran Ordinary Shares

Israeli law imposes a capital gains
tax on the sale of capital assets. The law distinguishes between real gain and
inflationary surplus. The inflationary surplus is a portion of the total capital gain that
is equivalent to the increase of the relevant assets purchase price, which is
attributable to the increase in the Israeli consumer price index between the date of
purchase and the date of sale. Foreign residents, as described below, who purchased an
asset in non-Israeli currency, may request that the inflationary surplus will be computed
on the basis of the devaluation of the NIS against such foreign currency. The real gain is
the excess of the total capital gain over the inflationary surplus. The inflationary
surplus accumulated from and after December 31, 1993, is exempt from any capital gains tax
in Israel while the real gain is added to ordinary income, which is currently taxed at
ordinary rates of up to 50% for individuals and 36% for corporations. Currently, sales of
ordinary shares of Israeli public companies whose shares are quoted on the Tel Aviv Stock
Exchange (such as Baran) are generally exempt from Israeli capital gain tax. Dealers in
securities in Israel or any other seller whose income from selling shares is classified as
current income and not as capital gain under the Income Tax Law (Inflationary Adjustment),
1985, are taxed at regular tax rates applicable to business income.

70

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A foreign resident is as a person who
is not an Israeli resident. An Israeli resident is: an entity registered in Israel whose
principal activity is in Israel, an entity that is registered as a foreign company, if it
elects to be treated as an Israeli resident. This election is irrevocable for the three
tax years after the election, unless the entity obtains a special permit. Under the
Amendment, as of the effective date, any corporation that incorporated in Israel, an
entity over which control and the management of its business are exercised in Israel, an
individual residing in Israel, except for temporary absences, which do not contradict the
individuals claim of residence in Israel, would be considered an Israeli resident.

Pursuant to the Amendment, the
above-described exemption on capital gains on sales by Israeli residents of listed
securities, which were accrued since the effective date will be terminated. Under the
Amendment, the general rate of capital gains will be reduced to 25% and the rate of
capital gains on sales of publicly traded securities will be 15%. Shareholders whose
income from selling Barans shares is classified as business profits (in contrast to
capital gain) would be taxed at ordinary income tax rates (up to 50% for individuals and
36% for corporations).Under the Amendment, the exemption on
capital gain of foreign residents from selling publicly traded securities on the Tel Aviv
Stock Exchange will continue to apply, and therefore the Amendment will not affect any tax
exemptions applicable to foreign residents prior to the effective date.

# Israeli Taxation of
Non-Israeli Holders of Shares

Israeli law provides that non-Israeli
residents are subject to capital gains tax on the gains from the sale of a capital asset
(including securities) in Israel or an asset located outside Israel that is a right,
direct or indirect, to an asset in Israel unless an exemption is provided under any
provision of a double-taxation treaty with Israel. Under the double-taxation treaty
between Israel and the U.S. (the Treaty), Israeli capital gains tax will
not apply to the sale, exchange or disposition of ordinary shares by a person: who
qualifies as a resident of the United States within the meaning of the Treaty; and who is
entitled to claim the benefits available to the person by the Treaty.

This exemption will not apply, among
other cases, if the gain is attributable to a permanent establishment of such person in
Israel, or if the U.S. resident holds, directly or indirectly, shares representing 10% or
more of Barans voting power during any part of the 12-month period preceding the
sale, exchange or disposition, subject to certain conditions. In this case, the sale,
exchange or disposition would be subject to Israeli tax, to the extent applicable.
However, the U.S. resident generally would be permitted to claim a credit for the taxes
against the U.S. federal income tax imposed on the sale, exchange or disposition, subject
to the limitations in U.S. laws applicable to foreign tax credits. The Treaty does not
apply to U.S. state or local taxes. Sales of Baran ordinary shares by non-Israeli holders,
whether on the Tel Aviv Stock Exchange or on the Nasdaq National Market, would be exempt
from Israeli capital gains tax under the Amendment as long as the shares are listed on the
Tel Aviv Stock Exchange. Non-residents of Israel are subject to tax on income accrued or
derived from sources in Israel or received in Israel. These sources of income include
passive income such as dividends, royalties and interest, as well as non-passive income,
such as income received for services rendered in Israel. Baran is required to withhold
income tax at the rate of 25% (or 15% for dividends distributed from certain income
generated by an entity, such as two of Barans subsidiaries, that enjoys approved
enterprise status under certain Israeli tax incentive law) unless a different rate or an
exemption is provided in a tax treaty between Israel and the shareholders country of
residence. Under the Treaty, the maximum rate on dividends paid to a U.S. resident is 25%.
In addition, under the Treaty, if the income out of which the dividend is being paid is
not attributable to an approved enterprise and the non-resident is a U.S. corporation that
holds 10% of Barans voting power for a certain minimum period, the rate is generally
12.5%. Under an amendment to the Inflationary Adjustments Law, non-Israeli corporations
may be subject to Israeli taxes on the sale of shares in an Israeli company, which shares
are traded on certain stock markets, including the Nasdaq National Market, subject to the
provisions of any applicable double taxation treaty.

71

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# Documents on Display

We are required to file reports and
other information with the SEC under the Securities Exchange Act of 1934 and the
regulations thereunder applicable to foreign private issuers. Reports and other
information filed by us with the SEC may be inspected and copied at the SECs public
reference facilities described below. Although as a foreign private issuer we are not
required to file periodic information as frequently or as promptly as United States
companies, we generally do publicly announce our quarterly and year-end results promptly
and file periodic information with the SEC under cover of Form 6-K. As a foreign private
issuer, we are also exempt from the rules under the Exchange Act prescribing the
furnishing and content of proxy statements and our officers, directors and principal
shareholders are exempt from the reporting and other provisions in Section 16 of the
Exchange Act.

You may review a copy of our filings
with the SEC, including any exhibits and schedules, at the SECs public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the SEC located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies of such
materials from the Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. In addition, such
information concerning our company can be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 9513 Key West Avenue, Rockville,
Maryland 20850 and at the offices of the Israel Securities Authority at 22 Kanfei Nesharim
St., Jerusalem, Israel.

72

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You may read and copy any reports,
statements or other information that we file with the SEC at the SEC facilities listed
above. These SEC filings are also available to the public from commercial document
retrieval services. We also make available on our own Web site (www.barangroup.com) all
our quarterly and year-end financial statements as well as other information.

Any statement in this annual report
about any of our contracts or other documents is not necessarily complete. If the contract
or document is filed as an exhibit to the registration statement, the contract or document
is deemed to modify the description contained in this annual report. We urge you to review
the exhibits themselves for a complete description of the contract or document.

# ITEM 11. QUANTATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk is the risk of loss
related to changes in market prices, including interest rates and foreign exchange rates
of financial instruments that may adversely impact our consolidated financial position,
results of operations or cash flows. The currency of the primary economic environment in
which we conduct our operation is the New Israeli Shekel. Our primary market risk
exposures relate to interest rate movements and borrowing and to exchange rate movements
on foreign currency is Israel.

# Foreign Exchange Risk
and Interest Rates

Baran invests available cash in low
risk instruments, such as government bonds issued by the Israeli government. Baran manages
its exposure to financial risks closely, and evaluates the status of these risks twice a
month. As a significant portion of Barans revenues and costs are derived or incurred
in Israel, Europe, Far East and the United States, fluctuations in the exchange rate
between the Israeli currency and the dollar may have a significant effect on the results
of operations of Baran, in mainly U.S. dollar and Euro terms.

Baran has not entered into any
hedging transactions with respect to exchange rates related to its current projects,
because the related income and expenses for the majority of those projects are in Israeli
currency.

With respect to projects, in Israel,
in which the consideration to be received by Baran is linked to the US dollar, Baran tries
to correlate the bases of income and expenses in order to prevent exposure to fluctuations
in the exchange rates. In these projects, receipts and advances are usually linked to the
currency in which most of the related expenditures will be incurred.

Barans non-Israeli-based
companies typically carry out their activities in the local currency, so that the revenues
from those activities are not exposed to fluctuations in exchange rates. Translation of
those companies results of operations into Israeli currency for the purpose of
inclusion in the consolidated financial statements is made in accordance with the
principles detailed in note 1 to Barans financial statements.

73

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Companies that conduct transactions
that are linked to foreign currency, or transactions directly with suppliers outside of
Israel, generally link the payment under those transactions to the currency in which the
transactions are performed. Any gaps in the linkage are attributed by Baran to financing
expenses, which increased significantly during 2002.

Due to the increase in Barans
activity in projects outside of Israel or with foreign customers, a large part of the
groups activity is not carried out in Israeli currency, but rather in local currency
(usually US dollars or Euros).Translation of the results of operations of Barans
foreign subsidiaries into Israeli currency for the purpose of inclusion in the
consolidated financial statements is made in accordance with principles detailed in note 1
to Barans financial statements.

Baran invests part of its available
funds in debentures repaid on timetables that are generally similar to the timetables for
discharge of most of its current and long-term obligations. The interest rate earned from
these debentures typically is not lower than the interest rate due from Baran in
connection with the discharge of such obligations.

Baran and its consolidated
subsidiaries have long term loans in three main currencies: NIS, Euro and US$, as set
forth in the table below. Each loan is taken in the currency which reflects the
geographical area in which Baran and its subsidiaries operate. For example, loan taken, in
order to finance activities in Western Europe were taken in Euro. By operating in
accordance to this strategy (taking loans in the same currency as the currency used in the
activities at the geographical region), Baran tries to minimize its long term exposure.

The table below sets forth the
interest rates for long term loans:

|                             | Weighted
Average
interest rates
as of
December 31,
2002 | December 31
|---------------------------- | ------------------------------------------------------- | -----------
|
|
|In dollars or linked thereto | LIBOR+1                                                 | 824        
|                             |                                                         |            
|In Euro or linked thereto    | 6.2                                                     | 6,423      
|Linked to the CPI            | 3.98                                                    | 169,612    
|Unlinked                     | 9.55                                                    | 16,407     
|                             |                                                         |            
|Total                        |                                                         | 193,266    
|                             |                                                         |            
|                             |                                                         |            

In the short term,  due to frequent  fluctuations  in the exchange rates of the NIS against the US$ or Euro, as
well as the high inflation  rate in Israel,  which  devaluates  the NIS's value,  it is very difficult to avoid
exposure.  The use of NIS loans,  as set forth in the table  above,  result,  in the short term,  in  financing
exposure and financing gaps,
Such as:

74

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| | o | a
loan, which was taken in NIS and was converted to US$ and used for investment in Baran
Telecom Inc. o        a loan  taken in NIS and was  converted  to Euro and used for
 investment  in  Westmontage  Kabel  und          Netzwerk GmbH.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | evaluation
or  devaluation  in exchange  rates of the Euro or US$ or both against the NIS, will
result          in exposure,  which will be reflected in the net financing  item,  as a
direct and complete  function,          to the date of the balance, by the changes of the
exchange rate multiplied by the amount of the loan.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Classified by currency, linkage terms
and interest rates, the short-term credit (excluding current maturities of long-term
loans) is as follows:

|                          | Weighted
interest rates
at December 31,
2002 | December 31 2002
|------------------------- | -------------------------------------------- | ----------------
|
|From banks:               |                                              |                 
|In, or linked to, foreign
|currencies                | 7-9                                          | 59,351          
|Linked to the Israeli CPI | 8.54                                         | 6,605           
|Unlinked                  | 9.6                                          | 8,703           
|                          |                                              |                 
|Total                     |                                              | 74,659          
|                          |                                              |                 

In the regular course of business,
Baran is exposed to a variety of market risks, which usually do not deviate from normal
market risks in a corporations activity. Baran is not dependent on a single supplier
or customer, due to the variety of activities, geographical spread, and the fields in
which it is engaged. Nevertheless, every year there is a number of customers (changing
from year to year) for whom Baran carries out especially large projects. In 2002 there
were three major customers, the income from which constituted approximately 21.4% of total
revenue.

Baran, as a service provider, is
highly dependent on the business of its customers. Fluctuation of demand for the products
or services provided by its customers has a significant influence on the scope of services
acquired by those customers from Baran.

This dependency also affects the
current cash flow of Baran, and in difficult market conditions, as well as problematic
credit terms and improper payment morality, may result in negative cash flow from
Barans current activity.

75

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The exposure to the depreciation of
the real estate and in Barans holdings value; the economic downturn and recession
both in the Israeli and in the global markets, resulted in a general depreciation of real
estate, as well as depreciation of brans holding and their value. Baran and its
subsidiaries own real estate and also have investments and holdings, which their value
might be lower due to the general depreciation, as explained above. In performing a
valuation in the acceptable manners (cash flow, external valuations, valuation of publicly
traded companies) on December 31, 2002, there was no holding or real estate, which was
formerly valuated in a manner that required a value update or a deletion. Notwithstanding,
the value of investments, holdings and real estate will be monitored and valuated at
various reporting intervals, in order to present the real value of those items.

The exposure to market risks is
handled on a current basis, discussed at least once a week in meetings of Barans
managing directors, and is reported to the Baran board at least twice every quarter.
Barans internal auditor carries out from time to time, and according to guidelines
of the Baran board (through its audit committee), inspections pertaining to Barans
market risks, relating to both financial and current trading factors.

Barans functional currency, and
that of more than half of its subsidiaries, is the Israeli currency. Accordingly, Baran
attempts to protect itself against any exposure arising from the difference between assets
and liabilities in each currency other than the Israeli currency. Baran strives to limit
its exposure to exchange rate fluctuations by attempting to maintain similar levels of
assets and liabilities in any given currency, to the extent possible, and does not enter
into derivative transactions to hedge its exchange rate risk. However, this method of
natural hedging is not always achievable.

The table below sets forth the assets
and liabilities of Baran during 2002:

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|                                 | D e c e m b e r 3 1, 2 0 0 2
|-------------------------------- | ----------------------------
|
|
|* Mainly to the euro.           
|                                 |                             
|Adjusted NIS:                    |                             
|Assets:                         
|Current assets:                 
|Cash and cash equivalents        | 11,740                      
|Short-term investments           | 3                           
|Accounts receivable:            
|Trade and income receivable      | 100,786                     
|Other                            | 4,230                       
|Long-term loan and long term    
|Receivables                      |                             
|                                 |                             
|                                 |                             
|                                 | 116,759                     
|                                 |                             
|                                 |                             
|                                 |                             
|Liabilities:                    
|Current liabilities:            
|Short-term bank credit and      
|bank loans                       | 40,676                      
|Accounts payable and accruals:  
|Trade                            | 19,736                      
|Other                            | 32,277                      
|Long-term bank loans (including 
|current maturities)              | 6,423                       
|Capital notes issued to minority
|Shareholders of a subsidiary     |                             
|                                 |                             
|                                 |                             
|                                 | 99,112                      
|                                 |                             
|                                 |                             

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF RECORDS

None.

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ITEM 15 CONTROL AND
PROCEDURES

On March 2nd, 2003,
members of senior management concluded a review and evaluation of Barans disclosure
controls and procedures. In connection with this review senior management considered the
controls and procedures in place and sought to determine whether there were any material
weaknesses or deficiencies that would adversely affect Barans ability to collect,
process or disclose required information on a timely basis, all in the context of the
Companys relatively small size and the hands on role played by Barsans chief
executive, chief financial and chief operation officers, as well as the senior executive
officers in day-to-day operations. Based on such review, Barans executive, chief
financial and chief operation officers, as well as the senior executive officers have
concluded that the procedures and controls previously implemented ensure timely collection
and evaluation of information potentially subject to disclosure under applicable
securities laws. 
Further, such procedures and control
bring to the attention of management the information that is relevant to an assessment of
the need to disclose developments and risks that pertain to Barans business.

Subsequent
to March 2nd, 2003, there were no significant changes in Barans internal
controls or in other factors that could significantly affect the controls and procedures
in place or their ability to ensure appropriate and timely disclosure of all required
information.

ITEM 16 [RESERVED]

# PART III

ITEM 17 Not Applicable

ITEM 18 FINANCIAL
STATEMENTS

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ITEM 19 EXHIBIT INDEX

|Exhibit No.No. | Description
|-------------- | -----------

|1.1 | Articles
of  Association  of Baran  (translation).  (Incorporated  by  reference to Exhibit 3.1 of
the          Registrant's F-4 filed with the Commission on October 24, 2002). (*)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1.2.1 | Memorandum
of Association of Baran, as amended  (translation).  (Incorporated  by reference to
Exhibit          3.2 of the Registrant's F-4 filed with the Commission on October 24,
2002). (*)
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1 | Summary
of Agreement among Ephraim  Goldstein,  Aharon  Lichtenstein,  and Eli Peleg,  Baran and
Baran          Industries  (91)  Ltd.,  dated  July 7,  1998.  (Incorporated  by
 reference  to  Exhibit  10.4 of the          Registrant's F-4 filed with the Commission
on October 24, 2002). (*)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Summary
of Agreement among Dr. Zigmund Blodeband and Baran,  dated January 31, 2000.
 (Incorporated by          reference to Exhibit 10.5 of the Registrant's F-4 filed with
the Commission on October 24, 2002). (*)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 | Agreement
 and Plan of Merger,  dated as of June 5, 2002,  among Baran Group Ltd.,  Baran
 Acquisition          Sub,  Inc.,  and  o2wireless  Solutions,  Inc.  (Incorporated  by
 reference  to  Exhibit  2.1  of the          Registrant's F-4 filed with the Commission
on October 24, 2002). (*)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 | Amendment
 to  Agreement  and Plan of Merger,  dated  August 28, 2002  (Incorporated  by  reference
to          Exhibit 2.1.1 of the Registrant's F-4 filed with the Commission on October
24, 2002). (*)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 | Second
 Amendment  to  Agreement  and Plan of  Merger,  dated  September  17,  2002
 (Incorporated  by          reference to Exhibit  2.1.2 of the  Registrant's  F-4 filed
with the  Commission on October 24, 2002).          (*)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 | Management
Consulting Agreement,  dated as of June 5, 2002, among Baran and o2wireless.
 (Incorporated          by reference to Exhibit 10.3 of the  Registrant's  F-4 filed with
the Commission on October 24, 2002).          (*)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 | Documentation
 of Loan from Bank Hapoalim Ltd. to Baran  (translation).  (Incorporated by reference to
         Exhibit 10.6 of the Registrant's F-4 filed with the Commission on October 24,
2002). (*)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6 | Documentation
 of Loan  from Bank  Leumi to  Nes-Pan  Ltd.,  dated  October  14,  2001  (translation).
         (Incorporated  by reference  to Exhibit  10.7 of the  Registrant's  F-4 filed
with the  Commission  on          October 24, 2002). (*)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.7 | Documentation
of Loan from Bank Leumi to Baran, dated February 10, 2002  (translation).  (Incorporated
         by reference to Exhibit 10.8 of the  Registrant's  F-4 filed with the Commission
on October 24, 2002).          (*)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.8 | Rental
 Agreement  between  Nes-Pan  Ltd.  and  Clal-Investments  in Real Estate  Ltd.
 (translation).          (Incorporated  by reference  to Exhibit  10.9 of the
 Registrant's  F-4 filed with the  Commission  on          October 24, 2002). (*)
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.9 | Agreement
 dated  February  21, 2002 between  D.B.S.  Satellite  Services  (1998) Ltd. and Baran
Raviv          Telecom  Ltd.  (translation).  (Incorporated  by reference to Exhibit
 10.10 of the  Registrant's  F-4          filed with the Commission on October 24, 2002).
(*)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.10 | Agreement
dated March 7, 2000 among T.P.S.  Teleparking  Systems Ltd.,  Baran,  and Dor Chemicals
Ltd.          (translation).  (Incorporated  by reference to Exhibit  10.11 of the
 Registrant's  F-4 filed with the          Commission on October 24, 2002). (*)
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.11 | Agreement
 dated  May  30,  2000  among  T.P.S.  Teleparking  Systems  Ltd.,  Baran,S.M.D.
 Progressive          Technologies  Ltd.,  Alron  TPS  LLC,  and  Israel  Investment  LLC
 (translation).  (Incorporated  by          reference to Exhibit  10.12 of the
 Registrant's  F-4 filed with the  Commission on October 24, 2002).          (*)
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.12 | Warrant
to Purchase Stock of o2wireless  Solutions,  Inc.  (Incorporated by reference to Exhibit
10.13          of the Registrant's F-4 filed with the Commission on October 24, 2002). (*)
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8.1 | List
of Baran  subsidiaries.  (Incorporated by reference to Exhibit 21.1 of the Registrant's
F-4 filed          with the Commission on October 24, 2002). (*)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

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|10.1 | Certification
of Chief Executive  Officer  pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to
         Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Certification
of Chief Financial  Officer  pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to
         Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(*) | Incorporated
by reference to the Registrants Form F-4 filed with the           Commission on
October 24, 2002
|--- | --------------------------------------------------------------------------------------------------------------

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SIGNATURES

The registrant hereby certifies that
it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.

| |  | BARAN GROUP, LTD.By:   /s/ Meir Dor
Meir DorChairman of the Board and ChiefExecutive Officer
| |  | ----------------------------------------------------------------------------------------------------------

Date: March 31, 2003

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CERTIFICATIONS

I, Meir Dor, Chairman of the Board
and Chief Executive Officer, certify that:

1.     I have
reviewed this annual report on Form 20-F of Baran Group, Ltd.;

2.     Based on
my knowledge, this annual report does not contain any untrue statement           of a
material fact or omit to state a material fact necessary to make the           statements
made, in light of the circumstances under which such statements were           made, not
misleading with respect to the period covered by this annual report;

3.    
          Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;

4.    
          The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

| | a. | designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this annual report is being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.    
          The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):

| | a.
                    all significant deficiencies in the design or operation of internal
controls           which could adversely affect the registrants ability to record,
process,           summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

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6.    
          The registrants other certifying officers and I have indicated in this
          annual report whether or not there were significant changes in internal controls
          or in other factors that could significantly affect internal controls subsequent
          to the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

| |  | /s/ Meir Dor
Meir DorChairman of the Board, ChiefExecutive Officer
| |  | --------------------------------------------------------------------------------

83

---

---

CERTIFICATIONS

I, Sasson Shilo, Chief
Financial Officer, Secretary, certify that:

1.    
          I have reviewed this annual report on Form 20-F of Baran Group, Ltd.;

2.    
          Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;

3.    
          Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;

4.    
          The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

| | a. | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this annual report is being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Presented in
this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.    
          The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):

| | a. | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

84

---

---

6.    
          The registrants other certifying officers and I have indicated in this
          annual report whether or not there were significant changes in internal controls
          or in other factors that could significantly affect internal controls subsequent
          to the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

| |  | /s/ Sasson Shilo
Sasson ShiloChief
Financial Officer, Secretary
| |  | -----------------------------------------------------------------------------

85

---

---



BARAN GROUP LTD.(An Israeli Corporation)



---

---

BARAN GROUP LTD.(An Israeli Corporation) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of independent auditors
F-3Consolidated balance sheets at December 31, 2001 and 2002
F-4-F-5Consolidated statements of income for the years ended December 31, 2000, 2001 and
2002
F-6Consolidated statements of changes in shareholders equity for the years ended December
31,

      2000, 2001 and 2002
F-7Consolidated statements of cash flows for the years ended December 31, 2000, 2001 and
2002
F-8-F-11Notes to consolidated financial statements
F-12-F-104Appendix I - Details of subsidiaries, proportionately consolidated companies,

      proportionately consolidated joint ventures and associated companies
F-105Appendix II  Valuation and qualitying accounts
F-106Reports of independent auditors with respect to subsidiaries, associated company and

      proportionately consolidated companies and joint ventures
F-107-F114(In adjusted New Israeli Shekels (NIS). Year ended December 31, 2002
 with

 convenience translation into U.S. dollars (note 1b(4)). F-2 
   Kesselman & Kesselman
Certified Public Accountants
6 Yaski Street
Beer sheva 84222 Israel
Telephone +972-8-6277020
Facsimile +972-8-6276351 REPORT OF INDEPENDENT AUDITORS  To the shareholders ofBARAN GROUP LTD. We have  audited  the  consolidated  balance  sheets of Baran Group Ltd.  (hereafter  - the  "Company'')  as of
December 31,  2001 and 2002 and the related consolidated  statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31, 2002. These  Nfinancial  statements
are the  responsibility  of the Company's Board of Directors and management.  Our  responsibility is to express
an opinion on these financial statements based on our audits. We did not audit the financial  statements of certain subsidiaries and proportionately  consolidated  companies
and joint  ventures,  whose assets included in  consolidation  constitute  approximately  28% and 8.1% of total
consolidated  assets  as of  December  31,  2001  and  2002,  respectively,  and  whose  revenues  included  in
consolidation  constitute  approximately  10.3%,  29% and 19.4% of total  consolidated  revenues  for the years
ended  December  31,  2000,  2001 and  2002,  respectively.  We did not  audit  the  Nfinancial  statements  of
associated  companies,  the Company's  investment in which,  as reflected in the balance  sheets as of December
31, 2001 and 2002,  is adjusted NIS  8,881,000  and adjusted NIS  27,333,000  respectively,  and the  Company's
share in the  profits  of which  aggregates  adjusted  NIS 712,000,  adjusted  NIS  129,000  and  adjusted  NIS
1,060,000, in the years ended December 31, 2000, 2001 and 2002,  respectively.  The financial statements of the
above subsidiaries,  proportionately  consolidated companies,  proportionately  consolidated joint ventures and
associated companies were audited by other independent  auditors,  whose reports have been furnished to us, and
our  opinion,  insofar as it relates to amounts  included for those  companies,  is based on the reports of the
other independent auditors. We conducted our audits in accordance with auditing  standards  generally  accepted in Israel and in the United
States,  including those  prescribed by the Israeli  Auditors (Mode of Performance)  Regulations,  1973.  Those
standards  require  that we plan and  perform  the audits to obtain  reasonable  assurance  about  whether  the
financial  statements  are  free of  material  misstatement.  An audit  includes  examining,  on a test  basis,
evidence supporting the amounts and disclosures in the financial  statements.  An audit also includes assessing
the  accounting  principles  used and  significant  estimates  made by the  Company's  Board of  Directors  and
management,  as well as evaluating the overall  financial  statement  presentation.  We believe that our audits
and the reports of the other independent auditors provide a reasonable basis for our opinion. In our  opinion,  based upon our audits and the reports of the other  independent  auditors  referred to above,
the  Nfinancial  statements  referred to above  present  fairly,  in all material  respects,  the  consolidated
financial  position  of the  Company  as of  December  31,  2001  and  2002  and the  consolidated  results  of
operations,  changes in  shareholders'  equity and cash flows for each of the three  years in the period  ended
December 31, 2002, in conformity with accounting principles generally accepted ("GAAP'') in Israel. Accounting  principles  generally  accepted  in Israel  vary in  certain  important  respects  from  accounting
principles  generally  accepted  in the United  States of America  and as allowed by Item 18 to Form 20-F.  The
application  of the latter would have affected the  determination  of  consolidated  net income for each of the
three years in the period ended December 31, 2002 and the  determination of consolidated  shareholders'  equity
at December 31, 2001 and 2002 to the extent summarized in note 20 to the consolidated Nfinancial statements. As  explained  in note 1b, the  consolidated  financial  statements  referred to above are  presented in values
adjusted  for the  changes  in the  general  purchasing  power of the  Israeli  currency,  in  accordance  with
pronouncements of the Institute of Certified Public Accountants in Israel. Beer Sheba, IsraelMarch 31, 2003Accountants (Isr.)
Kesselman & KesselmanCertified Public F-3   BARAN GROUP LTD.(An Israeli Corporation)

CONSOLIDATED BALANCE SHEETS

December 312001

2002

2002Adjusted new

 Israeli shekels

 (note 1b)

Convenience

 translation into

 U.S. dollars

(note 1b (4))In thousandsA  s  s  e  t  s (note 19)CURRENT ASSETS (note 14):Cash and cash equivalents (note 1o)


222,789



92,008



19,423Short-term investments (note 15a)


5,073



89,306



18,853Accounts receivable (note 15b):Trade and income receivable


273,824



261,999



55,309Other


39,934



47,489



10,026Inventories (note 15c)


17,449



9,362



1,976T o t a l  current
assets


559,069



500,164



105,587INVESTMENTS, LOANS AND LONG-TERM

      RECEIVABLES:Investments in associated companies (notes 2
and 3)


27,346



27,333



5,769Other investments, loans and a long-term
receivable (note 4)


41,723



28,397



5,995Deferred income taxes (note 13b)


1,673



1,589



33570,742



57,319



12,099LAND AND BUILDINGS FOR LEASE (note 5):Cost


65,583



70,423



14,867L e s s - accumulated depreciation and
amortization


5,748



7,519



1,58759,835



62,904



13,280FIXED ASSETS (note 6):Cost


125,125



149,910



31,647L e s s - accumulated depreciation and
amortization


57,596



76,331



16,11467,529



73,579



15,533GOODWILL, net of accumulated amortization (note 7)


5,000



99,127



20,926OTHER INTANGIBLE ASSETS, net of accumulated
 amortization (note 7)


3,300



6,117



1,291765,475



799,210



168,716Date of approval of the financial statements March 31,
2003.

Yom-Tov Samia

Meir Dor

Sasson ShiloPresident, Director and COO

Chairman of the BoardOf Directors and CEO

Secretary and CFOF-4


December 312001

2002

2002Adjusted new Israeli

 shekels (note 1b)

Convenience

 translation

 into U.S.

 dollars

 (note 1b(4))In thousandsLiabilities and shareholders equity (note 19)CURRENT LIABILITIES (note 14):Short-term bank credit and bank loans (note 15d)


71,176



101,048



21,332Accounts payable and accruals (note 15e):Trade


255,696



99,002



20,900Other


158,144



158,669



33,496T o t a l current
liabilities


485,016



358,719



75,728LONG-TERM LIABILITIES (note 14):Liability for employee rights upon retirement,

           net of amount funded (note 10)


4,785



5,842



1,233Bank loans, net of current maturities (note 8, note
19)


34,649



166,877



35,228Capital notes issued to minority shareholders of a

           subsidiary, net (note 9)


13,999



11,158



2,355Deferred income taxes (note 13b)


109



51



11T
o t a l long-term liabilities


53,542



183,928



38,827COMMITMENTS AND CONTINGENT

      LIABILITIES (note 11)T o t a l liabilities


538,558



542,647



114,555MINORITY INTERESTS


7,057



9,129



1,927SHAREHOLDERS EQUITY (note 12):Share capital - ordinary shares of
adjusted NIS 1 par value
 (authorized December 31, 2001 and 2002 - 20,000,000
 shares; issued - and outstanding - December 31, 2001
and
 2002  7,921,718 shares and 8,375,884 shares,
respectively)


14,786



15,239



3,217Capital surplus


55,095



72,197



15,240Differences from translation of
foreign currency financial

    statements of subsidiaries


(58
)


(144
)


(30
)Retained earnings


154,014



165,900



35,022Cost of Company shares held by the
Company and its

    subsidiaries (December 31, 2001 and 2002 
204,690 shares

    and 232,416 shares, respectively)


(3,977
)


(5,758
)


(1,215
)T
o t a l  shareholders equity


219,860



247,434



52,234T
o t a l  liabilities and shareholders equity


765,475



799,210



168,716The accompanying notes are an integral part of the financial
statements.

F-5


BARAN GROUP LTD.

(An Israeli Corporation)

CONSOLIDATED STATEMENTS OF INCOME

Year ended December 312000

2001

2002

2002Adjusted new Israeli shekels

 (note 1b)

Convenience

 translation into U.S. dollars(note 1b(4))In thousands (except per share data)REVENUES (note 18):Construction projects and services


862,968



929,065



722,131



152,445Sale of products


45,945



92,575



171,135



36,127Lease of buildings


5,556



6,405



7,615



1,607Management fees from proportionately consolidated
companies


1,599



2,347



6,649



1,404T o t a l  revenues


916,068



1,030,392



907,530



191,583COST OF REVENUES (note 15f):Construction projects and services


733,935



755,780



606,094



128,014Sale of products


35,430



91,159



159,957



33,702Lease of buildings


2,139



1,590



2,586



546T
o t a l  cost of revenues


771,504



848,529



768,637



162,262GROSS PROFIT


144,564



181,863



138,893



29,321RESEARCH AND DEVELOPMENT EXPENSES


3,396



3,733



6,116



1,291SELLING, MARKETING, GENERAL AND ADMINISTRATIVE

      EXPENSES, net:Selling and marketing, net (note 15g)


5,646



9,666



23,616



4,985General and administrative (note 15h)


51,041



60,197



53,495



11,293OPERATING INCOME


84,481



108,267



55,666



11,752FINANCIAL INCOME (EXPENSES), net (note 15i)


6,023



7,965



(17,454
)


(3,685
)OTHER INCOME (EXPENSES), net (note 15j)


7,302



(4,023
)


1,056



222INCOME BEFORE TAXES ON INCOME


97,806



112,209



39,268



8,289TAXES ON INCOME (note 13)


29,338



45,351



17,279



3,648INCOME AFTER TAXES ON INCOME


68,468



66,858



21,989



4,641SHARE IN PROFITS OF ASSOCIATED COMPANIES, net (note 15k)


6,491



1,208



1,060



223MINORITY INTERESTS IN LOSSES OF SUBSIDIARIES, net


1,971



585



2,183



462NET INCOME


76,930



68,651



25,232



5,326EARNINGS PER SHARE - basic and diluted


10.48



9.07



3.25



0.686WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING  in

      thousands  (note 1p)


7,341



7,565



7,759



7,759The accompanying notes are an integral part of the financial
statements.

F-6


BARAN GROUP LTD.(An Israeli Corporation)CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

Capital

 surplus

Differences

 from

 translation of

 foreign

 currency

 financial

 statements of

 subsidiaries

Retained

 earnings

Cost of

 Company

 shares

 held by the

 Company

 and its

 subsidiariesShare capitalNumber

 of sharesAmount





TotalIn thousandsAdjusted new Israeli shekels (note 1c):BALANCE AT JANUARY 1, 2000


7,371,468



14,193



53,915







73,952



(4,743
)


137,317CHANGES DURING THE YEAR

      ENDED DECEMBER 31, 2000:Net income


















76,930







76,930Issuance of restricted
shares


365,000



394



















394Dividends (adjusted NIS
4.42  per share)


















(32,842
)






(32,842
)Proceeds from sale of Company
shares

           held by a subsidiary

           (20,000 shares), net of tax










1,180











766



1,946BALANCE AT DECEMBER 31, 2000


7,736,468



14,587



55,095







118,040



(3,977
)


183,745CHANGES DURING THE YEAR

      ENDED DECEMBER 31, 2001:Net income


















68,651







68,651Issuance of restricted
shares


185,250



199



















199Differences from translation of
foreign           currency financial
 statements of a subsidiary














(58
)










(58
)Dividends (adjusted NIS 4.28 per
share)


















(32,677
)






(32,677
)BALANCE AT DECEMBER 31, 2001


7,921,718



14,786



55,095



(58
)


154,014



(3,977
)


219,860CHANGES DURING THE YEAR

      ENDED DECEMBER 31, 2002:Net income


















25,232







25,232Issuance of shares within framework of
          acquisition of subsidiary

           (see note 2a)


454,166



453



17,102















17,555Differences from translation of a foreign
          currency financial

           statements of subsidiaries














(86
)










(86
)Dividends (adjusted NIS 1.73  per

           share)


















(13,346
)






(13,346
)Cost of acquisition of company sharesby a subsidiary (67,526
shares)






















(1,781
)


(1,781
)BALANCE AT DECEMBER 31, 2002


8,375,884



15,239



72,197



(144
)


165,900



(5,758
)


247,434Convenience translation into U.S. dollars(note 1b(4)):BALANCE AT JANUARY 1, 2002


7,921,718



3,121



11,630



(12
)


32,513



(839
)


46,413CHANGES DURING THE YEAR

      ENDED DECEMBER 31, 2002:Net income


















5,326







5,326Acquisition of shares by a
subsidiary

           (67,526 shares)






















(376
)


(376
)Issuance of shares within
framework of

           acquisition of a subsidiary

           (see note 2a)


454,166



96



3,610















3,706Differences from translation of foreign

           currency financial

           statements of subsidiaries














(18
)










(18
)Dividends ($0.365  per share)


















(2,817
)






(2,817
)BALANCE AT DECEMBER 31, 2002


8,375,884



3,217



15,240



(30
)


35,022



(1,215
)


52,234The accompanying notes are an integral part of the financial
statements.

F-7


(Continued) - 1

BARAN GROUP LTD.(An Israeli Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 312000

2001

2002

2002Adjusted new Israeli shekels

 (note 1b)

Convenience

 translation into

 U.S. dollars

 (note  1b(4))In thousandsCASH FLOWS FROM OPERATING ACTIVITIES:Net income


76,930


68,651


25,232


5,326Adjustments to reconcile net income to net cash

           provided by operating activities:Income and expenses not
involving cash flows:Minority interests in losses of
subsidiaries, net


(1,971
)

(585
)

(2,183
)

(462
)Share in profits of associated
companies,

                net of a dividend received
therefrom


(3,616
)

319


698


148Depreciation and
amortization


9,755


11,108


19,025


4,016Deferred income taxes,
net


(6,509
)

2,645


1,476


312Capital loss (gain):On
sale of fixed assets


(80
)

(80
)

(1,657
)

(350
)On
reduction in percentage of shareholding in

                    a
subsidiary


(669
)On
redemption of a capital note in a

                     formerly
proportionately consolidated


                    company


593Disposal of shares of associated
company


(1,101
)In
respect of a provision for anticipated

                     loss due to
a possible conversion of

                     convertible
securities issued by an

                     associated
company


166


(54
)

122


26On
disposal of investment in proportionately

                     consolidated
company


(6,150
)In
respect of impairment in value of

                     investment
in an associated company





4,443Increase (decrease) in liability
for employee rights

                upon retirement, net


894


1,181


(198
)

(42
)Exchange and linkage differences
on principal

                on long-term loans


218


830


2,797


592Exchange differences on
long-term bank deposit

                and erosion of long-term loans granted,
net





(635
)

(88
)

(18
)Decrease (increase) in value of
short-term marketable

                securities, net


(1,358
)

(137
)

1,814


383(9,828
)

19,035


21,806


4,605F-8


(Continued) - 2

BARAN GROUP LTD.(An Israeli Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 312000

2001

2002

2002Adjusted new Israeli shekels

 (note 1b)

Convenience

 translation into

 U.S. dollars

 (note 1b(4))In thousandsBrought forward


(9,828
)

19,035


21,806


4,605Changes in operating asset and liability items:Decrease (increase) in accounts
receivable:Trade and income
receivable


(112,318
)

(30,188
)

59,279


12,514Other


(9,902
)

14,420


3,100


654Increase (decrease) in accounts
payable

                and accruals:Trade


73,005


99,157


(178,351
)

(37,651
)Other


50,309


(14,024
)

(106,812
)

(22,548
)Decrease in customer advances,
net of

                inventory in respect of work in
progress


(707
)

(8,293
)

(17,262
)

(3,644
)Decrease (increase) in
inventories


(4,944
)

6,818


8,251


1,742Decrease in long-term
receivables








30,286


6,393(4,557
)

67,890


(201,509
)

(42,540
)(14,385
)

86,925


(179,703
)

(37,935
)Net cash provided by (used in) operating activities


62,545


155,576


(154,471
)

(32,609
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of fixed assets


(19,161
)

(22,091
)

(21,110
)

(4,457
)Acquisition of subsidiaries consolidated for the

           first time (a)


(2,625
)

(11,245
)

(10,566
)

(2,231
)Investment in associated companies


(967
)

(1,003
)

(807
)

(170
)Other investments acquired


(1,363
)

(260
)Proceeds from redemption of a capital note of a

           formerly proportionately consolidated company


2,261Proceeds from sale of investment in an

           associated company


1,828Proceeds from sale of investments in

           companies consolidated and proportionally

           consolidated in previous years (b)


(1,058
)Proceeds from sale of fixed assets


2,225


4,698


4,448


939Decrease (increase) in short-term deposits, net


(5,872
)

6,032


(526
)

(111
)Grant of long-term loan








(555
)

(117
)Increase in long-term deposits





(11,123
)Sale (purchase) of short-term marketable securities -
net


2,793


(395
)

(85,446
)

(18,038
)Net cash used in investing activities


(21,939
)

(35,387
)

(114,562
)

(24,185
)F-9


(Continued) - 3

BARAN GROUP LTD.(An Israeli Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 312000

2001

2002

2002Adjusted new Israeli shekels

 (note 1b)

Convenience

 translation into

 U.S. dollars

 (note  1b(4))In thousandsBrought forward


40,606


120,189


(269,033
)

(56,794
)CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of restricted shares


394


199Long-term bank loans received


14,578


26,057


154,897


32,699Repayment of long-term bank loans


(4,007
)

(27,528
)

(8,087
)

(1,707
)Dividend paid


(40,739
)

(32,677
)

(13,346
)

(2,817
)Proceeds from sale of Company shares held by a
subsidiary


1,946Cost of acquisition of Company shares held by

           a subsidiary








(1,781
)

(376
)Capital note issued to minority in a subsidiary


17,463Short-term bank credit  net


2,648


28,887


719


152Short-term bank loans  net


(16,824
)

7,608


5,750


1,213Net cash provided by (used in) financing activities


(24,541
)

2,546


138,152


29,164TRANSLATION DIFFERENCES ON CASH     BALANCES OF SUBSIDIARIES OPERATING     INDEPENDENTLY





(10
)

100


21INCREASE (DECREASE) IN CASH AND CASH     EQUIVALENTS


16,065


122,725


(130,781
)

(27,609
)BALANCE OF CASH AND CASH EQUIVALENTS     AT BEGINNING OF YEAR


83,999


100,064


222,789


47,032BALANCE OF CASH AND CASH     EQUIVALENTS AT END OF YEAR


100,064


222,789


92,008


19,423F-10


(Concluded) - 4

BARAN GROUP LTD.(An Israeli Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 312000

2001

2002

2002Adjusted new Israeli shekels

 (note 1b)

Convenience

 translation into

 U.S. dollars

 (note  1b(4))In thousandsSupplementary disclosure of cash flow information - cash

      paid during the year for:Interest


3,633


6,598


6,798


1,435Income tax - net of tax refund


48,801


36,700


13,471


2,844(a) Acquisition of subsidiaries consolidated for the first time          (in 2001 companies previously consolidated by          proportionate consolidation method which were fully          consolidated),see also note 2(a), (b) and (c):Assets and liabilities of the
subsidiaries upon acquisition:Working capital (excluding cash and
cash equivalents)


(121
)

(5,872
)

75,431


15,923Investment in subsidiary of the
acquired company

                     that is
designated for sale








(4,553
)

(961
)Fixed and other assets 
net


(1,023
)

(13,799
)

(3,540
)

(748
)Customer contracts and customer
list





(2,582
)

(3,676
)

(776
)Long-term deferred income
taxes


(8
)Long-term receivables








(490
)

(103
)Long-term liabilities


479


11,300


2,143


452Minority interests in the
subsidiaries upon acquisition





5,640Goodwill arising on
acquisition


(1,952
)

(5,932
)

(93,940
)

(19,831
)Other investment








504


107Issuance of share
capital








17,555


3,706(2,625
)

(11,245
)

(10,566
)

(2,231
)(b) Proceeds from sale of investment in company          consolidated on a proportional basis in          previous years, see also note 2(c)Assets and liabilities of the
company upon disposal:Working capital (excluding cash and
cash equivalents)


461Fixed assets and other assets -
net


3,906Goodwill


1,952Investment in an associated
company


(11,735
)Long-term liabilities


(1,792
)Capital gain on disposal of
investment in proportionately

                consolidated company


6,150(1,058
)The accompanying notes are an integral part of the financial
statements.

F-11


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All NIS amounts presented in adjusted new Israeli shekels at

December 31, 2002 purchasing power, unless otherwise stated)

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIESThe significant accounting policies, applied on a consistent basis, are as
follows:a.
General:1)
OperationsBaran Group Ltd. (hereafter - the Company) and its investee companies (hereafter 
collectively - the Group) operates in 6 divisions, each of which operates independently, according to the instructions of the
Groups management. The Company receives management fees from proportionately consolidated companies.The Group operates through the following 6 operating divisions (see also note 18):a)
The communications division - specializing in planning, management and construction of
communications infrastructure.b)
The construction division - specializing in managing, coordinating, supervising and building
projects in the field of construction, civil infrastructure, as well as
industrial buildings.c)
The industrial division -
specializing in management, engineering planning and performance of projects in processing industries, which include, among others,
chemicals, biotechnology, petrochemicals, energy, food, etc.d)
The semiconductors division - specializing in planning and building sophisticated plants and
production lines for the manufacture of semi-conductors.e)
The consulting division -consisting of several companies each specializing and operating in its own field - industrial engineering and management, reliability, quality and logistics, real estate
management, etc.F-12


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):f)
The technologies division - engaged in the development, manufacturing and marketing of
unique technology-based products, building for lease and in the marketing and recycling of food products for animals. The activities
of building for lease and marketing and recycling of food products for animals were separated into two additional segmens, for
segment reporting purposes.A significant portion of the Groups revenues in each year is derived from major
customers (see also note 11(a)(1) and note 18c).2)
Definitions:Subsidiary -
A company controlled by the Group, the financial statements of which have been consolidated
with the financial statements of the Company, which is not a proportionately consolidated company.Proportionately -

 consolidated company

 or joint venture
A jointly controlled company or venture, none of the parties in which holds exclusive
control, the financial statements of which are consolidated with those of the Company by the proportionate consolidation
method.Associated company -
A company in which the Group has significant influence (which is not a subsidiary or a
proportionately consolidated company), the companys investment in which is presented by the equity method.Investee company -
A subsidiary, proportionately consolidated company or venture or associated
company.Related parties -
As defined in Opinion 29 of the Institute of Certified Public Accountants in
Israel.Goodwill -
The difference between the cost of the investment in the investee company and the
Companys share in the fair value of its underlying assets net of the fair value of its underlying liabilities, (net of related
taxes)on acquisition date.The Group -
The Company and its subsidiaries, proportionately consolidated companies and ventures and
associated companies3)
As to companies list and definitions, see appendix.F-13


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):4)
Use of estimates in the preparation of financial statementsThe preparation of financial statements in conformity with generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting years. Actual results could differ from those estimates.5)
Accounting principlesThe financial statements have been prepared in accordance with Israeli GAAP. As applicable
to these financial statements, Israeli GAAP vary in certain important respects from amounts reconciled to U.S. GAAP, as described in
note 20.b.
Adjusted financial statements:1)
The financial statements have been prepared on the basis of historical cost adjusted to
reflect the changes in the general purchasing power of the Israeli currency, in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel (hereafter - the Israeli Institute). All
figures in the financial statements are presented in adjusted new Israeli shekels (NIS)
which have a uniform purchasing power as of December 31, 2002 (adjusted NIS) - based upon the changes in the Israeli
consumer price index (the Israeli CPI), see also note 14b.The adjustment of the financial
statements is based on the accounts of the Company, its Israeli subsidiaries and proportionately consolidated companies and joint
ventures, which are maintained in nominal NIS.As to investee companies whose financial statements are drawn up in foreign currency or
adjusted on the basis of the changes in the exchange rate of foreign currency, see (3) below.The components of the statements of income were, for the most part, adjusted as follows: the
components relating to transactions carried out during the reported years -
revenues, purchases, labor costs, etc. were adjusted on the basis of the Israeli CPI for the month in which the transaction was
carried out, while those relating to non-monetary balance sheet items (mainly changes in inventories, work in progress, customer
advances, depreciation and amortization) were adjusted on the same basis used in adjusting the related balance sheet item. The
financing component represents primarily financial income and expenses in real terms, the erosion of balances of monetary items
during the reported years
and the changes during the reported years in the value of short-term marketable securities.F-14


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):2)
The adjusted amounts of non-monetary assets do not necessarily represent realization value
or current economic value, but only the original historical values, adjusted for the changes in the general purchasing power of
Israeli currency. In these financial statements, the term cost
signifies cost in adjusted NIS.3)
Investee companies whose financial statements are drawn up in foreign currency adjusted on
the basis of the changes in the exchange rate of foreign currency.For purposes of consolidation, the amounts (in foreign currency terms) included in the
financial statements of the above companies were treated as follows:Subsidiaries operating independentlyBalance sheet items at the end of the year and the results of operations for the year were
translated at the exchange rate of the relevant foreign currency as compared to Israeli currency at the end of the year. Balance
sheet items at the beginning of the year and changes in shareholders equity items during the year were translated at the
relevant exchange rate at the beginning of the year or at the date of each change, respectively, and then adjusted on the basis of
the changes in the Israeli CPI through the end of the year.Differences resulting from the above treatment are carried as a separate item under adjusted
shareholders equity (differences from translation of foreign currency
 financial statements of subsidiaries).Investee companies the activities of which are an integral part of the activities of the
CompanyThe financial statements of such companies were remeasured in terms of adjusted NIS. The
remeasurement was effected by way of translation of the amounts (in terms of foreign currency) on the basis of historical exchange
rates in relation to Israeli currency; the resulting nominal NIS amounts were then adjusted on the basis of the changes in the
Israeli CPI by the same method as the financial statements of the Israeli
companies in the Group were adjusted.Differences resulting from the above treatment are included in the adjusted statements of
income under financial income or expenses.F-15


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):4)
Convenience translation into U.S. dollars (dollars or $)The adjusted NIS figures at December 31, 2002 and for the year then ended have been
translated into dollars using the representative exchange rate of the dollar at December 31, 2002 ($1 = NIS 4.737). The translation
was made solely for convenience. The translated dollar figures should not be construed as a representation that the Israeli currency
amounts actually represent, or could be converted into, dollars.c.
Principles of consolidation:1)
The consolidated financial statements include the financial statements of the Company and of
its subsidiaries.  In addition to the fully consolidated companies as above, the consolidated financial statements include by
the proportionate consolidation method jointly controlled companies and joint ventures.  The companies included in consolidation
are listed in the appendix I.2)
Goodwill is amortized in equal annual installments at the rate of 10% per annum, commencing
in the year of acquisition (see also note 7).3)
Intercompany balances and transactions have been eliminated in consolidation. Profits from
intercompany sales, not yet realized outside the Group, have also been eliminated.4)
Capital notes issued to the minority shareholders in one of the subsidiaries are presented
in the consolidated balance sheets net of minoritys share in its capital deficiency (see also note 9).d.
InventoriesInventories are valued at the lower of cost or market. Cost is determined as
follows:Raw materials and supplies - on
first-in, first-out basis.Products in process and finished products - on basis of production costs:Raw material and supplies component - on
first-in, first-out basis.Labor and overhead component -on
average basis.F-16


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):e.
Investment in associated companies:1)
The investments in these companies are accounted for by the equity method, net of impairment
in value, which is not of a temporary nature, see also note 3c.  Profits from sales not yet realized outside the Group have been
eliminated.2)
The excess of cost of the investment in associated companies over the Companys share
in their net assets at date of acquisition (excess of cost of investment) represents goodwill, which is amortized in
equal annual installments at the rate of 10% per annum, commencing in the year of acquisition (see also note 3).f.
Marketable securities and other investments:1)
Short-term marketable securities are stated at market value or
 for mutual fund participation certificates - at redemption
value. The changes in value of the above securities are carried to financial
income or expense.2)
Investments in non-marketable securities are stated at cost. The Group evaluates its
investments in these securities from time to time and, as necessary, includes in its accounts a write-down for decrease in value
which is not of a temporary nature.g.
Land and buildings for lease:1)
These assets are stated at cost.2)
Borrowing costs in respect of bank loans applied to finance the construction - incurred
until construction is completed - are charged to cost of such assets.3)
The buildings are depreciated by the straight-line method, on basis of their estimated
useful life. Annual depreciation rates are 4%-6%.F-17


BARAN GROUP LTD.(An Israeli Corporation)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):h.
Fixed assets:1)
These assets are stated at cost.  Fixed assets of subsidiaries are included at their
fair value at date of acquisition of these subsidiaries.2)
Borrowing costs in respect of credit applied to finance the construction of the buildings -
incurred until their construction is completed - are charged to the cost of such assets.3)
The assets are depreciated by the straight-line method, on the basis of their estimated
useful life.Annual depreciation rates are as follows:%Buildings


4-6Machinery and equipment


7-15(mainly 15)Vehicles


15Office furniture and equipment


6-15Computers and peripheral equipment


20-33(mainly 33)Communication sites


10Leasehold improvements are amortized by the straight-line method over the lease period,
which is shorter than the estimated useful life of the improvements.i.
Goodwill and other intangible assetsCustomer contracts amortized over the periods of the contracts, commencing from the date on
which they are first utilized (mainly 1-3 years)  and customer lists are amortized over 3 years commencing from the date on
which they are first utilized. As to amortization of goodwill, see e, c2 and e2 above.When indicators of impairment of long-lived assets are present, the Company evaluates the
carrying value of long-lived assets and intangible assets and goodwill in relation to the operating performance and future
undiscounted cash flows of the underlying assets. No impairment losses relating to long-lived assets were recorded in these financial
statements.j.
Deferred income taxes:1)
Deferred taxes are computed in respect of temporary differences between the amounts
presented in the adjusted financial statements and those taken into
account for tax purposes. As to the main factors in respect of which deferred taxes have been included
- see note 13b.Deferred tax balances are computed at the tax rate expected to be in effect at time of
release to income from the deferred tax accounts. The amount of deferred taxes presented in the statements of income reflects changes
in the above balances during the year.F-18


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):2)
Taxes which would apply in the event of disposal of investments in investee companies have
not been taken into account in computing the deferred taxes, as it is the Companys policy to hold these investments, not to
realize them.  The Group may incur additional tax liability in the event of certain intercompany dividend distribution;
no account was taken of the additional tax, since it is the Groups policy not to cause distribution of dividend which would
involve additional tax liability to the Group in the foreseeable future.3)
Income from approved enterprise status:a.
As stated in note 13a(1)(a)(1), one of the Companys subsidiaries has been granted tax
exemption on income from approved enterprise. Upon distribution of dividends from the subsidiarys tax-exempt
income, the amount distributed will be subject to tax at the rate that would have been applicable had the subsidiary not been
exempted from payment thereof. In addition, such dividend received by the Group may be liable to tax. The Group intends to
permanently reinvest the amount of tax-exempt income, and does not intend to cause dividend distribution from such income. The period
of benefits in respect of the above subsidiary has not yet commenced and is not expected to, due to its accumulated tax losses.
Therefore, no deferred
income taxes have been provided in respect of such tax-exempt income. The Company has recorded full valuation allowance with respect
to deferred tax assets regarding these losses.b.
As stated in note 13a(1)(a)(1), 13a(1)(a)(2), another subsidiary in the Group has been
granted approved enterprise status and is subject to a reduced tax rate during the period of benefits.Upon distribution of dividends by this subsidiary to the Company, the Company will be
subject to tax, unless such dividends are distributed to the Companys shareholders such dividends may be liable to tax. In
light of the Groups policy not to cause distribution of dividends, which would result in additional tax liabilities, any
dividends received from this subsidiary will be distributed to the Companys shareholders. The Company plans to distribute to
its shareholders any dividends received. Accordingly, no account has been taken of the additional tax in respect of said
dividends.k.
Revenue recognition:1)
Sale of products:Revenue from the sale of products (consisting of electric switches and recycling of food
products for animals) is recognized when there is persuasive evidence of arrangement, delivery has occurred, the sale price is fixed
and determinable and collection is reasonably assured.F-19


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):2)
Construction projects:a.
The Group recognizes revenue from such projects by the percentage of completion
method, provided that the following conditions are met: collection of the revenues is expected, revenues and costs can be estimated
reasonably, and there is a likelihood that the project will be completed and that contractual obligations to customers will be
met.  Pending compliance with all of the above conditions, revenue is recognized to the extent of costs actually incurred, whose
reimbursement is anticipated (zero profit method).In addition to the above mentioned revenues recognition conditions, profits from contract
work on buildings is recognized by the percentage of completion method if the stage of completion has reached at least 25%; prior to
this stage  by the zero profit method.The Group measures progress toward completion based on the output measure of value added for
its  turnkey project.The Group determines  the relative value added of each component to the total project
value added based on the ratio of costs of the component to total expected costs, at the commencement of the project, Such ratio of
relative value of each component remains unchanged during the project. Relevant component output measures are used to determine
progress toward completion of each component. The project percentage of completion (weighting the appropriate components) are applied
to the total estimated project revenues and project costs to determine the amount of revenue and costs recognized, on a cumulative
basis.Changes in estimates for revenues, costs and profits are recognized in the period in which
they are determinable using the cumulative catch up method of accounting.b.
Full provision is made for any anticipated losses on projects.3)
Provision for warranty costsThe provision for warranty costs is determined for specific projects in respect of which
there are warranty obligations.  The calculation of anticipated warranty costs is made based on the work required and the
remaining warranty period.4)
Revenue from lease of buildings is recognized over the lease period.l.
Company shares held by the Company and its subsidiariesThese shares are presented as a reduction of shareholders equity, at their cost, under
the item Cost of Company shares held by the Company and its subsidiaries. Gains on sale of such shares, net of income
taxes, are carried to capital surplus.F-20


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):m.
Allowance for doubtful accountsThe allowance is determined for specific debts doubtful of collection.n.
Derivative instrumentsThe Group enters into future contracts in order to protect itself from changes in prices of
certain commodities. These future contracts are treated for accounting purposes as non-hedging instruments. The commodity derivative
instruments are presented at their fair value and changes in their fair value are carried to
financial income (expenses) - net on a
current basis.The Group also enters into foreign exchange forward contracts in order to effectively change
the cash flows resulting from firm commitments for inventory purchases in non-NIS currencies.Gain and losses from such contracts are deferred and recognized in income when the hedged
item affects earnings.o.
Cash equivalentsThe Group considers all highly liquid investments, which include short-term bank deposits
(up to three months from date of deposit) that are not restricted as to withdrawal or use, to be cash equivalents.p.
Earnings per shareEarnings per share - which is computed in accordance with Opinion No. 55 of the Israeli
Institute - has been determined on the basis of the weighted average number of shares outstanding during the year, net of the
weighted average number of shares held by the Company and its subsidiaries.In the 2000, 2001 and 2002 financial statements, the basic and diluted earnings per share
are not presented separately, since the difference is immaterial (less than 5%).q.
Research and development expensesResearch and development expenses are charged to income as incurred.  Participation
from government departments for development of approved projects is recognized as a reduction of expenses as the related cost is
incurred.In 2000, 2001 and 2002, no participations were received.r.
Advertising expensesThese costs are expensed as incurred.  Advertising expences for the years ended
December 31, 2000, 2001 and 2002 amounted to adjusted NIS 2,464,000, adjusted NIS 2,698,000 and adjusted
NIS 4,463,000, respectively.F-21


BARAN GROUP LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 -
SIGNIFICANT ACCOUNTING POLICIES (continued):s.
Recently issued accounting pronouncements:1)
In October 2001, the Israeli Accounting Standards Board (the IASB)issued
Israel Accounting Standard No. 12 - Discontinuance of Adjusting Financial Statements for inflation, which provided
for the discontinuance of adjusting financial statements for the effects of inflation, as of January 1, 2003.  In
December 2002, Accounting Standard No. 17 was issued that postponed the date from which Accounting Standard No. 12
is to be applied until January 1, 2004. The inflation-adjusted amounts as of December 31, 2003 will be the basis for
the nominal-historical financial reporting in the following periods.The implementation of Standard No. 12 will mainly effect the financial income
(expenses) item.Upon implementation of Standard No. 12, Clarifications Nos. 8 and 9 to
Opinion 36 of the Institute of Certified Public Accountants in Israel will be canceled and will be replaced with effect
from January 1, 2004 by Israel Accounting Standard No. 13, which was issued at the same time as Standard
No. 12.  Most of the provisions of Standard No. 13 correspond to the provisions, which appeared in the
above-mentioned clarifications.2)
In February 2003, Accounting Standard No. 15 of the IASB - Impairment of
Assets, became effective.  This standard, which is based on International Accounting Standard No. 36, requires
a periodic assessment - at each balance sheet date - to evaluate the need for a provision for the impairment of the
Companys non-monetary assets - fixed assets and identifiable intangibles, including goodwill, as well as investments in
associated companies.  As promulgated by the standard, its provisions are to be applied as of January 1, 2003. 
Pursuant to the provisions of the standard, if any events have occurred or changes in circumstances have taken place, which
might indicate that there has been an impairment of
one or more of the above assets, the Company is required to evaluate whether the carrying value of the investment in the asset
is recoverable from the cash flows anticipated from that asset, and, if necessary, to record an impairment provision up to the
amount needed to adjust its carrying amount to its recoverable amount.  The impairment loss is carried directly to
income.The recoverable amount of an asset is determined as being the greater of the
assets net selling price and its value in use to the Company. The assets value in use is determined according to
the present value of anticipated cash flows from the continued use of the asset, including those expected at the time of its
future retirement and disposal.The Company is making the necessary preparations in order to apply this standard
commencing with its first interim financial statements in 2003, and is currently reviewing the expected implications, if any,
on its financial statements.t.
ReclassificationsCertain prior years amounts have been reclassified to conform with the current
presentation.F-22


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES:a.
Acquisitions in 2002:1)
On November 14, 2002, the acquisition of O2wireless solutions (hereafter -
o2) was closed.  o2 was a U.S. public company engaged in the provision of solutions and external services for
wireless communication networks and infrastructure.  o2 was acquired in order to broaden the Groups range of
activities, in the belief that o2 would be able to provide communication solutions in the areas of communication and other
infrastructure engineering, which would complement the market in which the Group operates.  In view of the nature of its
operations, o2 is to be included as part of the Groups communications division.  As agreed, the Company has issued,
to o2s shareholders, 454,166 shares of NIS 1 par
value for all of o2s outstanding shares. Each share of o2 common stock received 0.014919 of the Companys ordinary
shares.  The amount of shares issued represents 5.73% of the Companys issued and paid-in share capital prior to the
issuance (7,921,718 shares) and 5.42% of the issued and paid-in share capital following the issuance (8,375,884).  The
acquisition was done by means of merging o2 with Baran Telcom Inc. (hereafter  BTI), which is a wholly owned
subsidiary of the Company.  The total acquisition cost, in the amount of adjusted NIS 27.811 million, included the
value of the shares issued in the amount of adjusted NIS 17.555 million and  acquisition costs, in the amount
of adjusted NIS 10.256 million. 
The value of the shares issued was determined on the basis of the average market price of the Companys shares that was
calculated according to their closing prices during the period from August 27, 2002 to September 2, 2002, which
included the two trading days before, and the two trading days following, the public announcement of the merger.Excess of cost of the acquisition price over the fair value of tangible assets, net,
that were acquired has been attributed to customer list and goodwill in the amounts of adjusted NIS 3,676,000 and
adjusted NIS 91,216,000 respectively.Goodwill is amortized over 10 years and the balance thereof at December 31, 2002
amounts to adjusted NIS 89.695 million.  The amortization of goodwill  is not deductible for tax
purposes.  The purchase price attributed to the customer list is amortized over 3 years and the balance thereof at
December 31, 2002 amounts to adjusted NIS 3.490 million.F-23


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition:October 31

2002Adjusted NIS,

 in thousandsCurrent assets


49,949Investment in subsidiary of o2

      designated for sale*


4,553Long-term receivables


490Fixed assets, net of accumulated

      depreciation and amortization


3,238Goodwill


91,216Customer list


3,676T o t a
l   assets


153,122Current liabilities


116,857Provision for reorganization**


6,310123,167Long-term liabilities


2,144T o t a
l   liabilities


125,311Net assets acquired


27,811*
On January 31, 2003, BTI signed an agreement for the sale of its investment in a
subsidiary, in accordance with the decision taken by the board of directors on June 4, 2002.  Accordingly, the
temporary controlled subsidiary has not been consolidated upon acquisition. The investment in that subsidiary is presented at
its fair value, net of realization costs. The investment was sold in February, 2003.**
During 2001, a reorganization program was implemented by o2 including reduction in
the size of its workforce, closure of branches and the amalgamation of headquarters. As of the date of acquisition the
provision consisted mainly of adjusted NIS 3,812,000 for closure of branches and adjusted NIS 1,880,000 for workforce
reduction.On February 27, 2003, the Company in general meeting approved the issuance of
116,000 non-marketable Company option warrants to o2 employees (see note 12d), who were taken on as staff of a U.S.
subsidiary, wholly owned by BTI.The warrants are to be issued for no consideration and each warrant is exercisable
into one Company ordinary share of NIS 1 par value at an exercise price calculated as the average of the closing price of
the Companys shares on each of the fourteen days preceding the issuance of the warrants.F-24


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):2)
On October 30, 2002, a subsidiary acquired 90% of the share capital of Mobipower New
B.V. (hereafter  Mobipower New), thereby increasing its holding therein to 100%.Mobipower New is the marketing arm of Mobipower in the Netherlands and its
acquisition will enable the Company to develop its trade connection on the Dutch market. Mobipower new is to be included as
part of the Groups technologies division. The total cost of the acquisition amounted to adjusted NIS  2,724,000.
The excess cost of acquisition over thr fair value of the assets acquired in the amount of adjusted NIS 2,724,000 has been
attributed to goodwill.Goodwill is amortized over 10 years and the balance thereof at December 31, 2002
amounts to adjusted NIS 2,679,000. The amortization is not deductible for tax purposes.The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition:October 312002Adjusted NIS,

 in thousandsCurrent assets


2,287Fixed assets, net of accumulated

        depreciation and amortization


302Goodwill


2,724T o t a
l   assets


5,313Current liabilities


1,204Long-term liabilities


1,385T o t a
l   liabilities


2,589Net assets acquired


2,724F-25


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):3)
Following are data pertaining to the abovementioned subsidiaries, which were
included, for the first time, in the consolidated financial statements for 2002:December 31, 2002Adjusted NISIn thousandsBalance sheet:Cash and cash equivalents


17,794Other current assets:Trade and income
receivable


30,941Investment in subsidiary
of o2 that is designated for sale


4,349Other
receivables


1,738Long-term receivables


441Fixed assets, less accumulated depreciation and

           amortization


3,599Customer list


3,490Goodwill arising on acquisition, net of accumulated

           amortization


92,372Current liabilities:Short-term bank credit
and bank loans


(618
)Trade payables


(15,870
)Other payables


(48,606
)Provision for
reorganization


(2,884
)Long-term liabilities:Liability for employee
rights upon retirement


(1,255
)Loans and other
liabilities

                (including current
maturities)


(545
)84,946F-26


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):Period from date of

 acquisition to

 December 31, 2002Adjusted NISIn thousandsStatement of income:Revenues


29,382Cost of revenues


25,605Loss for the period


(665
)b.
Acquisitions in 2001:1)
On October 1, 2001, the Company acquired 50.1% of the shares conferring ownership and
control in LEAD Control Ltd. (hereafter: LEAD), an Israeli company engaged in development of products and in
providing computerized control solutions, in consideration of a cash amount of approximately adjusted NIS 1,097,000. The
acquisition was accounted for using the purchase method. The amounts attributed to the acquired assets and liabilities are
computed on the basis of the fair value of the assets and liabilities on the date of acquisition. The excess of fair value of
acquired net assets over cost of acquisition was allocated as a reduction of fixed assets. The consolidated statement of
income for 2001 includes the results of operations of LEAD for the period from the date of acquisition to December 31,
2001.2)
On September 30, 2001, the Company acquired 55% of the shares conferring ownership
and control in Westmontage Kabel und Netzwerk GmbH (hereafter Westmontage), a German company (which is
engaged in a project for the deployment of Mobilcom Multimedia GmbHs UMTS network in Germany), in consideration for a
cash amount of adjusted NIS 12,485,000. In addition, under the acquisition agreement, the Company has undertaken to pay the
selling shareholder in the German company an additional consideration of approximately Euro 508,000 (approximately adjusted
NIS 2,525,000), on condition that the German company meets certain profit goals in 2001 as determined in the acquisition
agreement.  Westmontage failed to meet the said profit
goals and the Companys undertaking is thus cancelled.  The acquisition was accounted for using the purchase method.
The amounts attributed to the acquired assets and liabilities are computed on the basis of the fair value of the assets and
liabilities on the date of acquisition. The consolidated statement of income for 2001 includes the results of operations of
Westmontage for the period from the date of acquisition to December 31, 2001.F-27


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):The excess of cost of acquisition over the fair value of net tangible assets on
acquisition date amounted to adjusted NIS 8,514,000, which has been allocated as adjusted NIS 5,213,000 to goodwill
(which is amortized over 10 years) and adjusted NIS 3,300,000 to customer contracts and customer lists (which are
amortized over 3 years).  The goodwill is attributed to the communications sector.In September 2002, the Company paid the selling shareholder Euro 527,000
(adjusted NIS 2.619 million) as part of the agreed acquisition price.  This amount has been added to goodwill and is
amortized in equal installments over 10 years, commencing from the date of acquisition.The following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition:September 30, 2001Adjusted NIS(In thousands)Current assets


35,991Fixed assets - net


12,110Customer lists and customer contracts


3,300Goodwill


5,213T
    o t a l  assets acquired


56,614Current liabilities


29,999Long-term liabilities


14,130T
    o t a l  liabilities assumed


44,129Net assets acquired


12,485Borrowing costs in respect of the loan taken to finance the companys
acquisition have been deducted from the capital reserve for differences from translation of foreign currency financial
statements of a subsidiary, up to the amount of the capital reserve created as a result of the investment.F-28


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):c.
A formerly proportionately consolidated company, which was deconsolidated
commencing 2000:Commencing in 2000, the consolidated financial statements do not include the
proportionately consolidated financial information of Advanced Logistics Development Ltd. (hereafter - A.L.D.) resulting from
the following transactions.On January 31, 2000, A.L.D. allotted 1,902 shares to Baran in consideration of
adjusted NIS 6,155,000 resulting in its ownership increasing from 50% to 64.45%.In February 2000, A.L.D. issued shares and warrants on the Tel Aviv Stock Exchange
reducing the Companys percentage ownership in A.L.D. to 44.75%. As a result, the Company recognized a capital gain in
the amount of adjusted NIS 6,150,000 which is presented under other income.In the second half of 2000, the Company made several purchases of A.L.D. shares on
the Tel Aviv Stock Exchange resulting in the Companys percentage of holding in A.L.D. being 47.03% on December 31,
2000.During 2001 and 2002, the Company made several purchases of A.L.D. shares on the Tel
Aviv Stock Exchange resulting in its percentage of holding in A.L.D. on December 31, 2002 and 2001 being 55.32% and 50.65%,
respectively. However, the Company continued to account for such investment on the equity method of accounting due to its
inability to control the operations of A.L.D., as further described below.During February 2000, an agreement was signed between the Company and and the owners
of another 22% of shares of A.L.D. According to this agreement, each party will appoint 50% of the members of the board of
directors, other then directors appointed on behalf of the public. Accordingly, A.L.Ds 6-member board comprises 2
director appointed by the Baran Group, 2 directors appointed by the owners of 22% of A.L.D.s shares and 2 directors
appointed on behalf of the public.Baran does not control the Board and does not have voting control over any
significant matters. Additionally, Baran can not effect a change in the bylaws without approval of the 22% shareholder.
Although Baran owns 55.32% of the voting shares of A.L.D., it is unable to effectively control the operations of A.L.D. 
Accordingly, A.L.D. has been accounted for on the equity method of accounting since February 2000.During 2002, the Companys former general manager exercised options into
shares.  As a result of said exercise, the Company incurred a loss of adjusted NIS 247,000.F-29


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):d.
Financial statements of proportionately consolidated companies and joint
ventures:1)
On February 2, 2000, the Company, through Baran Raviv Telecom Ltd. (hereafter Baran
Raviv), established Baran Mer International Telecommunications, Technology, Industry and Trade Ltd. (hereafter Baran Mer) a 50% proportionately consolidated company in Turkey. Baran Mer, which is
engaged in the construction of cellular communication infrastructure sites, commenced operations in February 2000.2)
On June 22, 2001 the group acquired 50% of the share capital of Nejeva Holding B.V.
(hereafter Nejeva) in consideration of Euro 11,000 (adjusted NIS 55,377).On December 14, 2001, Baran Raviv B.V. sold to Baran Group B.V. all the shares of
Nejeva for Euro 3,596 (adjusted NIS 15,000). Nejeva. is inactive.3)
On December 23, 1999, Nes-Pan Ltd. (hereafter - Nes-Pan), a
proportionately consolidated company, signed a contract with another party for the construction of buildings for a business
center on land at Beit Dagan, which is under the joint control of the parties.  Construction commenced in August
2000.4)
On April 5, 2001, the Company entered into a joint venture with two other parties for
the purpose of providing construction services to a U.S. military base in Israel. The joint venture commenced operations in
July 2001.5)
In respect of proportionately consolidated companies, the Company has agreements with
the other shareholders regarding the joint control.  Accordingly, such companies are accounted for by the proportional
consolidation method, in accordance with the provisions of Opinion 57 of the Israeli Institute, as explained in note 1 a. and
c.  The list of jointly controlled, proportionately consolidated companies is included in the Appendix.6)
As of December 31, 2001 and 2002, the Company and a third party each hold 50% of the
shares conferring voting rights in Meissner Baran Ltd. (hereafterMeissner-Baran), a proportionately consolidated company. Meissner Barans
shares conferring a right to dividends are held by the Company, the other party
and by a company that is controlled by the CEO of Meissner Baran, to the
extent of 46.5%, 46.5% and 7%, respectively, as of December 31, 2001 and 2002.As to contingent liability filed against Meissner-Baran, see note 11b(1).F-30


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):7)
Following are data pertaining to the proportionately consolidated companies and joint
ventures based upon the Companys percentage of holding therein, as presented in the Companys consolidated
financial statements. As explained in e. below, commencing October 1, 2001, the financial statements of Industrial Centers E.O.D. Ltd. (hereafter E.O.D.) are fully consolidated. In 2001, the operating results data of E.O.D. for the period
from January 1, 2001 to September 30, 2001 were included by the proportionate consolidation method.a)     Balance sheet data:December 312001


2002Adjusted NISIn thousandsAssets:Current assets


161,108


56,027Land and building for lease, less

           accumulated depreciation and

           amortization


59,835


62,904Fixed assets, less accumulated

           depreciation and amortization


10,961


16,596231,904


135,527Liabilities:Current liabilities


150,750


60,098Long-term liabilities


21,034


32,922171,784


93,020b)     Operating results data:Year ended December 312000


2001


2002Adjusted NIS

 In thousandsRevenues


134,712


352,215


130,432Gross profit


21,835


51,270


22,947Operating income


13,042


36,055


13,334Net income


7,883


25,207


8,864F-31


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 -
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):c)     Cash flow data:Year ended December 312000


2001


2002Adjusted NISIn thousandsNet cash provided by (used in)

      operating activities


(1,499
)

129,187


(77,362
)Net cash provided by (used in)

      investing activities


(16,152
)

3,384


(10,784
)Net cash provided by (used in)

      financing activities


3,567


(13,169
)

(6,425
)e.
Companies previously consolidated by the proportionate consolidation method, which
were fully consolidated in 2001In 2001 the financial statements of E.O.D., which were included by the proportionate
consolidation method until September 30, 2001, were fully consolidated for the first time.The Company owns 50% of the voting common stock of EOD and another party owns the
other 50%. Pursuant to a change in the Articles of Incorporation on October 1, 2001, which was agreed between all
shareholders, the Company is entitled to stipulate 3 out of the 5 directors of EOD. Simultaneously with the change in the
Articles of Incorporation, the Company includes EOD in consolidation since it effectively controls EOD through its majority
Board representation. Such  Articles of Association cannot be changed without a majority vote of the common shares which
effectively allows the Company to block any such changes given its ownership of 50% of the voting common shares. Additionally,
declaration and payment of dividends are not required to have
shareholder approval. Such decisions are made by the Board of Directors. The only decisions that are subject to shareholder
voting are: (i) appointment of the auditors; (ii) increase in the authorized share capital; (iii) changes in the Articles of
Association; (iii) merger; and (iv) approval of transactions with related parties following approval by the Board of
Directors.F-32


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 
SUBSIDIARIES AND PROPORTIONATELY CONSOLIDATED COMPANIES AND JOINT
VENTURES (continued):f.
Mobipower Ltd. (former TPS Teleparking Systems Ltd):1)
In March 2000, Mobipower Ltd.  Which was established by the Company and is
engaged in the marketing of car-park management systems. Allotted shares, at par, to the Company (6,728 shares) and to a third
party (2,772 shares).At the same time as this share allotment, Mobipower Ltd. also issued capital notes in
the amount of adjusted NIS 4,290,000 to the Company and capital notes in the amount of adjusted NIS 10,785,000 to a
third party. The capital notes are linked to the Israeli CPI and bear interest at the rate of 4%.2)
In May 2000, Mobipower Ltd. allotted shares, at par, to the Company (1,818 shares)
and to a third party (3,182 shares).At the same time as this share allotment, Mobipower Ltd. also issued capital notes in
the amount of NIS 6,678,000 to a third party. The capital notes are linked to the Israeli CPI and bear interest at the
rate of 4%.Following the abovementioned allotments, the Company holds 63.64% of the equity
interest in Mobipower Ltd.. The Companys deferred gain was recognized concurrently with the Companys share in
TPSs losses in 2000, and amounted to approximately adjusted NIS 669,000. As to the terms of such capital notes, see
also note 9.g.
On March 22, 2002, a subsidiary established Baran Raviv Telecom (Thailand) in
Thailand, which it wholly owns.h.
On August 19, 2002, it was announced that a consortium of companies, which included
IONICS INC., Dor Chemicals Ltd. and the Company, had been awarded the tender issued by the State of Israel for the
construction of a desalination plant.  On October 28, 2002, an agreement was signed between the State of Israel and
Carmel Desalination Ltd. (hereafter  Carmel), a company established and owned equally by the companies in
the above consortium.  The agreement, worth some $100 million, is for the construction of a seawater desalination plant
and for energy generation.  The desalination facility is to be constructed on the site of the Dor Chemicals Ltds.
plant in the Haifa Bay area.  Implementation of the
agreement is subject to various suspending conditions being fulfilled, as specified in the agreement.  As of balance
sheet date, the suspending conditions had not yet been fulfilled.During the period from the time of being awarded the tender through to
December 31, 2002, Carmels operations have been financed by shareholders loans.  The Companys
share in such loans amounts to adjusted NIS 805,000.  As of balance sheet date, the terms of these loans and their
repayment dates had not been determined.F-33


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 -
INVESTMENTS IN ASSOCIATED COMPANIES:a.
Composed as follows:December 312001


2002Adjusted NISIn thousandsShares:Cost


20,691



21,498Share in undistributed profits (net of

           losses) accumulated since

           acquisition


11,223



10,27831,914



31,776Provision for anticipated loss on exercise

      of convertible securities issued by an

      associated company


(125
)Impairment in value of investment in

      an associated company (see c below)


(4,443
)


(4,443
)T
    o t a l  investment


27,346



27,333b.
The changes in the investments during 2002 are as follows:Adjusted NISIn thousandsBalance at beginning of year


27,346Changes during the year:Investment in shares


807Share in undistributed profits, net


1,182Dividends received from associated companies


(1,880
)Adjustment to loss anticipated from exercise of
convertible

           Securities issued by an associated company


(122
)Balance at end of year


27,333F-34


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 -
INVESTMENTS IN ASSOCIATED COMPANIES (continued):c.
Associated companies whose shares are traded on the Tel-Aviv Stock Exchange
(hereafter - the Stock Exchange):1)
The quoted value of the Companys investment in Tefen Industrial Engineering and
System Analysis Ltd. (hereafter - Tefen) an associated company,
whose shares are traded on the Stock Exchange, as of December 31, 2001 and 2002 is adjusted NIS 17,389,000 and adjusted
NIS 18,923,000, respectively.The balance of the investment in Tefen as of December 31, 2001 and December 31, 2002
is adjusted NIS 18,465,000 and adjusted NIS 19,533,000, respectively. The excess cost of investment in this
associated company represents goodwill. The original amount of goodwill is adjusted NIS 6,191,000; the amortized balance
as of December 31, 2002 is adjusted NIS 2,227,000.2)
The quoted value of the Companys investment in A.L.D., whose shares are traded
on the Stock Exchange, as of December 31, 2001 and 2002 is adjusted NIS 9,259,000 and adjusted NIS 6,146,000,
respectively.The balance of the investment in A.L.D. as of December 31, 2001 and 2002 is adjusted
NIS 8,881,000 and adjusted NIS 7,800,000, respectively (see note 2c).During 2001, there was a decline in the quoted value of A.L.D. The Company examined
the decline in value and concluded that it is not of a temporary nature. Accordingly, an impairment of adjusted
NIS 4,443,000 was provided in respect of the investment in A.L.D.3)
As to dividends received from associated companies, see note 15k.NOTE 4 - OTHER INVESTMENTS AND A LONG-TERM RECEIVABLE:December 312001

2002Adjusted NISIn thousandsInvestment in shares of a private company held to

      the extent of 5% (2001 - two private companies

      held to the extent of 5% and 10%)


1,625



1,121Long-term bank deposit (1)


11,757



12,363Non-current trade receivables (2) (see note 11a(1))


28,341



14,430Long-term loan (3)






48341,723



28,397(1)
The deposit is linked to the exchange rate of the dollar, does not bear interest and
is regularly rolled-over.(2)
The receivables are linked to the CPI, do not bear interest and the balance thereof
is to be settled by December 2004.(3)
The loan is linked to the CPI and bears interest at 4% per annum.F-35


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 -
LAND AND BUILDINGS FOR LEASE:a.
Composed as follows:C o s t

Accumulated depreciation and amortizationDepreciated balanceBalance

 at

 beginning

 of year


Additions

 during

 the year


Balance

 at end

 of year


Balance at

 beginning

 of year


Additions

 during the

 year


Balance

 at end

 of year


December 312002


2001In adjusted NIS:


in thousandsLand


25,157





25,157











25,157


25,157Buildings


40,426


4,840


45,266


5,748


1,771


7,519


34,678


37,74765,583


4,840


70,423


5,748


1,771


7,519


59,835


62,904Depreciation and amortization in respect of buildings totaled
adjusted NIS 1,620,000, adjusted NIS  1,580,000 and adjusted NIS 1,771,000 for the years ended
December 31, 2000, 2001 and 2002.b.
The depreciated balance includes financial costs capitalized, as of December 31, 2001
and 2002, amounting to adjusted NIS 871,000 and adjusted NIS 773,000, respectively.c.
As to pledges registered, see note 19.d.
Land is leased under a capital lease.F-36


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 -
LAND AND BUILDINGS FOR LEASE (continued):e.
The land and buildings are leased under long-term, non-cancelable, with out penalty,
operating leases to various tenants.  The rental payments from the tenants are based on the square footage
leased.Minimum annual base rental payments under these leases are as follows:Adjusted NISIn thousandsYear ending December 31:2003


7,2552004


6,5092005


5,6302006


2,7472007 and thereafter


3,823Total


25,964F-37


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -
FIXED ASSETS:a.
1)
Composition of assets and accumulated depreciation and amortization, grouped by major
classifications, and changes therein in 2002, are as follows:C o s t
     
     Accumulated depreciation and amortization
     
     Depreciated balanceBalance
       
        at
       
        beginning
       
        of year
     
     Additions
       
        during
       
        the year
     
     Retirements
       
        during the
       
        year
     
     Other**
     
     Balance
       
        at end
       
        of year
     
     Balance at
       beginningof year
     
     Additionsduring theyear
     
     Retirementsduring theyear
     
     Other*
     
     Balanceat endof yearDecember 312002
     
     2001In thousandsIn adjusted NIS:Land and buildings,
       
             see b. below
     
     46,354
     
     6,406
     
     617
     
     1,478
     
     53,621
     
     7,807
     
     2,269
     
     439
     
     99
     
     9,736
     
     43,885
     
     38,547Machinery and equipment
     
     18,787
     
     1,430
     
     1,649
     
     7,869
     
     26,437
     
     12,986
     
     3,102
     
     1,407
     
     5,274
     
     19,955
     
     6,482
     
     5,801Vehicles
     
     19,637
     
     3,330
     
     4,318
     
     2,687
     
     21,336
     
     7,328
     
     2,815
     
     2,156
     
     2,577
     
     10,564
     
     10,772
     
     12,309Office furniture and
       
             equipment
     
     17,722
     
     2,240
     
     449
     
     2,015
     
     21,528
     
     11,540
     
     1,876
     
     312
     

     1,302
     
     14,406
     
     7,122
     
     6,182Leasehold improvements
     
     4,362
     
     498
     
     
     
     1,292
     
     6,152
     
     3,007
     
     1,221
     
     
     
     481
     
     4,709
     
     1,443
     
     1,355Computers and peripheral
       
             equipment
     
     18,263
     
     2,006
     
     160
     
     364
     
     20,473
     
     14,928
     
     2,020
     
     90
     
     99
     
     16,957
     
     3,516
     
     3,335Communication sites
     
     
     
     363
     
     
     
     
     
     363
     
     
     
     4
     
     
     
     
     
     4
     
     359125,125
     
     16,273
     
     7,193
     
     15,705
     
     149,910
     
     57,596
     
     13,307
     
     4,404
     
     9,832
     
     76,331
     
     73,579
     
     67,529*
Due to additions in respect of companies, which were consolidated for the first time
in 2002, and translation of financial statements of subsidiaries drawn up in foreign currency.Depreciation and amortization in respect of fixed assets totalled adjusted
NIS 7,713,000, adjusted NIS 9,148,000 and adjusted NIS 13,307,000 for the years ended December 31, 2000,
2001 and 2002, respectively.2)
Cost includes capitalized borrowing costs amounting to adjusted NIS 336,000 and
adjusted NIS 480,000 as of December 31, 2002 and 2001, respectively.F-38


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -
FIXED ASSETS (continued):b.
Real estate rights in Israel:1)
In 1997, Baran industries entered into a 49-year capitalized lease agreement with the
Israel Lands Administration (hereafter the Administration) for the lease of a plot of about 6,400 sqm. in the Omer industrial zone. A building which is used by the Group (hereafter
Baran House) was built on said plot.In addition, the Company has entered into a capitalized development agreement, which
is to be approved by the Administration, for a plot of about 5,080 sqm. in the Omer industrial zone. The development agreement
was for 3 years, commencing March 26, 1997, and was extended until April 1, 2002.  The Company has not yet received a
response to its application for a further extension.  As the Company has met the terms stipulated in the agreement
(including achieving certain milestones that had to be reached by predetermined dates), the Administration has signed a lease
agreement for an addition 49 years. As of the date of the approval of the financial statements, no new agreement has been
signed.The costs in respect of said plots are composed as follows:December 312001


2002Adjusted NISIn thousandsCost of land, including capitalized lease fees


1,321



1,321Consent fees


7



7Construction costs


22,534



22,53423,862



23,8622)
A proportionately consolidated company has constructed a 52,000 sqm commercial center
in Beer Sheba, of which about 34,500 sqm are leased from the Administration and about 17,500 sqm are owned by the
abovementioned company, but have not yet been registered in its name with the Land Registration Authority due to the
parcellation not having been completed. The proportionately consolidated company has carried out an interim procedure, under
which it leases the land for a period of 999 years. Said company has agreed that the Administration submit a written
undertaking to a bank, under which the Administration undertakes not to approve the transfer of the rights in the
abovementioned land without the consent of the bank and that the lease rights would
not be registered in the name of the proportionately consolidated company, unless, at the same time, a first-ranking mortgage
is registered in favor of the bank.F-39


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -
FIXED ASSETS (continued):3)
On December 23, 1999, a proportionately consolidated company acquired half the rights
to land at Beit Dagan, having an area of some 6 acres, from a third party.  The rights to the land include development
rights in accordance with an agreement signed with the Israel Lands Administration.Through December 31, 2001, NIS 22,027,000 had been paid for the acquisition of
the rights.  On the date of acquisition, a subsidiary signed an agreement with a third party for the establishment of a
joint venture, which would construct office buildings and commercial space.In June 2000, the proportionately consolidated company and the subsidiary signed an
agreement, whereby the subsidiary will manage, plan and carry out the construction project at Beit Dagan, on behalf of the
proportionately consolidated company.  The offices that have been constructed to date are used by the Company for its own
purposes See also note 11a(7).c.

As to pledges registered on the properties, see note 19.NOTE 7
GOODWILL AND OTHER INTANGIBLE  ASSETS, NET OF ACCUMULATED
AMORTIZATION:Original

 amount


Accumulated amortization


Unamortized

 balanceDecember 31


December 31


December 312001


2002


2001


2002


2001


2002Adjusted NIS


Adjusted NIS


Adjusted NISIn thousandsCustomer contracts


2,081


2,485





828


2,081


1,657Customer lists


1,219


5,151





691


1,219


4,4603,300


7,636


-,-


1,519


3,300


6,117Goodwill in subsidiaries


5,213


101,772


213


2,645


5,000


99,127Amortization expenses of goodwill for 2000, 2001 and 2002 are adjusted
NIS 21,000 and adjusted NIS 2,432,000 and adjusted NIS 21,000, respectively.Amortization expenses for other intangible assets for 2000, 2001 and 2002 are
adjusted NIS 401,000, adjusted NIS 166,000 and adjusted NIS 1,519,000, respectively.F-40


BARAN GROUP LTD. (An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 -
LONG-TERM BANK LOANS(net
    of current maturities):a.
The currency, linkage and interest terms of the loans are as
follows:Weighted 
  average 
  interest rates 
  as of 
  December 31,
  
  
  December 312002


2001

2002%


Adjusted NISIn thousandsIn dollars or linked thereto



3*


5,745


824In Euros or linked thereto



6.2





6,423Linked to the Israeli CPI



3.98


27,878


169,612Unlinked



9.55


8,715


16,40742,338


193,266L e s s - current maturities





7,689


26,38934,649


166,877* Interest is based on Libor + 1%.b.
The loans (net of current maturities) are repayable in the following years after
balance sheet date:Year ended December 312001


2002Adjusted NISIn thousandsSecond year


5,007


26,044Third year


4,977


73,566Fourth year


4,919


42,699Fifth year


4,919


20,882Sixth year and thereafter (until 2034)


14,827


3,68634,649


166,877c.
As to liens registered to secure the loans, see note 19.F-41




BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 -
CAPITAL NOTES ISSUED TO MINORITY SHAREHOLDERS OF A SUBSIDIARY, NET:This item represents capital notes issued by a subsidiary - Mobipower Ltd. (formerly -
T.P.S.) (hereafter - Mobipower) (see also note 2f) to its minority shareholders, after deduction of the minoritys share in the
subsidiarys capital deficiency, as follows:December 312001

2002Adjusted NISIn thousandsCapital notes issued and accrued interest


18,690


19,435Minoritys share in Mobipowers

     capital deficiency


(4,691
)

(8,277
)13,999


11,158Mobipower is mainly financed by funds from all of its shareholders, through capital notes.
These capital notes are linked to the Israeli CPI and bear 4% annual interest. Pursuant to the terms of the capital notes, any
repayment of amounts related to the capital note arrangements, including adjustment for CPI and interest, requires a majority
shareholder vote and is required to be repaid pro rata in proportion to the existing shareholders common stock interests at the
time of repayment. Accordingly, repayment of the capital notes and any interest is at the sole discretion of Baran, the majority
owner.NOTE 10 -
EMPLOYEE RIGHTS UPON RETIREMENT:The Israeli Group companiesIsraeli law generally requires payment of severance pay and/or pensions upon dismissal of an
employee or upon termination of employment in certain other circumstances. The following principal plans relate to employee rights
upon retirement, as applicable to Israeli Group companies :a.
Managerial insurance policies for employees in managerial positionsThese policies provide coverage for severance pay and pension liabilities of managerial
personnel. The policies are the Israeli Group companies assets and under labor agreements, subject to certain limitations, they
may be transferred to the ownership of the beneficiary employees.F-42





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 -
EMPLOYEE RIGHTS UPON RETIREMENT (continued):b.
Pension and severance pay liabilities not covered as above are fully provided for in these
consolidated financial statements. The company, at its discretion, deposits monies with severance pay funds which are earmarked as
cover for these liabilities.Employees dismissed from service before attaining retirement age, are entitled to severance
pay, computed on the basis of the number of years of service and the most recent monthly salary. In the event that the amounts
accumulated in the managerial insurance policies and severance pay funds are insufficient to cover severance pay computed as above,
the Israeli Group companies are obligated to supplement the deficiency.The Israeli Group companies recognize the above obligation on an undiscounted basis, as if
it was payable at each balance sheet date.c.
Some of the Israeli employees in the Group are employed under individual employment
agreements, which stipulate that the salary of such employees includes the severance pay component. The Company has applied to the
Minister of Labor for approvals under Section 28 of the Severance Pay Law, 1963 and has obtained such approvals with respect to most
of the above mentioned employees. The Company does not expect any difficulties in obtaining the remaining approvals. Therefore, the
Company did not include the amount of severance pay liability in respect of said employees in the balance sheets.d.
The balance sheet liability for severance pay and the amount funded with severance pay funds
and insurance policies, are composed as follows:December 312001

2002Adjusted NISIn thousandsLiability for severance pay


24,806


27,656L e s s - amount funded


(20,021
)

(21,814
)4,785


5,842The companies may only make withdrawals from the severance pay funds and insurance policies
for the purpose of paying severance pay.e.
The severance pay expenses for the years ended December 31, 2000, 2001 and 2002, were
adjusted NIS 3,402,000, adjusted NIS 4,064,000 and adjusted NIS 3,143,000, respectively.f.
Income (expenses) from severance pay funds for the years ended December 31, 2000, 2001 and
2002, adjusted NIS 168,000, adjusted NIS 276,000 and adjusted NIS (1,002,000), respectively.F-43





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-
COMMITMENTS AND CONTINGENT LIABILITIES:a.
Commitments:1)
In 2001, a long-term agreement between a subsidiary, Baran Raviv and DBS satellite services
(1998) Ltd. (hereafter YES) was cancelled. YES requested the subsidiary to agree to changes in the terms of the agreement, but the
two parties were unable to reach agreement regarding the new terms and YES ceased making the payments it had committed to under the
original agreement. Following litigation proceedings, it was decided in February 2002 that the agreement between the parties would be
terminated and that YES would be obliged to pay a total of adjusted NIS 59,105,000 in installments through December 2004. This amount
covers the full amount of YES debt in the accounts of the subsidiary.  The payments are linked to the CPI and bear no
interest.As of balance sheet date, approximately adjusted NIS 30,286,000 was received from
YES.2)
The Group has entered into various lease agreements of different duration, valid through
2007. The aggregate commitment under these leases amounts to adjusted NIS 35,988,000, NIS 11,080,000 are linked to the exchange
rate of the dollar, while NIS 24,908,000 are linked to the Israeli CPI.The projected rental payments for the coming years, at rates in effect at December 31, 2002,
are as follows:Adjusted NISIn thousands2003


12,4442004


8,6992005


6,2612006


4,3002007


4,28435,988

Rental expenses totaled adjusted NIS 4,409,000, adjusted NIS 5,853,000 and
adjusted NIS 8,147,000 in 2000, 2001 and 2002, respectively.F-44





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-
COMMITMENTS AND CONTINGENT LIABILITIES (continued):3)
Meissner Baran (a proportionately consolidated company) has entered into an open-ended
agreement for the provision of supervisory and contracting consulting services with another company, which owns shares in Meissner
Baran (hereafter - the supervising company). This agreement succeeds
a prior agreement that amended in June 2000.Pursuant to the agreement, a representative of the supervising company was appointed to be
CEO of Meissner Baran, although the agreement stipulates that no employer-employee relationship is to be deemed to exist between
Meissner-Baran and the CEO.The following payments are also prescribed by the agreement:a)
A monthly payment like in the previous agreement for project supervision, consulting and management services,
like the payment in the previous agreement.b)
The supervising company is entitled to receive an annual bonus at a rate that was increased
by 2.5% in the amended agreement of the adjusted pre-tax profits of Meissner Baran, in exchange for the supervising company
waiving its rights to the sale of its interest in shares of Meissner Baran other partners.c)
A payment for management fees to the subsidiary, Baran Industries, at the rate of 33.33% of
the aggregate of the sums paid to the supervising company.4)
Within the framework of the acquisition of a production line, machinery, patents, trade
marks, know-how and technology relating to the production of the interrupters keyboards, and piaso-electric products, in 1997, the
Company assumed all the sellers obligations and rights with regard to the Chief Scientists grants in connection with the
above products.  At the end of 1999, all the aforesaid obligations and rights were transferred to Baran Technologies.  The
total of these liabilities, which are linked to the dollar, amounts to 100% of the grants received.  The maximum amount of
royalties that might have to be paid by Baran Technologies in settlement of this amounts to adjusted NIS 456,000 as of
December 31,
2002.In case of failure of a project that was partly financed by royalty-bearing Government
participations, the subsidiary is not obliged to pay any such royalties to the Israeli Government.Royalty expenses totaled adjusted NIS 142,000, adjusted NIS 191,000 and adjusted
NIS 309,000 in 2000, 2001 and 2002, respectively.5)
Within the framework of the acquisition of 50% of the shares of Nes-Pan, a subsidiary
undertook to grant loans to fund Nes-Pans operations, under the same terms and conditions as the other shareholders of
Nes-Pan.  In January 2000, the aforesaid loans were converted into unlinked, non-interest bearing capital notes.F-45





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-
COMMITMENTS AND CONTINGENT LIABILITIES (continued):6)
Within the framework of the acquisition of 50% of the shares of A.R.A.D.Y.R. Startups Ltd.
(hereafter A.R.A.D.Y.R.), the Company undertook to provide funds to A.R.A.D.Y.R., jointly with the other shareholders, as required
from time to time. The acquisition agreement also provided that the other shareholders (who own the remaining 50% of the shares of
A.R.A.D.Y.R.) would be entitled to bonuses and that the annual profits, net of the abovementioned bonuses, would be distributed
equally between the Company and the other shareholders, as management fees.7)
Royalty commitmentsA subsidiary - Baran Technologies- is committed
to pay royalties to the Government of Israel on proceeds from the sale of products in the development of which the Government
participated by way of grants. At the time the participations were received, successful development of the related projects was not
assured. Under the terms of the aforesaid participation, royalties of 3% are payable to the Government on the sale of products in the
development of which the Government participated, up to 100% of the amount of the grants received by the subsidiary (dollar
linked).The maximum amount of royalties that might have to be paid by Baran Technologies in
settlement of this amounts to adjusted NIS 3,554,000 as of December 31, 2002.8)
In December 1999, a proportionately consolidated company signed an agreement with a third
party pursuant to which it is intended that the proportionately consolidated company is to construct an office building of 24,000
sqm. for a pre-determined consideration.  As of December 31, 2002, approximately 10,400 sqm have been constructed, of which
6,200 sqm are leased to the company, consolidated and proportionately consolidated companies.In June 2000, the proportionately consolidated company signed an agreement with a
subsidiary, whereby the subsidiary is to manage, plan and carry out this construction project. The project will be charged at cost
plus 12%.9)
Distribution of bonuses and issue of shares:A.
On August 6, 2001, the Company in general meeting resolved to grant benefits and issue
traded securities to a related party of the Company. In addition, on November 18, 2001, the Company in general meeting approved a
transaction with related parties regarding the grant of benefits and the issue of traded securities to 5 additional related parties
as follows:a.
In the event of the Company having a net annual profit, each of the related parties (6 in
total) would be entitled to an annual bonus of adjusted NIS 533,000.F-46





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-
COMMITMENTS AND CONTINGENT LIABILITIES (continued):b.
In addition to the bonus referred to in a above, the related parties would be entitled to
the following additional benefits:(i)
In respect of 5 related parties: in the event that the annual profit exceeds an amount in
shekels equivalent to $4 million, the bonus will include an additional payment at the rate of 1.5% of the Companys net annual
profit.(ii)
In respect of the fifth related party:
an amount equal to 5% of the net annual profit from the Companys construction division.B.
Four of the related parties would be issued 170,000 ordinary shares, each having a par value
of NIS 1.C.
The issue of 100,000 unmarketable warrants to a related party. Each warrant is exercisable
into one of the Companys ordinary shares of NIS 1 par value.The Company has included in 2001 an expense amounting to adjusted NIS 6,510,000 in
respect of bonuses, most of which had actually been paid, in accordance with the resolution of the Company on this matter in a
general meeting and prior to the Securities Authority notification referred to below.On January 3, 2002, and in a further letter on February 4, 2002, the Israeli Securities
Authority notified the Company that it had ruled that the transaction between the Company and its five related parties had not been
lawfully approved at the Companys general meeting held on November 18, 2001, and that therefore - in the Authoritys
opinion - the transaction was not legally valid.Immediately upon receipt of this notification, the Company froze further implementation of
this transaction. Accordingly, no issues have been made of shares or warrants.Up to the date of receipt of the above notification from the Israeli Securities Authority,
not all the various legal stages involved in the issuance of shares and warrants have been completed, including the legal
requirements relating to the taxation of shares and options.On July 11, 2002, the interested 5 parties have announced their waiver of their rights
to shares, warrants and the unpaid balance of the bonus.F-47





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-
COMMITMENTS AND CONTINGENT LIABILITIES (continued):10)
In October 1999, Baran Technologies entered into a 6-year agreement with a German company.
This agreement grants the German company certain rights for the distribution of piaso-electric buttons and keys. Pursuant to this
agreement, during the first year of the agreement, the German company will act as sole distributor and marketer of the above products
in all German-speaking European countries (hereafter - the territory), and Baran
Technologies has given an undertaking not to directly carry out any selling activities in the territory.11)
On August 20, 2000, Meissner-Baran, together with the Company and another company that is
one of Meissner-Barans related parties, signed a contract with Tower Semiconductor Ltd. The contract, which is valid for two
years, is for the planning and construction of a new semiconductor plant, for consideration of $ 217 million (adjusted
NIS 1,035 million). The contract is on a fast-track turnkey basis and has three stages that will be preformed according to the
clients decision: Stage 1 - planning and receiving building permits. Stage 2 - planning and construction of the new factory.
Stage 3 - completing the project for the factory.As of December 31, 2002 Stage 1 and 2 had been completed. As for Stage 3, amounting to $
45,000,000, the client has yet to place an order for this work.On March 12, 2003, Meissner-Baran and Tower Semiconductor Ltd. signed an addendum to
the contract for carrying out a Stage 3 project in the Towers FAB-2 factory in Migdal HaEmek (hereafter - Stage 3
Project), which is effective as from its signing.The Stage 3 Project includes the expansion of the production capacity of Towers new
factory (FAB-2), up to 33,000 silicon wafers a month, and will not hinder further installation of the process equipment.  The
estimated scope of the Stage 3 Project is approximately $ 35.8 million, which will be expensed in 5 stages.  The first
stage, with an estimated scope of approximately $ 4 million, will commence immediately and the remaining stages will take place
according to the development of the project and based on Towers requirements.12)
A joint venture of the Company is engaged in a long-term project for the construction of an
military base with an area of Some 395 acres, at a cost of $ 127 million.  If the joint venture fails to meet the
predetermined schedules, it will be required to compensate the customer by $ 21,000 per day of delay.13)
On August 19, 2002, it was announced that a consortium of companies, which included IONICS
INC., Dor Chemicals Ltd. and the Company, had been awarded the tender issued by the State of Israel for the construction of a
desalination plant. See note 2h.F-48





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-
COMMITMENTS AND CONTINGENT LIABILITIES (continued):b.
Contingent liabilities:1)
As of December 31, 2002, the Group and its investee companies are parties to the legal
claims detailed below:a)
In 2001, a claim for NIS 5,440,000 was filed against Baran Raviv by way of a summary
procedure.  The claimant alleges that Baran Raviv has a debt in respect of equipment supplied by the claimant.  Baran Raviv
has filed an application for leave to defend, in which it rejects the claimants claims.  In addition, on January 1,
2003, Baran Raviv has submitted its summations in connection with the application for leave to defend.  Deliberations have not
yet been scheduled.b)
On May 2, 2002, a claim was filed with the Tel Aviv District Court against a
proportionately consolidated company - Meissner-Baran - in which the Company holds 46.5% equity.  The claim is for
Meissner-Baran and 4 other parties to pay a customer approximately NIS 8.9 million in respect of a damage allegedly caused
during the installation of an appliance on April 22, 1999.  At this stage, Meissner-Baran has filed a statement of
defense.  The Meissner-Baran has an insurance coverage ceiling of approximately $ 1 million (adjusted NIS 4,737,000) relate
to all claims for the year.  Based on the opinion of its legal counsel, Meissner-Baran management estimates that the likelihood
of it being required to pay an
amount in excess of the insurance coverage of  $ 1 million is remote. Therefore, no provision was included in the financial
statements in respect of this claim.c)
On December 19, 2002, another claim was filed against Meissner-Baran, for
Meissner-Baran to pay a supplier NIS 4.4 million in respect of an alleged debt of Meissner-Baran to the supplier in connection
with work performed by the supplier for the Company.  In addition, on said date, the supplier requested the Court, ex parte, to
issue a provisional attachment order for the properties of Meissner-Baran, up to an amount of NIS 4.5 million.  The Court
has granted the suppliers request and issued an order as above.  On December 25, 2002, Meissner-Baran applied to the
Court to replace the attachment by a bank guarantee.  On December 29, 2002, the Court has granted this request and
cancelled the
provisional attachment order, in exchange for a bank guarantee in the amount  of NIS 4.5 million.  In addition, on
December 26, 2002, Meissner-Baran filed an application for the cancellation of the attachment order and the bank guarantee
replacing the order, and an application for stay of proceedings due to an arbitration clause included in the contract between the
parties.  As the deliberations in this claim are in their preliminary stages, the legal counsel of Meissner-Baran were unable to
issue an opinion thereon. No provision was included in the financial statements with regard to this claim, as any such loss is not
probable and reasonably estimatable.F-49





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-
COMMITMENTS AND CONTINGENT LIABILITIES (continued):d)
On July 12, 2002, a claim was filed against a subsidiary in the United States for an
amount of $ 3 million (Adjusted NIS 14.211 million)  in respect of a debt to sellers in connection with an agreement for
the acquisition of a subsidiary.  The Company included a provision in its accounts in respect of this claim, which, based on the
advice of legal counsel, an amount for the probable and reasonably estimatable loss with regard to this claim has been included in
the financial statements.e)
On August 6, 2002, another claim was filed against a subsidiary in the United States,
for amount of $ 3.3 million (Adjusted NIS 15.632 million) in respect of a debt to sellers in connection with an agreement for
the acquisition of a subsidiary.  The Company included a provision in its accounts in respect of this claim, which, based on the
advice of legal counsel, an amount for the probable and reasonably estimatable loss with regard to this claim has been included in
the financial statements.f)
In December 1999, a third-party claim in an unlimited amount was filed against Baran
Construction. The case has been brought by the estate of a deceased with regard to the death of the deceased in a work accident.
During 2002, the Company paid NIS 7,500 in settlement of this third party claim.g)
Investee companies are, in the ordinary course of business, parties to additional legal
claims for the aggregate amount of NIS 2,112,000 as well as 7 claims for personal injury filed with the Magistrates Court,
aggregating adjusted NIS 7 million.h)
On April 24, 2002, a supplier filed a claim against a proportionately consolidated company.
The claim was rejected by court.Based on the advice of legal counsel, the Company has included an amount of NIS 15,422,000
related to the probable and reasonably estimatable amount related to such claims, which include the Companys pro rata share of
such losses related to its equity investees. Baran believes it is not reasonably possible that the losses that they will incur
related to the claims disclosed in Note 11 will materially exceed the amounts disclosed in Note 11 as the amount of probable losses
accrued.F-50





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 -
SHAREHOLDERS EQUITY:a.
Share capitalThe Companys shares are traded on the Tel Aviv Stock Exchange. On December 31, 2002
the shares were quoted at the price of adjusted NIS 27.93 per share (December 31, 2001  adjusted NIS 93.2). As from
November 14, 2002, the shares are listed on the Nasdaq.The Companys issued and outstanding shares are 7,921,718 and 8,375,884 as of December
31, 2001 and 2002, respectively. The shares includes 575,625 and 474,300 restricted shares as of December 31, 2001 and 2002
respectively, which are held by employees and non-employee and 95,608 and 55,808 restricted shares as of December 31, 2001 and 2002
respectively, which are held by the Company.b.
Shares of the Company held by the Company and its subsidiariesAs of December 31, 2001 and 2002, the subsidiaries Baran Projects Construction Ltd.
(Baran Construction) and Baran Industries (91) Ltd. (Baran Industries) held 109,082 and 176,608  Company
shares, respectively, which represented approximately 1.38% and 2.11% of the Companys shares at December 31, 2001 and 2002,
respectively.  The cost of these shares as of December 31, 2001 and 2002 is adjusted NIS 3,977,000 and adjusted
NIS 5,758,000 respectively.As of December 31, 2001 and 2002, restricted shares held by the Company (as stated above)
represented approximately 1.21% and 0.66% of the Companys shares, respectively.F-51





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - SHAREHOLDERS EQUITY (continued):c.
Stock based awards:The Group granted restricted shares to its employees and non-employees, at their par value (1 NIS
per share), as follows:Number of ordinary shares

 of NIS 1 par value

Vesting

 period*

Fair value at

 grant date

 (NIS per share)Grant date

. Employees

Non-

 employees (a)December 29, 1999



106,000
(b)

2 years

103.8April 6, 2000

182,000 (d)




Over 5 years

104.3December 28, 2000

179,000 (c)

4,000


Over 5 years

129August 7, 2001

50,000 (e)




Over 7 years

90.3November 25, 2001

130,250 (c)

5,000


Over 5 years

83December 31, 2002

39,800(f)




Over 5 years

27.93The period over which the optionee must be employed by or provide services to the Company, at the
end of which the restriction on the shares is lifted and the shares become ordinary shares of the Company.(a)
Represents mainly Groups employees, which are not considered to be employees for accounting
purposes, since they are not considered employees of the Group for tax purposes.(b)
The shares were allotted to one of the Companys directors.(c)
The shares will vest in four equal batches. The first batch will be vested after two years, the
second, third and fourth batches will be vested after three, four and five years,
respectively, after the grant date.(d)
The shares will vest in four batches. The first batch of 70,000 shares will be vested in April
2002. The second, third and fourth batches of 40,250, 39,000 and 32,750 shares, will be vested after three, four and five years,
respectively, after the grant date.(e)
Granted to the companys CEOThe shares will vest in six batches as follows: The first batch of 25% of the shares will vest
over two years, the second, third, fourth, fifth and sixth batches, each of 15% of the shares, will be vested on January 2004, 2005, 2006,
2007 and 2008, respectively.F-52





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 -
SHAREHOLDERS EQUITY (continued):(f)
39,000 shares will vest in four equal batches. The first batch will be vested after two years, the
second, third and fourth batches will be vested after three, four and five years, respectively, after the grant date. 800 shares will be
rested after two years.The weight number for December 31, 2000, 2001 and 2002, of unvested restricted shares, held by the
Group employees and non-employees, is 408,333, 567,631 and 515,469 shares, respectively.In addition, the weight number for that dates, 59,558, 95,608, and 95,608 shares, respectively,
are held by the Company, due to its forfeitness.The restricted shares, held by the employees and non  employees, have the same voting rights
and the right to receive dividends, as the Companys ordinary shares.d.
The granting of shares in accordance with the plan for the award to Israeli employees is subject
to the terms stipulated by Section 102 of the Income Tax Ordinance.  Inter alia, Section 102 provides that the Company will
be allowed to claim as an expense for tax purposes the amounts credited to the employees as a benefit upon sale of the shares allotted
under the plan, when the related capital gains tax is payable by the employee.e.
Option warrantsOn February 27, 2003, the general meeting of the Company approved the allotment of 116,000
non-negotiable option warrants of the company to the employees of o2 who were transferred, following the merger of o2, to a wholly-owned
U.S. subsidiary of the Company - Baran Telecom Inc. (hereafter - BTI).  the warrants would be allotted at no
consideration, and each warrant would be exercisable into one ordinary share of NIS 1 par value of the Company, for a consideration of
the average closing price of the companys shares for the 14 days preceding the allotment of the warrants.f.
Retained earningsAs prescribed by the Companies Law, in determining the amounts available for dividend
distribution, the amount of Company shares purchased by subsidiaries should be deducted from the balance of retained earnings presented
under the Companys shareholders equity.F-53





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-TAXES ON INCOME:a.
The Company and its Israeli subsidiaries:1)
Tax benefits under the Law for the Encouragement of Capital Investments, 1959
(hereafter- the law).Under the law, by virtue of the approved enterprise status granted to some of their
plants, two of the Companys subsidiaries are entitled to various tax benefits. The main tax benefits available to the abovementioned
subsidiaries are:a)
Tax exemption and reduced tax ratesDuring the period of benefits - 7 years or 10 years commencing the first year in which the
subsidiary earns taxable income from the approved enterprises (provided the maximum period to which it is restricted by law has not
elapsed) - the following reduced tax rates or tax exemptions apply to the subsidiarys income from its approved enterprises:1)
One of the subsidiaries is exempt from tax on the income from the approved enterprise in respect
of which the subsidiary has elected the alternative benefits track; the length of he exemption period is ten years. The benefit
period in respect of this enterprise has not yet commenced. See also note 1j(3)(a).In the event of distribution of cash dividends out of income which was tax exempt as above, the
subsidiary would have to pay tax at the rate of 25% in respect of the amount distributed.2)
The other subsidiary will be liable to corporate tax at the rate of 25%, instead of the regular
tax rate for a period of seven years. See also note 1j(3)(b).b)
Accelerated depreciationThe subsidiary is entitled to claim accelerated depreciation for five tax years commencing in the
first year of operation of each asset, in respect of buildings, machinery and equipment used by the approved enterprise.c)
Conditions for entitlement to benefitsThe entitlement to the above benefits is conditional upon the subsidiarys fulfilling the
conditions stipulated by the law, regulations published thereunder and the instruments of approval for the specific investments in approved
enterprises. In the event of failure to comply with these conditions, the benefits may be cancelled and the subsidiary may be required to
refund the amount of the benefits, in whole or in part, with the addition of linkage differences (to the Israeli CPI) and
interest.F-54





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 -
TAXES ON INCOME (continued):2)
Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985
(hereafter - the inflationary adjustments law)Under the inflationary adjustments law, results for tax purposes are measured in real terms,
having regard to the changes in the Israeli CPI. The Company, its Israeli subsidiaries and its Israeli proportionately consolidated
companies are taxed under this law.3)
Tax rates applicable to income not derived from approved enterprisesSuch income, of the Company and its Israeli subsidiaries and proportionately consolidated
companies not eligible for approved enterprise benefits mentioned in 1a above, is taxed at the regular rate of 36%.Foreign subsidiaries are taxed on the basis of the tax laws in their country of
residence.4)
Reform of the Israeli tax systemIn 2002, Amendment to the Income Tax Ordinance (No. 132), 2002 (hereafter - the tax reform law)
was enacted. The tax reform law comprehensively reforms certain parts of the Israeli tax system. The tax reform law comes into effect on
January 1, 2003, although certain provisions therein will only be applied from later dates in accordance with the provisions of the
tax reform law. As from January 1, 2003, capital gains will be taxed at a reduced rate of 25%, instead of the regular rate of 36% at
which they were taxed until the aforementioned date; with regard to the sale of assets acquired prior to January 1, 2003, the reduced
tax rate will be applicable only for the gain allocated to capital gains earned after the implementation of
that law, which will be calculated, as prescribed by the tax reform law. Furthermore, the tax reform law stipulates, that carryforward
capital losses, may be utilized against capital gains, without any time restriction (the time limitation for the utilization has been
removed in respect of capital losses which arose in the tax year 1996 and thereafter). The tax reform law also includes an arrangement to
allow the set off of capital losses from the sale of overseas assets against capital gains in Israel.F-55





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-
TAXES ON INCOME (continued):5)
Carryforward tax losses and balance of deduction for inflation:December 312001

2002Adjusted NISIn thousandsLosses and balance of

     deduction for inflation*47,944

60,714*
Includes balance of carryforward losses of overseas subsidiaries - denoted in foreign currency -
that amount to adjusted NIS 34,400,000 as of December 31, 2002 (December 31, 2001 - NIS 7,940,000). Under the inflationary
adjustments law, most of the carryforward tax losses are linked to the CPI.6)
Carryforward realized losses on sales of marketable securities at December 31, 2002 aggregate
adjusted NIS 329,689; December 31, 2001 - adjusted NIS 44,409, (such amounts are excluded from carry forward tax loss balance
disclosed in the table in 13 a5 above).  The realized losses are deductible from future realized gains from marketable securities, if
any. No deferred tax assets have been included in respect of such losses.As of December 31, 2001 and 2002 carryforward tax losses totaled adjusted NIS 1,200,229,
and 1,509,602, respectively.  These losses may only be utilized against capital gains.  The Company has not created deferred
taxes in respect of carryforward tax losses.  Under the inflationary adjustments law, losses for tax purposes, capital loss and
deduction for inflation carried forward to future years are linked to the CPI.F-56





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-
TAXES ON INCOME (continued):b.
Deferred income taxes:1)
The composition of the deferred taxes, and the changes therein during the years 2001 and 2002, are
as follows:In respect of balance sheet items

In respect of

 differences

 between

 reporting

 on accrual

 basis

 and cash basis

 (see f. below)Provisions for




In respect of

 carry-

 forward tax

 losses and

 deduction

 for inflationemployee rightsDepreciable

 fixed

 assets



Vacation and

 recreation

 paySeverance

 pay






Valuation

 allowanceOther -net




TotalIn thousandsIn adjusted NIS:Balance at January 1, 2001


(84
)


1,057



1,951



1,146



(2,232
)


11,168



(5,437
)


7,569Changes in 2001:Amounts carried to income


34



414



65



(591
)


(1,550
)


4,765



(5,782
)


(2,645
)Addition of deferred taxes in
respect of 
        companies consolidated for the first time


(59
)


205



18



185







1,343







1,692Other - net*






(3
)






(2
)






(15
)






(20
)Balance at December 31, 2001


(109
)


1,673



2,034



738



(3,782
)


17,261



(11,219
)


6,596Changes in 2002:Amounts carried to income


58



(84
)


184



(750
)


116



4,596



(5,596
)


(1,476
)Other - net*














174















174Balance at December 31, 2002


(51
)


1,589



2,218



162



(3,666
)


21,857



(16,815
)


5,294*
These changes related to differences on the translation of foreign currency financial statements
of subsidiaries.F-57





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-
TAXES ON INCOME (continued):2)
Deferred taxes are presented in the balance sheets as follows:ConsolidatedDecember 312001

2002Adjusted NISIn thousandsAmong current assets


5,160


7,422Among investments loans and

     long-term receivables


1,673


1,589Among current liabilities


(128
)

(3,666
)Among long-term liabilities


(109
)

(51
)B a l a n c e - asset, net *


6,596


5,294

*
Regarding companies in Israel, realization of this deferred tax balance is conditional upon
earning, in the coming years, taxable income in an appropriate amount.The deferred taxes are computed mainly at the tax rate of 36%.Foreign subsidiaries are subject to the tax laws in their countries of residence.c.
Income before taxes on income is composed as follows:ConsolidatedYear ended December 312000

2001

2002Adjusted NISIn thousandsThe Company, subsidiaries and

     proportionately consolidated

     companies in Israel


98,774



111,662



32,340Subsidiaries and proportionately

     consolidated companies

     outside Israel


(968
)


547



6,92897,806



112,209



39,268

F-58





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-
TAXES ON INCOME (continued):d.
Taxes on income included in the statements of income:1)
As follows:ConsolidatedYear ended December 312000

2001

2002Adjusted NISIn thousandsCurrent:In Israel


35,308



42,403



13,791Other


380



477



2,76535,688



42,880



16,556Deferred, see 13b above:In Israel


(6,509
)


2,228



398Other






417



1,078(6,509
)


2,645



1,47629,179



45,525



18,032For previous years - current


159



(174
)


(753
)29,338



45,351



17,279Current taxes have been computed at the tax rates of 36% and 25% (mainly 36%) for the tax years
2000 -2002.Foreign subsidiaries are subject to the tax laws in their countries of residence.F-59





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-
TAXES ON INCOME (continued):2)
Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the
regular tax rates applicable to companies in Israel (see a(3) above), and the actual tax expense:Year ended December 312000

2001

2002Adjusted NISIn thousandsIncome before taxes on income, as

     reported in the statements of income


97,806



112,209



39,267Theoretical tax expense


35,210



40,395



14,136L e s s - tax benefits arising from

     approved enterprise status


447



130



89934,763



40,265



13,237Decrease in taxes resulting from

     different tax rates applicable to

     foreign subsidiaries






(47
)


185Increase in valuation allowance


715



4,685



5,672Erosion of tax payments










239Increase (decrease) in taxes resulting from

     permanent differences  the tax effect:Disallowable deductions:Goodwill amortization


32



34



876Other


1,309



1,268



1,613Income taxed at special rates










(1,736
)Decrease in taxes resulting from exercise

         of shares and options by employees


(5,453
)


(2,347
)


(2,026
)Capital gain resulting from decrease in the

     percentage held in a proportionately

     consolidated company


(2,162
)Impairment in market value of investment in

     an associated company






1,598Taxes in respect of previous years


159



(174
)


(753
)Other


(25
)


69



48Decrease in taxes in respect of tax

             losses incurred in the reported

             year for which deferred taxes

             were not created










(76
)Taxes on income as reported in the gain

     and loss reports


29,338



45,351



17,279F-60





BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-
TAXES ON INCOME (continued):e.
Tax assessmentsSome of the Group companies have received final assessments through the tax year 2001. The Company
and some of its subsidiaries have received final assessments through the tax year 1997. Some of the Group companies have not received final
tax assessments since their incorporation, although the tax assessments led through the tax year 1997 are considered to be final.f.
Basis of recognizing income for tax purposesThe Company and its Israeli subsidiaries report for tax purposes on the accruals basis, with the
exception of the engineering companies, Baran Engineering and Baran Infrastructure, which report on the cash basis.NOTE 14 -
LINKAGE TERMS OF MONETARY BALANCES:a.
As follows:D e c e m b e r  3 1, 2 0 0 2In foreign

 currency

 or linked

 thereto*

Linkage

 to U.S

 dollar

CPI linked

Unlinked

TotalIn thousandsAdjusted NIS :Assets:Current assets:Cash and cash equivalents


11,740



71,573



723



7,972



92,008Short-term investments


3



1,946



43,151



43,932



89,032Accounts receivable:Trade and income
receivable


100,786



34,380



48,619



78,214



261,999Other


4,230



293



12,671



11,587



28,781Long-term loan and long term

         receivables






12,363



14,913







27,276116,759



120,555



120,077



141,705



499,096Liabilities:Current liabilities:Short-term bank credit and

             bank loans


40,676



18,703



6,605



8,675



74,659Accounts payable and accruals:Trade


19,736



19,244



27,232



32,790



99,002Other


32,277



51,583



22,950



45,083



151,893Long-term bank loans (including

         current maturities)


6,423



824



169,612



16,407



193,266Capital notes issued to minority

         Shareholders of a subsidiary










19,436







19,43699,112



90,354



245,835



102,937



538,256*        Mainly to the euro.

F-61
BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - LINKAGE TERMS OF MONETARY BALANCES:b.
Data regarding the CPI and exchange rate of the U.S. dollar:Exchange

 rate

 of one dollar

CPI*As of December 31:2002

NIS 4.737

Points 108.22001

NIS 4.416

Points 101.62000

NIS 4.041

Points 100.21999

NIS 4.153

Points 100.2Increase (decrease) during:2002


7.3
%


6.5
%2001


9.3
%


1.4
%2000


(2.7
)%


0.0
%1999


(0.2
)%


1.3
%*
Based on the index for the month ending on each balance sheet date, on the basis of
2000 average = 100.NOTE 15 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:Balance sheets:a.
Short-term investments:December 312001

2002Adjusted NISIn thousandsMarketable securities:Bonds:Government bonds


2,293



50,395Corporate bonds


6



5,563Mutual fund participation certificates


1,363



4,345Shares


629



274Short-term bank deposits*


782



1,336Deposit an investment company






27,3935,073



89,306*
The deposits, which are for periods of up to one year, are unlinked and bear interest
an average rate of 7% per annum.F-62


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued):b.
Accounts receivable:December 312001

2002Adjusted NISIn thousands1)  Trade and income receivable:Open accounts


189,184



152,719L e s s  allowance
for doubtful accounts


(2,609
)


(7,775
)186,575



144,944Checks
receivable


10,881



29,672Income receivable, net of
customeradvances


76,368



87,383273,824



261,9992)  Other:Employees


1,481



2,371Government
institutions


7,590



6,857Proportionately
consolidated companies*


3,609



4,267Related
parties*


114



44Prepaid
expenses


1,760



5,363Deferred income taxes,
seenote
13b


5,160



7,422Income taxes
refundable


4,950



6,032Advances to
suppliers


5,517



1,574Derivative
instruments


2,866



2,486Investment designated for
sale






4,349Sundry


6,887



6,72439,934



47,489*
The balances due from proportionately consolidated companies are CPI linked and bear
interest at the rate of 4% per annum.  The balances due from related parties are unlinked and bear no interest.F-63


BARAN GROUP LTD.(An Israeli Corporation)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued):December 312001

2002Adjusted NISIn thousandsc.
Inventories:Raw materials and supplies


6,378



5,859Products in process


421



473Finished products


10,650



3,03017,449



9,362d.
Short-term bank credit:1)   Composed as follows:Short-term bank credit


17,039



17,757Short-term bank loans


46,447



56,902Current maturities of long-term bankloans, see note
8


7,690



26,38971,176



101,048Unutilized credit facilities


181,027



553,2572)    Classified by currency, linkage terms and interest rates, the
short-term credit (excluding

        current maturities of long-term loans) is as follows:Weighted

 interest rates at

 December 31,

2002

December 312001

2002%

Adjusted NISIn thousandsFrom banks:In, or linked to, foreigncurrencies


7-9



16,736



59,351Linked to the Israeli CPI


8.54



42,477



6,605Unlinked


9.6



4,273



8,70363,486



74,659F-64


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:December 312001

2002Adjusted NISIn thousandse.   Accounts payable and accruals:1)   Trade:Open accounts


191,883



81,870Checks and notes
payable


63,813



17,132255,696



99,0022)    Other:Government
institutions


27,966



26,041Provision for vacation
pay


6,213



6,922Accrued expenses


57,527



82,579Employees


15,523



6,988Income taxes payable


2,496



5,825Interested parties






5,299Warranty provision**


21,581



10,965Customer advances*


17,002



2,621Deferred income
taxes,see note 13b


128



3,666Income received in
advance


6,307



489Sundry


3,401



7,274158,144



158,669*
Customer advances as of December 31, 2001 and 2002 are presented net of work in
progress amounting to adjusted NIS 7,047,000 and adjusted NIS 166,271,000 respectively.**
Movements in the warranty provision during the year:Adjusted NISIn thousandsBalance at January 1, 2002


21,581Payments made


(12,456
)Provisions created and adjustments toexisting provisions


1,840Balance at December 31, 2002


10,965F-65


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:Statements of income:Year ended December 312000

2001

2002Adjusted NISIn thousandsf.   Cost of revenues:1)
Construction projects and services:Materials consumed


169,095



126,712



58,923Salaries


138,928



158,701



157,202Subcontractors


372,190



394,512



305,364Manufacturing and operating costs


49,219



74,652



76,985Depreciation and amortization


4,217



5,989



10,554733,649



760,566



609,028Decrease (increase) in finishedproducts inventory


286



(4,786
)


(2,934
)733,935



755,780



606,0942)
Sale of products:Materials consumed


32,110



88,970



141,174Salaries


3,048



2,899



3,882Subcontractors


1,188



2,081Manufacturing and operating costs


46



405



3,226Depreciation and amortization


290



282



49036,682



94,637



148,772Decrease (Increase) in products inprocess inventory


(1,052
)


(2,922
)


9,395Decrease (Increase) in finishedProducts


(200
)


(556
)


1,790(1,252
)


(3,478
)


11,18535,430



91,159



159,9573)
Lease for buildings:Salaries


69







642Manufacturing and operating costs


450



10Depreciation and amortization


1,620



1,580



1,9442,139



1,590



2,586F-66


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:Year ended December 312000

2001

2002Adjusted NISIn thousandsg.
Selling and marketing expenses, net:Payroll and related expenses


2,291



2,755



9,073Advertising and sales promotion expenses


2,463



2,698



4,331Depreciation and amortization


338



201



271Other


964



4,811



10,134L e s s  government participations inmarketing expenses


(410
)


(799
)


(193
)5,646



9,666



23,616h.
General and administrative expenses:Payroll and related expenses


19,547



21,764



18,633Vehicle expenses


1,589



1,543



1,815Rentals and office maintenance


10,501



8,877



4,958Office supplies, postage and telephone


5,506



6,237



9,084Professional fees


2,539



2,683



4,106Traveling


3,109



1,260



1,639Allowance for doubtful accounts and baddebts


136



(12
)


(45
)Depreciation and amortization


3,808



3,182



5,766Other


4,306



14,663



7,53951,041



60,197



53,495i.
Financial income (expenses), net:In respect of marketable securities


1,352



643



563In respect of deposits and loans granted


6,669



15,150



5,238In respect of short term bank credit


(479
)


(5,456
)


(11,700
)In respect of long-term loans


(3,039
)


(3,333
)


(12,046
)Other - primarily erosion of monetaryitems, net


1,099



548



1,4595,602



7,552



(16,486
)A d d - borrowing costs capitalized to costof land and buildings for lease


421



413



(968
)6,023



7,965



(17,454
)F-67


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 15 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):Year ended December 312000

2001

2002Adjusted NISIn thousandsj.
Other income (expenses), net:Gains (losses) on:Reduction in percentage of shareholding insubsidiary


669Gain on disposal of investment inproportionately consolidated company


6,150Disposal of shares of associated company


1,101Capital gain on sale of fixed assets


80



80



1,657Loss from impairment in value of investment inan associated company






(4,443
)


(601
)Other


(698
)


3407,302



(4,023
)


1,056k.
Companys share in profits of associatedcompanies, net:Share in profits for the year, net


7,080



1,588



1,524Amortization of good will


(589
)


(380
)


(464
)6,491



1,208



1,060Dividend received


2,875



1,473



1,880NOTE 16 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:a.
GeneralSince the operations of the Group are conducted mainly in Israel, the exposure to
risks from changes in foreign exchange rates is low. However, the Group enters into foreign exchange derivative instruments
(as described in note 1n) to mitigate its exposure to risks from changes in foreign exchange rates.F-68


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 -  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):b.
Concentration of credit risksMost of the Groups cash and cash equivalents at December 31, 2001 and 2002 were
deposited with Israeli banks. The Company is of the opinion that the credit risk in respect of these balances is
remote.Some of the Groups income is from major customers (see also note
18c).The Group performs ongoing evaluations of its customers and does not generally
require collateral. The accounts include a provision for doubtful accounts.c.
DerivativesAs stated in note 1n, the Group enters into foreign exchange forward contracts in
order to protect the Group from the risk that the cash flows resulting from purchases of inventories will be affected by
changes in the exchange rate. The term of all these contracts is less than one year. As of December 31, 2001 and 2002 the
Group has no such forward contract outstanding.As described in note 1n, the Group enters into future contracts in order to protect
itself from changes in prices of certain commodities.  These future contracts are accounted for as instruments. As of
December 31, 2001 and 2002, the Group had future contracts of certain commodities, in the amount of adjusted
NIS 2,866,000 and adjusted 2,486,000, respectively.d.
Fair value of financial instrumentsThe financial instruments
of the Group consist mainly of non-derivative assets and liabilities (including working capital and long-term loans).Due to their nature, the fair value of the financial instruments included in working
capital is usually close or identical to their carrying value. The fair value of the long-term bank loans also approximates
the carrying value, since they bear interest at rates close to the prevailing market rates.The fair value of long-term trade receivables (including current maturities) amounts
to adjusted NIS 27,634,000, using a capitalization rate of 4% (see note 11a(1)).The Company does not disclose the fair value of capital notes issued to minority
shareholders in a subsidiary, since it is not practicable to determine their fair value with sufficient reliability.F-69


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17-
TRANSACTIONS AND BALANCES WITH RELATED PARTIES:a.
Benefits to related parties:Year ended December 312000

2001

2002Adjusted NISIn thousandsWages and salaries to related partiesemployed by the Company (7 recipients in2000; 6 recipients in 2001 and 7 recipientsin 2002)*


2,407



2,913



2,180Directors fees to directors who are notemployed by the Company (4 recipients in2000; in 2001 and 2002)


227



163



1392,634



3,076



2,319Grants (8 recipients in 2000; 6 recipients in2001 and 2002), see note 11a(10)


5,293



6,512



500Number of shares2000

2001

2002Restricted shares granted to an interestedparty, see note 12c






50,000b.
Balances with related parties:December 312001

2002Adjusted NISIn thousandsAmong current assets, under other accountsreceivable:Balance at balance sheet date


114



44Highest balance during the year


114



114Among current liabilities, under accountspayable and accruals






5,299c.
Transactions with associated companies:1)
Management fees - adjusted NIS 1,112,000.2)
Rent - adjusted NIS 380,000.F-70


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES(continued):d.
On July 8, 1998, the Companys board of directors approved the payment of an
annual success bonus to seven of its senior office holders. The bonus was to be split equally between the office holders, to
apply to each of the three years 1998-2000 and was to be based on the Companys annual net profit (hereafter  the
annual profit), as shown by its audited, consolidated financial statements, and the return on the Companys shares traded
on the stock exchange.The aggregate success bonus to be paid to the seven office holders jointly, was
calculated as follows:A.
7% of the annual profit up to $4 million.B.
In the event that the annual profit exceeded $4 million, the annual bonus 
computed in A above  would include an additional payment comprising the following two components:(i)
7% of the amount by which the annual profit exceeded $ 4 million.(ii)
According to the surplus return on the Companys shares. This was to
be calculated as the percentage by which the return on the Companys shares during the 45 trading days prior to the date
of approving the Companys financial statements exceeded the average return on the shares of the companies included in
the TA-100 index on the Stock Exchange during the same period. In no event was the surplus return to exceed
14%.On August 24, 2000, the Company in general meeting resolved, post factum, to include
Electra Industries (1988) Ltd. (hereafter - Electra) (a related party in the Company) with the seven office holders as an
additional beneficiary in the amount of the annual bonus in respect of 1999 and 2000. This was to be done in a way that would
result in no change being made to the aggregate sums paid and to be paid by the Company. The same resolution also stipulated
that Electra would be entitled to one eighth of the total of the annual success bonus to be distributed in respect of
2000.F-71


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - BUSINESS AND GEOGRAPHICAL SEGMENTS:a.
Business segments:1)
GeneralThe Group operates in the following division: communications, construction, industry,
semiconductors, services and consulting and technologies.  These division are the basis on which the Group report its
information  primary business segment reporting commencing 2000.In addition, in 2002, the Groups technologies division was segregated into
three business segments: the technologies, buildings for lease and marketing and recycling of food products, as disclosed
below:During 2002, the Group changed its internal organization by transferring a
proportionately consolidated company (Nes-Pan) from the consulting segment to the buildings for lease segment and a wholly
owned subsidiary (Baran Industries (91) Ltd.) from the construction segment to the industry segment. The 2000 and 2001 segment
data were restated to reflect the above changes.2)
Segment resultsThe operating results by segments include all the costs and expenses relating
directly to each segment as well as shared expenses which are allocated to the segments on a reasonable basis.3)
Segment assets and liabilitiesSegment assets include all operating assets used by a segment and consist principally
of cash and cash equivalents, receivables, inventories, fixed assets, goodwill and other intangible assets, net of allowances
and provisions. While most of these assets can be directly attributed to individual segments, the carrying value of certain
assets which are used jointly by two or more segments is allocated to the segments on a reasonable basis.Segment liabilities include all operating liabilities and consist principally of
trade payables and wages currently payable and accrued liabilities (including severance pay).4)
Inter-segment transfersSegment revenue, segment expenses and segment results include transfers between
business segments. Such transfers are accounted for at competitive market prices charged to unaffiliated customers for similar
goods. Those transfers are eliminated in consolidation.F-72


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - BUSINESS AND GEOGRAPHICAL SEGMENTS(continued):5)
Investments in associated companies presented by the equity methodInvestments in associated companies - Tefen. and A.L.D., which are engaged in
providing consulting services in the fields of management, operation, industrial engineering, computerization and IT
development in Israel and worldwide,  are accounted for by the equity method. Although the investments in these companies
and the share in their profits are not considered. Part of the segments assets and revenues, they are included separately in
the consulting segment..F-73


BARAN GROUP LTD.(An Israeli Corporation)
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 18 - BUSINESS AND GEOGRAPHICAL SEGMENTS(continued):6)
     Business segment information for 2002 (adjusted NIS):
   Communications
     
     Construction
     
     Industry
     
     Semi-
       
        conductors
     
     Consulting
     
     Marketing
       
        and
       
        recycling of
       
        food
       
        products
     
     technologies
     
     Buldings
       
        for lease
     
     Eliminations
     
     Total
       
        consolidatedIncome statement data:Revenues:Unaffiliated customers
     
     
     348,773
     
     
     
     47,364
     
     
     
     153,882
     
     
     
     116,357
     
     
     
     58,501
     
     
     
     155,532
     
     
     
     20,509
     
     
     
     6,612
     
     
     
     
     
     
     
     907,530Inter segment
     
     
     428
     
     
     
     2,107
     
     
     
     16,062
     
     
     
     
     
     
     
     22,427
     
     
     
     
     
     
     
     599
     
     
     
     
     
     
     
     (41,623
     )T o t a
l  revenues
     
     
     349,201
     
     
     
     49,471
     
     
     
     169,944
     
     
     
     116,357
     
     
     
     80,928
     
     
     
     155,532
     
     
     
     21,108
     
     
     
     6,612
     
     
     
     (41,623
     )
     
     
     907,530Segment results
     
     
     27,549
     
     
     
     4,776
     
     
     
     7,130
     
     
     
     10,117
     
     
     
     10,828
     
     
     
     2,124
     
     
     
     (8,458
     )
     
     
     3,528
     
     
     
     (160
     )
     
     
     57,434Unallocated general expenses
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (1,768
     )Operating income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     55,666Financial expenses  net
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (17,454
     )Other income  net
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     1,056Taxes on income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (17,279
     )Income after taxes on income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     21,989Share in profits of associated companies
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     1,060
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     1,060Minority interests in losses of subsidiaries
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     2,183Net income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     25,232Other data:Segment assets
     
     
     296,380
     
     
     
     29,141
     
     
     
     32,603
     
     

     
     48,683
     
     
     
     81,771
     
     
     
     30,777
     
     
     
     33,732
     
     
     
     60,713
     
     
     
     (237
     )
     
     
     613,563Investments in associated companies -
       
                 presented by the equity method
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     27,333
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     27,333Assets not allocated between the segments
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     158,314T o t a
l  consolidated assets
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     799,210Segment liabilities
     
     
     150,164
     
     
     
     15,900
     
     
     
     16,350
     
     
     
     38,406
     
     
     
     25,516
     
     
     
     7,689
     
     
     
     8,527
     
     
     
     512
     
     
     
     
     
     
     
     263,064Liabilities not allocated between the
       
                  segments
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     279,583T o t a
l  consolidated liabilities
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     542,647Capital expenditure
     
     
     101,832
     
     
     
     297
     
     
     
     818
     
     
     
     106
     
     
     
     2,977
     
     
     
     395
     
     
     
     15,338
     
     
     
     1,138Depreciation and amortization
     
     
     10,535
     
     
     
     697
     
     
     
     1,703
     
     
     
     920
     
     
     
     1,852
     
     
     
     348
     
     
     
     749
     
     
     
     1,683F-74

    
    BARAN GROUP LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 18 - BUSINESS AND GEOGRAPHICAL SEGMENTS(continued):7)
     Business segment information for 2001 (adjusted NIS):*
   Communications
     
     Construction
     
     Industry
     
     Semi-
       
        conductors
     
     Consulting
     
     Marketing
       
        and recycling
       
        of food
       
        products
     
     Technologies
     
     Buildings
       
        For lease
     
     Eliminations
     
     Total
       
        consolidatedIncome data:Revenues:Unaffiliated customers
     
     
     435,790
     
     
     
     30,235
     
     
     
     166,055
     
     
     
     288,570
     
     
     
     4,421
     
     
     
     88,182
     
     
     
     10,735
     
     
     
     6,404
     
     
     
     
     
     
     
     1,030,392Inter segments
     
     
     66
     
     
     
     3,488
     
     
     
     12,800
     
     
     
     
     
     
     
     24,247
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (40,601
     )T o t a
l  revenues
     
     
     435,856
     
     
     
     33,723
     
     
     
     178,855
     
     
     
     288,570
     
     
     
     28,668
     
     
     
     88,182
     
     
     
     10,735
     
     
     
     6,404
     
     
     
     (40,601
     )
     
     
     1,030,392Segment results
     
     
     66,582
     
     
     
     1,848
     
     
     
     10,563
     
     
     
     30,412
     
     
     
     2,294
     
     
     
     2,814
     
     
     
     (7,778
     )
     
     
     3,267
     
     
     
     (132
     )
     
     
     109,870Unallocated general expenses
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (1,603
     )Operating income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     108,267Financial income - net
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     7,965Other expenses - net
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (4,023
     )Taxes on income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (45,351
     )Income after taxes on income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     66,858Share in profits of associated companies
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     1,208
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     1,208Minority interests in losses of subsidiaries
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     585Net income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     68,651Other data:Segment assets
     
     
     253,477
     
     
     
     27,503
     
     
     
     57,244
     
     
     
     157,553
     
     
     
     18,269
     
     
     
     40,177
     
     
     
     28,471
     
     
     
     58,069
     
     
     
     (397
     )
     
     
     640,366Investments in associated companies
-          presented by the equity method
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     27,346
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     27,346Assets not allocated between the segments
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     97,763T o t a
l  consolidated assets
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     765,475Segment liabilities
     
     
     183,550
     
     
     
     24,111
     
     
     
     30,790
     
     
     
     142,637
     
     
     
     45,971
     
     
     
     7,936
     
     
     
     6,328
     
     
     
     300
     
     
     
     
     
     
     
     441,623Liabilities not allocated between the
       
                  segments
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     96,935T o t a
l  consolidated liabilities
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     538,558Capital expenditure
     
     
     9,489
     
     
     
     1,662
     
     
     
     1,935
     
     
     
     4,048
     
     
     
     2,277
     
     
     
     7
     
     
     
     554
     
     
     
     2,261Depreciation and amortization
     
     
     4,055
     
     
     
     954
     
     
     
     1,650
     
     
     
     490
     
     
     
     250
     
     
     
     222
     
     
     
     459
     
     
     
     1,657*  Segment date
were restated in accordance with the requirements of accounting standard No. 11.F-75

    
    BARAN GROUP LTD.
(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 18 - BUSINESS AND GEOGRAPHICAL SEGMENTS(continued):8)
     Business segment information for 2000 (adjusted NIS):*
   Communications
     
     Construction
     
     Industry
     
     Semi-
       
        conductors
     
     Consulting
     
     Marketing
       
        and recycling
       
        of food
       
        products
     
     Technologies
     
     Buildings
       
        For lease
     
     Eliminations
     
     Total
       
        consolidatedIncome data:Revenues:Unaffiliated customers
     
     
     594,131
     
     
     
     35,918
     
     
     
     147,285
     
     
     
     90,520
     
     
     
     3,266
     
     
     
     29,874
     
     
     
     9,518
     
     
     
     5,556
     
     
     
     
     
     
     
     916,068Inter segments
     
     
     56
     
     
     
     7,688
     
     
     
     1,989
     
     
     
     
     
     
     
     15,144
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (24,877
     )T o t a
l  revenues
     
     
     594,187
     
     
     
     43,606
     
     
     
     149,274
     
     
     
     90,520
     
     
     
     18,410
     
     
     
     29,874
     
     
     
     9,518
     
     
     
     5,556
     
     
     
     (24,877
     )
     
     
     916,068Segment results
     
     
     61,434
     
     
     
     5,219
     
     
     
     13,532
     
     
     
     7,988
     
     
     
     4,080
     
     
     
     111
     
     
     
     (10,454
     )
     
     
     (2,648
     )
     
     
     
     
     
     
     (85,558
     )Unallocated general expenses
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (1,077
     )Operating income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     84,481Financial income - net
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     6,023Other expenses - net
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     7,302Taxes on income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (29,338
     )Income after taxes on income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     68,468Share in profits of associated companies
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     6,491
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     6,491Minority interests in losses of subsidiaries
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     1,971Net income
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     76,930Other data:Segment assets
     
     
     233,966
     
     
     
     91,360
     
     
     
     33,753
     
     
     
     15,724
     
     
     
     2,426
     
     
     
     9,650
     
     
     
     24,815
     
     
     
     59,649
     
     
     
     
     
     
     
     471,343Investments in associated companies
-          presented by the equity method
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     31,501
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     31,501Assets not allocated between the segments
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     28,872T o t a
l  consolidated assets
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     531,716Segment liabilities
     
     
     209,025
     
     
     
     40,478
     
     
     
     16,989
     
     
     
     12,742
     
     
     
     32,011
     
     
     
     3,218
     
     
     
     4,873
     
     
     
     361
     
     
     
     
     
     
     
     319,697Liabilities not allocated between the segments
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     27,826T o t a
l  consolidated liabilities
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     347,523Capital expenditure
     
     
     4,791
     
     
     
     1,089
     
     
     
     4,317
     
     
     
     722
     
     
     
     2,057
     
     
     
     95
     
     
     
     379
     
     
     
     15,950Depreciation and amortization
     
     
     2,964
     
     
     
     1,495
     
     
     
     1,652
     
     
     
     223
     
     
     
     123
     
     
     
     1,217
     
     
     
     1,003
     
     
     
     3,004*Segment date were restated in accordance with the requirements of accounting standard No. 11.F-76

    
    BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - BUSINESS AND GEOGRAPHICAL SEGMENTS(continued):b.
Geographical segments:1)
Revenues by geographical area:Following are data regarding Groups consolidated revenues by geographical area
based on the location of customers:

Year ended December 312000

2001

2002Adjusted NISIn thousandsIsrael


895,077



938,808



645,836Europe


4,066



87,213



183,160Other


16,925



4,371



78,534916,068



1,030,392



907,530

2)
Assets and additions to fixed assets and intangible assets by geographical
areaFollowing are data reflecting the carrying value of segment assets and additions to
fixed assets and intangible assets by geographical area in which the assets are located:

Carrying value of segment assetsDecember 312000

2001

2002Adjusted NISIn thousandsIsrael


467,415



556,004



363,638Europe


1,901



78,864



86,890U.S.A.


2,027



5,498



147,929Other


-



-



15,106471,343



640,366



613,563Additions to fixed assets

 and intangible assetsYear ended

 December 312000

2001

2002Adjusted NISIn thousandsIsrael


29,295



19,898



121,094Other


105



2,335



1,80729,400



22,233



122,901F-77


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 -
BUSINESS AND GEOGRAPHICAL SEGMENTS (continued):c.
Major customersRevenuses to major customers that represent 10% or more of the Groups
revenues:

Year ended December 312000

2001

2002Adjusted

 NIS

% of

 turnover

Adjusted

 NIS

% of

 turnover

Adjusted

 NIS

% of

 turnoverIn thousandsSales to major customers that represent morethan 10% of the Groups turnover:Customer A* - communications segment


577,415


43.3


279,913


27.16Customer B - semi-conductors segment


62,204


12.8


204,813


19.88


114,030



12.56Customer C - semi-conductors segment


89,265


14.8

*
With respect to the termination of the agreement in 2002, with Customer A - D.B.S.,
see note 11a(1).NOTE 19 -
LIABILITIES AND GUARANTEES SECURED BY PLEDGES:a.
Specific pledges are registered on the vehicles of the Company and of some of the
investee companies in favor of the leasing company, in accordance with the lease agreement. These vehicles are not registered
in the names of the companies.b.
All securities and deposits, of whatever type, that are and that shall be placed with
certain banks and any other deposit in respect of and in relation to the securities and deposits of the Company and the
investee companies, are pledged, under specific pledges, in favor of banks. The total amount of deposits and securities as of
December 31, 2002 is adjusted NIS 89,306,000.F-78


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - LIABILITIES AND GUARANTEES SECURED BY PLEDGES(continued):c.
Contractual rights in respect of real estate in Omer, on which Baran House is
located, are pledged in favor of a certain bank as security for a loan.  As of balance sheet date, the loan was fully
repaid, and the bank lifted the related pledge on march 10, 2003.d.
A first-ranking fixed and
floating charge in favor of a banks are registered on notes of E.O.D. that were placed with the banks and on all the notes
that shall be placed with the banks from time to time.e.
To secure its liabilities to banks, A.L.D. registered a specific charge on
contractual rights relating to real estate and a building, a floating charge on all its production facilities, property,
rights and other assets, share capital, goodwill, monies and notes, securities and insurance rights, a fixed charge on a bank
account and a fixed charge on all the equipment, materials and property relating to a certain construction project.f.
To secure its liabilities to banks, Nes-Pan registered a fixed charge on all its
rights in real estate. The balance as of balance sheet date of a liability of Nes-Pan to a bank, which is secured by a pledge,
is adjusted NIS 54,443,000. In addition, Nes-Pan registered a specific charge on certain amounts receivable, in order to
secure its liability to a certain bank.g.
To secure its liability to a certain banks, E.O.D. registered a fixed charge on its
outstanding share capital and its goodwill, and a floating charge on its production facilities and its remaining assets. In
addition, in order to secure its liabilities to the same banks, E.O.D. registered a specific charge on its engineering
equipment and on the current and future insurance rights in respect thereof.h.
A.A.B. Joint Venture Nachshonim Project pledged all its assets in favor
of a bank, in order to secure the credit facilities.i.
The balance of the pledged bank guarantees of the Company and of certain subsidiaries
is adjusted NIS 85,539,000 as of December 31, 2002.j.
A U.S. subsidiary has registered a pledge on a deposit in the amount of
NIS 1,184,000 in favor of a U.S. bank in respect of a letter of credit received from the bank.F-79


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATESThe Company prepares its financial statements in accordance with Israeli GAAP. As
applicable to these financial statements, Israeli GAAP vary in certain important respects from U.S. GAAP and as allowed by
Item 18 to Form 20-F, as described below:a.
Effect of inflationIn accordance with Israeli GAAP, the Company comprehensively includes the effect of
the changes in the general purchasing power of Israeli currency in these financial statements, as described in note 1b. In
view of the inflation in Israel, this is considered a more meaningful presentation than financial reporting based on historical cost. The adjustments to reflect the changes in the
general purchasing power of Israeli currency have not been reversed in the reconciliation of Israeli GAAP to U.S. GAAP.b.
The Companys reconciliation of net income and shareholders equity between
Israeli GAAP and U.S. GAAP pursuant to the reconciliation requirements of Item 18 to Form 20-F are as follows:Year ended December 312000

2001

2002

2002Adjusted NIS

Convenience

 translation

 into

 U.S. dollarsIn thousands (except per share data)1)   Net income:As reported in these financialstatements, under Israeli GAAP


76,930


68,651


25,232


5,326Effect of the treatment of thefollowing items under U.S. GAAP:Restricted shares granted to Groups employees(see j1 below)


(8,274
)

(11,403
)

(8,883
)

(1,875
)Restricted shares granted to non-employees (see j2below)


(7,882
)

(2,996
)

(35
)

(7
)Goodwill amortization (see k below)





146


2,432


513Derivative instruments and embedded derivatives(see l below)





224


(224
)

(47
)Issuance of shares and capital notesby a development stage subsidiary (see m below)


(408
)

403


408


86Inclusion of a proportionately consolidated companysdata of a subsidiary (see n below)


21


(1,742
)

1,112


235Litigation settlement with YES (see p below)





(2,648
)

1,459


308Translation of subsidiaries financial statements (see o)





(208
)

(80
)

(17
)Potential dilution in the Companys share holding inassociated companies as a result of convertiblesecurities issued by them (see q below)


179


(54
)

(125
)

(26
)Change in companys ownership in A.L.D.(see r.below)


(6,150
)Share in losses of an associated company (see w below)


*(233
)

*(271
)Tax effect on the above U.S. GAAP adjustments


7,462


5,130


2,452


518Income taxes with respect to:Investments in associated and proportionatelyconsolidated companies (see s1 below)


(2,194
)

362


431


91Benefit related to employee andnon-employee stock based awards (sees2 below)


(5,453
)

(2,347
)

(2,026
)

(428
)Companys share in Israeli - U.S. GAAP differencesrelating to associated companies (see t below)


(396
)

(543
)

(391
)

(82
)Net income under U.S. GAAP -  carried
forward


* 53,602


* 52,704


21,762


4,595

* Adjusted retroactively (see w, below).F-80


BARAN GROUP LTD.(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20-
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):Year ended December 312000

2001

2002

2002Adjusted NIS

Convenience

 translation

 into

 U.S. dollarsIn thousands (except per share data)Net income under U.S. GAAP -  brought forward


53,602


52,704


21,762


4,595Other comprehensive income:Gain on issuance of shares and capital notes
by adevelopment stage
subsidiary (net of tax effect inan amount
of adjusted NIS 3,675,000)


6,543Gain on issuance of shares by A.L.D (net of tax
effectin an amount
of adjusted NIS 2,214,000)


3,936Differences from translation of foreigncurrency
financial statements ofsubsidiaries
and a proportionatelyconsolidated
company


(43
)

864


1,291


272Comprehensive
income under U.S. GAAP


64,038


53,568


23,053


4,867Earnings per share
- under U.S. GAAP:Basic


7.73


7.53


3.00


0.63Diluted


7.30


6.97


2.80


0.59Number of shares (in thousands)Weighted average number
of sharesissued
and outstanding - net ofCompanys
shares held by subsidiariesused
in computation of basic earningsper
share


6,933


6,997


7,244


7,244Add:Restricted
shares, net


408


568


515


515Weighted
average number of sharesused
in computation of dilutedearnings
per share


7,341


7,565


7,759


7,759F-81


BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):December 312001

2002

2002Adjusted NIS

Convenience

 translation

 into U.S.

 dollarsIn thousands2)     Shareholders equity:As reported in these
financial statements,under
Israeli GAAP


219,860



247,434



52,234Effect of the treatment of
the followingitems
under U.S. GAAP:Goodwill
amortization (see k below)


146



2,578



544Goodwill
amount with respect to a subsidiary (see w below)






(504
)


(106
)Derivative
instruments and embeddedderivatives
(see l below)


224Issuance
of shares and capital notesby
a development stage subsidiary (see m below)


10,217



10,625



2,243Inclusion
of a proportionately,consolidated
companys data (see n below)


(985
)


(66
)


(14
)Litigation
settlement with YES (see p below)


(2,648
)


(1,189
)


(251
)Goodwill
translation of consolidated companies(see
o below)






1,494



315Potential
dilution in the Companysshareholding
in associatedcompanies
as a result of convertiblesecurities
issued by them (see q below)


125Investment
in an associated company (see w  below)*


(504
)Tax
effect on the above U.S. GAAP adjustments


(2,568
)


(3,012
)


(636
)Income
tax with respect to investmentsin
associated and proportionatelyconsolidated
companies (see s1 below)


(2,317
)


(1,886
)


(398
)Tax
effect related to employee and non-employee stockbased awards (see s2 below)


14,003



14,512



3,063Companys
share in Israeli - U.S.GAAP
differences relatingto
associated companies (see t below)


(1,445
)


(1,836
)


(387
)Shareholders equity
under U.S. GAAP


*234,108



268,151



56,607* Adjusted retroactively (see-w below).

F-82





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):c.
Proportionate consolidationUnder Israeli GAAP, joint ventures and jointly controlled companies are accounted for
using the proportionate consolidation method. Under U.S. GAAP, investments in joint ventures and in jointly controlled
companies are accounted for by the equity method. Proportionate consolidation, however, is permitted by the reconciliation
requirements of item 18 to Form 20-F, provided that the joint ventures or the jointly controlled companies are operating
entities, the significant financial and operating policies of which
are, by contractual agreement, jointly controlled by all parties having an equity interest in these entities, and provided
that summarized financial data are given. These data are presented in note 2d.d.
Earnings per share (EPS)Israeli GAAP relating to computation of EPS are described in note 1p.As applicable to the Company, the main difference between Israeli GAAP and U.S. GAAP
methods of EPS computation is that the Companys restricted non-vested contingent returnable shares taken into account in
the computation of basic EPS in Israel, whereas in the United States, in computing basic EPS, only the weighted average number
of Companys unrestricted shares actually outstanding in the reported year is taken into account, and restricted shares
are included in the computation of diluted EPS. Another difference is that under U.S. GAAP separate presentation of basic and
diluted EPS is required as long as they are not identical, while, under Israeli GAAP, such separate presentation is only
required if the difference between basic and
diluted EPS is in excess of 5%.e.
Reporting comprehensive incomeU.S. GAAP require reporting and display of comprehensive income and its components in
a full set of general purpose financial statements. The purpose of reporting comprehensive income is to report a measure of
all changes in equity of an enterprise during a period from transactions and other events from non-owner sources (i.e. all
changes in equity except those resulting from investments by owners and distributions to owners). With respect to the Company,
in addition to net income, other comprehensive income represents gain on issuance of shares and capital notes by a development
stage subsidiary gain on issuance of shares by an associated company and differences from translation of foreign
currency financial statements of subsidiaries and a proportionately consolidated company (see also l, n and
o below). Israeli GAAP does not contain such a requirement.F-83





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):f.
Segment reportingUnder Israeli GAAP, as noted in note 18, the Company reports segment information
based on its business segments. Business segment is defined as a distinguishable component of an enterprise that
is engaged in providing an individual product or service or group of related products and services and that is subject to
risks and returns that are different from those of other business segments.  Accordingly, and as presented in the
Companys Israeli GAAP financial statements, the
Companys business segments, as of 2002, are based on eight business activities which are comprised of its six operating
divisions, plus the separation of its technology division into
three business segments: technology, marketing and recycling of food products the building for lease.According to U.S. GAAP, under FAS 131, segment reporting is based on Operating
Segments. Operating segment is defined as a component of an enterprise that engages in business activities from which it
may earn revenues and incur expenses, has its operating results regularly reviewed by the enterprises chief operating
decision maker, and for which discrete financial information is available. This concept, the management approach,
corresponds with the Companys internal reporting. Accordingly, under FAS 131, the Companys operating segment for
2002 are based only on its six operating divisions (hence, the technology, the marketing and recycling of food products are,
and building for lease considered as
one operating segment).g.
Income statement presentationUnder Israeli GAAP, the Company included capital gains on sale of fixed assets
aggregating adjusted NIS 80,000, adjusted NIS 80,000 and adjusted NIS 1,657,000 for the years ended December
31, 2000, 2001 and 2002, respectively, under other income (expenses) - net, in the consolidated income statements
for these years.Under U.S. GAAP, such expenses are included in operating
income.Consequently, the operating income under U.S. GAAP would be as follows:


Year ended December 312000

2001

2002Adjusted NIS in thousandsOperating income, as reportedUnder Israeli GAAP


84,481



108,267



55,666Effect of reclassification of capital gainsunder U.S. GAAP


80



80



1,657Operating income under U.S. GAAP


84,561



108,347



57,323F-84





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

h.
Statements of cash flows1.
Under Israeli GAAP, cash flows relating to investments in, and proceeds from the sale
of marketable securities classified as trading securities, are classified as investing activities in the statements of cash
flows, while under U.S. GAAP, these items should be classified as operating activities. Consequently, the operating activities
and investing activities under U.S. GAAP would be as follows:

Year ended December 312000

2001

2002Adjusted NISIn thousandsNet cash provided by (used in)operating activities


65,338



155,181



(239,917
)Net cash used in investing activities


(24,732
)


(34,992
)


(29,116
)F-85





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):2.
The company presents its cash flow information, under Israeli GAAP, exclusive of the
effects of inflation.The information to be included under US GAAP, as described above, for  the years
ended December 31, 2000, 2001 and 2002 is presented below:

2000

2001

2002Adjusted NIS(In thousands)Net cash provided by (used in) operating activities


62,545



196,996



(118,991
)Net cash used in investing activities


(21,939
)


(35,387
)


(114,562
)Net cash provided by (used in) financing activities


(24,541
)


2,546



138,351Effect of inflation on cash and cash equivalent






(41,420
)


(34,623
)Translation differences on cash balances ofSubsidiaries operating independently






(10
)


100Increase (decrease) in cash and cash equivalents


16,065



122,725



(130,781
)Balance  of cash and cash equivalents at beginningOf year


83,999



100,064



222,789Balance of cash and cash equivalents at end of year


100,064



222,789



92,008

i.
Liability for employee rights upon retirement, net of amount fundedUnder Israeli GAAP, amounts funded with severance pay funds and managerial insurance
policies are deducted from the related severance pay liability. In addition, under Israeli GAAP, the income from such funds is
offset against severance pay expenses.Under U.S. GAAP, the amounts funded as above should be presented as a long-term
investment included among the Companys assets. Also, under U.S. GAAP income from severance pay funds and severance pay
expenses are presented at their gross amounts (see also note 10d-f).F-86





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):j.
Restricted shares granted to employees and non-employees of the
Group:1)
Restricted shares granted to the Group employeesUnder Israeli GAAP, the Company has not recognized any compensation charge for its
employee restricted share awards.Under U.S. GAAP, as permitted by FAS 123 Accounting for Stock Based
Compensation, as amended by FAS 148, the Company accounts for the awards using the accounting treatment prescribed by
Accounting Principle Board Opinion No. 25-Accounting for Stock Issued to Employees (APB 25), i.e. using the
intrinsic-value-based method of accounting. The restricted shares value was determined based on the market price of the
Company shares on the date of grant, and was recorded as unearned compensation, which is being amortized ratably over the
applicable restricted share vesting period.In addition, under Israeli GAAP, dividends paid with respect to such restricted
shares are credited to retained earnings (i.e. identical to the treatment of dividends with respect to ordinary shares), while
under U.S. GAAP, such dividends are charged to income as part of the compensation expenses relating to the awards.Compensation expenses relating to such awards granted to employees for the year ended
2000, 2001 and 2002 were approximately adjusted NIS 8,274,000, adjusted NIS 11,403,000 and adjusted NIS 8,883,000,
respectively. Since the Companys awards are in a form of restricted shares, compensation expenses calculated under the
intrinsic value method are also reflecting compensation expenses using the fair value method. Accordingly, no pro forma
information, as prescribed by FAS 123, has been given in these financial statements.F-87





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):2)
Restricted shares granted to non-employeesUnder Israeli GAAP, the Company has not recognized any compensation charge for
restricted shares granted to non-employees.Under U.S. GAAP, the Company is required to measure compensation expense with respect
to such awards granted to non-employees based on the fair value model, under the provisions of FAS 123 and EITF 96-18
(Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services).In addition, under Israeli GAAP, dividends paid with respect to such restricted
shares are credited to retained earnings (i.e. identical to the treatment of dividends with respect to ordinary shares), which
under U.S. GAAP, such dividends are charged to income as part of the compensation expenses relating to the awards.Compensation expenses relating to such awards granted to non-employees were adjusted
NIS 7,882,000, which relate to related parties, adjusted NIS 2,996,000 (including 2,948,000) which relate to related
parties, and adjusted NIS 35,000 for the years ended December 31, 2000, 2001 and 2002, respectively.k.
Goodwill and other intangible assetsUnder Israeli GAAP, goodwill arising from business combinations accounted for by the
purchase method, is generally amortized in equal annual installment over a period of 10 years.Under U.S. GAAP, the Company adopted FAS 141 (Business Combinations) and
FAS 142 (Goodwill and Other Intangible Assets) for business combinations initiated after June 30, 2001
and as of January 1, 2002 for goodwill and other intangible assets for business combinations initiated previously.Among the most significant changes made by FAS 142, as applicable to the Company:
goodwill (resulting from acquisition of subsidiaries and associated companies) is no longer to be amortized and is to be
tested for impairment at least annually.Prior to January 1, 2002 (except with respect to business combinations initiated
after June 30, 2001) goodwill was amortized on a straight-line basis over a period of 10 years.The Company identified its various reporting units which consist of its operating
segments (see also f above). The Company has utilized expected future discounted cash flows to determine the fair value of the
reporting units and whether any impairment of goodwill existed as of the date of adoption.F-88





BARAN GROUP LTD.(An Israeli Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):As a result of the transitional impairment test, the Company does not have to record
a cumulative effect of accounting change for the estimated impairment of goodwill. The Company has selected December 31 of
each year as the date on which it will perform its annual goodwill impairment test. No impairment resulted from the annual
review performed in 2002.Hereafter additional disclosures required by FAS 142, under U.S. GAAP:a.
The changes in the carrying value of goodwill for the year ended December 31, 2002,
are as follows:

Communications

 segment

Technologysegment

TotalAdjusted NIS, in thousandsBalance as of January 1, 2002


5,272







5,272Additional amount paid,carried to goodwill (seenote 2b(2)) 2a(1), 2a2


93,835



2,220



96,055Differences from translation offoreign currency financialstatements of subsidiaries(see also o below)


1,494







1,494Balance as of December 31, 2002


100,601



2,220



102,821

b.
The following table illustrates the Companys adjusted results, under U.S. GAAP,
adjusted to eliminate the effect of goodwill amortization expense, including goodwill with respect to an associated company
accounted for by the equity method:
















Year ended December 312000

2001

2002Adjusted NIS, in thousandsNet income - under U.S. GAAP


53,602



52,704



21,762Add back:Goodwill amortization


21



67Goodwill amortizationincluded in share of
profitsof associated company


589



380Net income under U.S. GAAP asadjusted


54,212



53,151



21,762F-89





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):

Year ended December 312000

2001

2002Adjusted NIS, in thousandsEarnings per share - under U.S. GAAP:Basic - as reported


7.73



7.53



3.00Add back:Goodwill
amortization


*



0.01Goodwill amortization
included inshare of profits of
associatedcompany


0.08



0.05Basic - adjusted


7.81



7.61



3.00Diluted - as
reported


7.31



6.97



2.82Add back:Goodwill
amortization


*



0.01Goodwill amortization
included inshare
of profits of associatedcompany


0.08



0.05Diluted -
adjusted


7.41



7.03



2.82* less then 0.01.

c.
Estimated amortization expenses of other intangible assets (see also note 7), for the
years following December 31, 2002, are as follows:

Adjusted NISIn thousandsYear ended December 31:2003


2,5452004


2,5452005


1,027



l.
Derivative instruments and embedded derivativesUnder U.S. GAAP, as of January 1, 2002, the Group applied FAS 133 Accounting
for Derivative Instruments and Hedging Activities, as amended by FAS 137 and FAS 138. Under the provisions of FAS 133,
the Groups derivative instruments do not qualify for hedge accounting.In addition, under U.S. GAAP, certain contracts contain embedded derivatives
instruments. Such embedded derivatives are separated under U.S. GAAP from the host contracts and accounted for as derivative
instruments pursuant to FAS 133. Israeli GAAP does not contain such separation and measurement requirements. At December 31,
2002, the Company does not have any embedded derivates outstanding.F-90





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):m.
Issuance of shares and capital notes by a development stage subsidiary (Mobipower
- formerly TPS)Mobipower is mainly financed by funds from all of its shareholders, through capital
notes. These capital notes are linked to the Israeli CPI and bear 4% annual interest. No repayment date exists with respect to
such notes. Under the terms of the agreement of the capital notes any repayment of amounts related to the capital note
arrangements, including adjustments for CPI and interest, requires a majority shareholder vote and is required to be paid pro
rata in proportion to the existing shareholders common stock interests at time of repayment. Accordingly, repayment of
the capital notes and any interest is at the sole discretion of Baran, the majority owner.Under Israeli GAAP, total proceeds from such issuance were allocated to the shares
issued based on the par value, while the balance was allocated to the capital notes. Interest expense was recorded with
respect to such notes. Under U.S. GAAP, due to the capital notes terms and conditions, as described above, the total proceeds
from the issuance of shares and capital notes are reflected as minority interests in Baran Groups consolidated financial
statements. Accordingly, interest expenses and credits to minority interest recorded under Israeli GAAP must be reversed for
U.S. GAAP purposes.In addition, under Israeli GAAP, an investor gain resulting from share issuance made
by a development stage investee, is deferred and recognized in income over a period of 3 years or in an amount equal to the
investors share in the investee losses, based on the higher amount, on a cumulative basis. Under U.S. GAAP, according to
Staff Accounting Bulletin (SAB) Topic 5H, the entire gain is credited in Baran Group consolidated financial statements directly to capital surplus at the said transaction date.F-91





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):Based on the above, hereunder is a table which summarizes the effects of
Mobipowers transactions relating to the issuance of shares and capital notes in 2000 as described in note 2f and note 9
on the Companys consolidated financial statements under
Israeli GAAP and U.S. GAAP:

Year ended December 312000

2001

2002Adjusted NISIn thousandsIncome statement data:As reported under Israeli GAAP:Financial income (expenses),
net


6,023



7,965



(17,454
)Other income (expenses),
net


7,302



(4,023
)


1,056Taxes on income


29,338



45,351



17,279Minority interests in losses
ofsubsidiaries, net


1,971



585



2,183Under U.S. GAAP:Financial income (expenses),
net


6,491



8,684



(16,707
)Other income (expenses),
net


6,633



(4,023
)


1,056Taxes on income


29,098



45,351



17,279Minority interests in losses
ofsubsidiaries, net


1,764



269



1,844Difference between Israeli and U.S. GAAP:Increase in financial income, net fromreversal of interest
expense


467



719



747Reduction in other income (expense) fromreversal of SAB 51
gain


(669
)Reduction in minority interest in lossesof subsidiaries, net


(206
)


(316
)


(339
)Adjustment m reflected in U.S. GAAPreconciliation


(408
)


403



408F-92





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):

Year ended December 312001

2002Adjusted NISIn thousandsBalance sheet data:As reported under Israeli GAAP:Capital notes issued to
minorityshareholders of a
subsidiary


18,690



19,436Minoritys share in
Mobipowers capitaldeficiency


(4,691
)


(8,278
)Capital notes issued to
minorityshareholders of a subsidiary,
net


13,999



11,158Shareholders
equity:Capital surplus


55,095



72,197Retained earnings


154,014



165,900Under U.S. GAAP:Capital notes issued to
minorityshareholders of a
subsidiary


-



-Minoritys share in
Mobipowers equity(capital
deficiency)


3,284



538Shareholders
equity:Capital surplus


61,638



78,741Retained
earnings


154,249



166,543Difference between Israeli and U.S. GAAP inshareholders
equity:Adjustment m
reflected in U.S. GAAPadjustments


10,217



10,625Included in tax effect of
U.S. GAAPadjustments


(3,438
)


(3,438
)6,778



7,187F-93





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):n.
Inclusion of data for a proportionately consolidated company (Meissner
Baran)Under Israeli GAAP, the financial data of Meissner-Baran, included by the
proportionate consolidation method in the Companys consolidated financial statements, is based on
Meissner-Barans financial statements prepared in adjusted NIS, under the provisions of Opinion No. 36 of the Israeli Institute.Under U.S. GAAP, according to the provisions of FAS 52 the functional currency of
Meissner-Baran is the U.S. dollar. Accordingly, the financial data of Meissner Baran included in the Companys
consolidated financial statements, for U.S. GAAP purposes, are remeasured from local currency (NIS) into its functional currency
(U.S. dollar) using historical exchange rates.Following are data pertaining to Meissner Baran, based upon the Companys
percentage of holding, as presented in the Companys consolidated financial statements and the respective remeasured data
under U.S. GAAP:



December 312001

2002Adjusted NISIn thousandsBalance sheet data:As reported under Israeli GAAP:Current assets


155,758



47,827Fixed assets, net


2,180



989Deferred income taxes


157



142T o t a l  assets


158,095



48,958Current liabilities


142,453



38,012Long-term liabilities


439



395T o t a l 
liabilities


142,892



38,407Under U.S. GAAP:Current assets


153,263



47,827Fixed assets, net


2,289



923Deferred income taxes


748



914T o t a l  assets


156,300



49,664Current liabilities


141,056



38,012Long-term liabilities


1,026



1,167T o t a l 
liabilities


142,082



39,179Shareholders equity:Israeli GAAP


15,203



10,551U.S. GAAP


14,218



10,485Adjustment (n)


(985
)


(66
)F-94





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):

Year ended December 312000

2001

2002Adjusted NISIn thousandsStatement of income data:As reported under Israeli GAAP:Total revenues


89,943



288,570



116,357Gross profit


11,687



39,794



15,032Income before taxes on
income


9,323



37,042



11,513Net income


5,906



23,484



9,552Under U.S. GAAP:Total revenues


90,515



279,968



119,747Gross profit


11,687



41,158



17,308Income before taxes on
income


9,373



35,315



12,587Net income


5,927



21,742



10,664Difference between
Israeli andU.S. GAAP


21



(1,742
)


1,112Adjustment n
reflected inU.S. GAAP
reconciliation


21



(1,742
)


1,112

o.
Translation of subsidiaries financial statementsUnder Israeli GAAP, balance sheet and income statement items, of investee companies
whose functional currency is other than NIS, are translated by using the exchange rate at balance sheet date. Under U.S. GAAP,
balance sheet items are translated using the exchange rate at balance sheet date, while income statement items are translated
using the exchange rate at the dates on which these elements are recognized or the weighted average exchange rate for the
period.Goodwill allocated to investee companies whose functional currency is other than NIS
is translated, under Israeli GAAP, by using the exchange rate at acquisition date, while under U.S. GAAP, goodwill is
translated using the exchange rate at each balance sheet date.F-95





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):p.
Litigation settlement with D.B.S. Satellite Services (1988) Ltd. (YES)
(see also note 11(a)(1))As the result of a court settlement in February 2002, it was agreed between the
Company and YES that YES would be required to pay the Company an amount of adjusted NIS 59,105,000, in installments
through 2004, which was equal to the original amount of accounts receivable recorded by the Company in the normal course of
business, which previously was due immediately. Such amounts have repayment terms in March 2002, 2003 and 2004 and are
included adjusted for inflation.

 Under Israeli GAAP, above long-term accounts receivable are recorded at the original amount (on an undiscounted
basis).Under U.S. GAAP, in light of the above litigation settlement, the Company adjusted
its December 31, 2002 accounts receivable recorded in the normal course of business, to its estimated fair value in accordance
with APB 21, using a discount rate of 4%, resulting in recognition of a discount to the original accounts receivable of NIS
2,648,000 and an expense in the same amount. The Company recognizes this discount in income over the repayment period (through
December 31, 2004). The resulting income recorded during the year 2002 was adjusted NIS 1,459,000.q.
Potential dilution in the Companys shareholding in associated companies as a
result of convertible securities issued by themAccording to Israeli GAAP, under the provisions of Opinion 48 of the Israeli
Institute, an investor company is required to create a provision for losses, which it may incur from the dilution of its
holding in associated companies, when the likelihood of the exercise of the exercisable securities is probable. Under U.S.
GAAP, such loss is recognized on the exercise date.r.
Change in Companys ownership in A.L.D., resulting from additional equity
raised by A.L.D. and subsequent repurchase of A.L.D. shares made by the CompanyUnder Israeli GAAP, the Company accounts for the decrease in its share holding in an
investee and the subsequent purchases of its shares, within one year, as separate transactions. Accordingly, under Israeli
GAAP, as described in note 2c, the Company recognized in 2000 a capital gain in an amount of adjusted NIS 6,150,000,
resulting from the decrease in its share holding in A.L.D., and the related tax effect, in an amount of adjusted NIS
2,214,000.According to the U.S. Securities and Exchange Commission (SEC), Staff
Accounting Bulletin (SAB) Topic 5H gain recognition is not appropriate in situations where subsequent capital transactions are
contemplated that raise concerns about the likelihood of the registrant realizing that gain, such as, where reacquisition of
shares is contemplated at the time of issuance. Under SAB Topic 5H, repurchases of shares within one year of issuance will be
presumed by the SEC staff to have been contemplated at the date of issuance. Accordingly, under U.S. GAAP, the Company
accounted for its net decrease in A.L.D.s shareholding as an equity transaction and recognized adjusted
NIS 3,936,000 (net of the related tax effect in an amount of
adjusted NIS 2,214,000), as an addition to capital surplus in its shareholders equity.F-96





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):s.
Income taxes:1)
Taxes with respect to investments in associated and proportionately consolidated
companiesAs noted in note 1j(2), according to Israeli GAAP, taxes which would apply in the
event of disposal of investments in the above mentioned companies have not been provided for, as it is the Companys
policy to hold these investments, not to realize them. Under U.S. GAAP, there is no such an exemption for domestic equity
investees, and the Company needs to provide for deferred taxes with respect to the differences between the amounts of
the investments in these companies presented in the financial statements and those taken into account for tax
purposes.2)
Tax benefit related to employee and non-employee stock based awards.Under Israeli GAAP, the tax benefit resulting from the employee and non-employee sale of restricted
stock is recognized in the statement of income as a reduction of income tax expense. Under U.S. GAAP, the Company recognized
deferred tax assets and the related tax benefit for the recorded compensation cost that ordinarily results in a future tax deduction.
Any aditional benefit actually realized is credited directly to capital surplus.As of December 31,2001 and 2002, deferred tax assets recorded in the amount of
adjusted NIS 14,003,000 and adjusted NIS 14,512,000, respectively, exist with respect to this U.S.GAAP difference.t.
Companys share in Israeli - U.S. GAAP differences relating to associated
companiesFollowing is a reconciliation of the Companys share in profits of its
associated companies as reported under Israeli GAAP, to its share in such profits under U.S. GAAP:

Year ended December 312000

2001

2002Adjusted NISIn thousandsShare in profits of associatedcompanies, net, as reported underIsraeli GAAP


6,491



1,208



1,060Effect of the treatment of thefollowing items under U.S. GAAP:Employee stock based awards


(484
)


(397
)


(587
)Issuance of shares by adevelopment stage
subsidiary


(26
)


(89
)


(100
)Goodwill amortization










130Tax effect in respect of Israeli -U.S. GAAP differences


114



122



105Other






(179
)


61Share in profits of associatedcompanies, net, under U.S. GAAP


6,095



665



669F-97





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):u.
Recognition of profits on building contractual workUnder Israeli GAAP, profits from contractual work involving the construction of
buildings is recognized by the percentage of completion method if the state of completion has reached at least 25% and certain
other conditions are met.Under U.S. GAAP, a completion rate of 25% is not required in order to commence
recognition of such profits, although it is necessary to have the ability to make reliable estimates regarding the stage of
completion revenues and costs.No quantifiable U.S. GAAP difference exists as of and for the years ended December
31, 2000, 2001 and 2002 related to this potential U.S. GAAP difference.F-98





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):v.
Investment in subsidiary of an acquired company designated for saleAs stated in note 2a(1), as of the acquisition date of o2 - November 14, 2002 - a
subsidiary of o2 was designated as held for sale.Under Israeli GAAP, consolidation of a temporarily controlled subsidiary is
prohibited. Therefore, the consolidated financial statements do not include the assets and liabilities or the results of
operations of the acquired subsidiary held for sale. Rather, this subsidiary is presented in the balance sheet at its fair
value, less cost to sale, in one line item investment in subsidiary designated for sale, among accounts
receivable.Under U.S. GAAP, according to the provisions of FAS 144 (Accounting for
the Impairment or Disposal of Long-Lived Assets) a newly acquired subsidiary to be disposed of by sale, shall be
established based on its fair value less cost to sale at the acquisition date (as under Israeli GAAP); nevertheless, under US
GAAP, such subsidiary needs to be consolidated in the consolidated financial statements. The assets and liabilities of the
subsidiary to be disposed of shall be presented separately in the asset and liability sections, respectively, in the
consolidated balance sheet. Following are the major classes of assets and liabilities of the said subsidiary, classified as
held for sale:

Adjusted NIS

 in thousandsAssets:Current assets


12,545Current liabilities


7,992Net amount as presented in the balancesheet under Israeli GAAP


4,553

F-99





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):w.
Change from the cost method of accounting to the consolidation
methodIn November 2000 the Company invested in Mobipower B.V. adjusted NIS 504,000 in
shares, representing 10 % of Mobipower B.V.s outstanding shares. Through October  31, 2002, the Company accounted
for this investment under the cost method.  Commencing October 2002, as a result of the acquisition of a further 90%
of the share capital of Mobipower B.V., in consideration of adjusted NIS 2,220,000 in cash and adjusted NIS 504,000 in loans,
the Company changed its method of accounting for this investment from the cost method to the 
consolidation method.Under U.S. GAAP, a change from the cost method to the consolidation method requires
adjustment of the financial statement retroactively in order to apply the equity method to the prior cost basis investment
(i.e. the 10% share investment) while under Israeli GAAP such adjustment is not accepted.As of October 31, 2002, prior to the additional acquisition, after retroactive
application of the equity method, the balance as December 2002 of the 10% investment in Mobipower B.V. stands at zero.
Under Israeli GAAP the balance of the investment representing its cost basis amounting adjusted  NIS 504,000. In
addition  under U.S. GAAP  the balance of the goodwill at December 31, 2002 with respect to Mobipower is adjusted
NIS 2,220,000, while under Israeli GAAP is adjusted NIS 2,679,000.The U.S. GAAP consolidated financial statements for the years 2001 and 2000 have been
adjusted retroactively to reflect the adoption of the equity method.The effect of such adjustments on the consolidated financial statements, under U.S.
GAAP, is as follows:

As

 previously

 reported

Effect of

 restatement

As reported

 in these

 financial

 statementsAdjusted NIS in thousands1) The effect on the balance sheet atDecember 31, 2001 under
U.S. GAAP:Investments in associated
companies


25,901



-



25,901Other investments,
loans  and a long-term


41,723



(504
)


41,219receivable 
Shareholders equity


234,612



(504
)


234,1082) The effect on the statements of operationsin the year ended
December 31, 2001:Share in gains  of
associated companies


665



(271
)


394Net income


52,975



(271
)


52,704EPS:Basic


7.58



(0.04
)


7.53Diluted


7.01



(0.04
)


6.973) The effect on the statements of incomein the year ended
December 31, 2000:Share in gains of
associated companies


6,095



(233
)


5,862Net income


53,835



(233
)


53,602EPS:Basic


7.76



(0.03
)


7.73Diluted


7.34



(0.03
)


7.31F-100





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):x.
Pro forma financial information:1)
The following unaudited pro forma data summarizes the results of operations for the
period indicated as if the o2 and Mobipower new B.V acquisitions had been completed as of the beginning of the periods
presented. The unaudited pro forma data gives effect to actual operating results prior to the November 14, 2002 and October
30, 2002 acquisitions, respectively adjusted to include the pro forma effect of adjustments, including amortization of
intangibles, deferred stock compensation costs, and the tax effects of the pro forma adjustments. These pro forma amounts do
not purport to be indicative of the results that would have actually been obtained if the acquisition occurred as of the
beginning of the periods presented or that may be obaained in the
future (in thousands, except per share data):

Year ended December 312001

2002Adjusted NISIn thousands(except per share date)(unaudited)Revenues


1,549,120



1,114,141Net loss for the year:Net loss from continuing operations


(25,286
)


(140,888
)Net loss from discontinuing operations


(1,760
)


(15,041
)Net loss for the year


(27,046
)


(155,929
)Loss per share :Continuing operations  basic and diluted


(3.39
)


(18.44
)Discontinuing operations  basic and diluted


(0.24
)


(1.97
)Loss per share  basic and diluted


(3.63
)


(20.41
)Weighted average numbers of shares issued andOutstanding-net of companys shares held bySubsidiaries used in computation of basic earningPer share


7,452



7,640F-101





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):2)
The following unaudited pro forma data summarizes the results of operations for the
period indicated as if the LEAD and Westmontage acquisitions had been completed as of the beginning of the periods presented.
The unaudited pro forma data gives effect to actual operating results prior to the October 1, 2001 and September 30, 2001
acquisitions, adjusted to include the pro forma effect of adjustments, including amortization of intangibles, deferred stock
compensation costs, and the tax effects of the pro forma adjustments. These pro forma amounts do not purport to be indicative
of the results that would have actually been obtained if the acquisition occurred as of the beginning of the periods presented
or that may be obtained in the future (in
thousands, except per share data):

Year ended December 312000

2001Adjusted NIS(except per share date)(unaudited)Revenues


991,717



1,060,557Net income for the year


78,445



70,427Earnings per share  basic


11.31



10.07Earnings per share  diluted


10.69



9.31Weighted average numbers of shares issued andoutstanding-net of companys shares held bysubsidiaries used in computation of basic earningper share


6,933



6,997Weighted average numbers of shares used incomputation of diluted  earning per share


7,341



7,565

y.
Recently issued accounting pronouncement in the United States of
America:1)
FAS 143In July 2001, the FASB issued FAS 143, Accounting for Asset Retirement
Obligations. FAS 143 prescribes the accounting for retirement obligations associated with tangible long-lived assets,
including the timing of liability recognition and initial measurement of the liability. FAS 143 requires that an asset
retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to
expense using a systematic and rational method. FAS 143 is effective for fiscal years beginning after June 15, 2002 (January 1, 2003 for the Company). The Company does
not believe that the adoption of FAS 143 will have any material effect on its
consolidated financial statements.F-102





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):2)
FAS 145In May 2002, the FASB issued FAS 145, Revision of FAS Nos. 4, 44 and 64,
Amendment of FAS 13 and Technical Corrections as of April 2002. FAS 145 is effective for fiscal periods beginning after
May 15, 2002 (as applicable to the Company, January 1, 2003). The Company does not believe that the adoption of FAS 145 will
have any material effect on its consolidated financial statements.3)
FAS 146In June 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated
with Exit or Disposal Activities (FAS 146).  FAS 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies EITF 94-3 Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). 
FAS 146 required that a liability for a cost associated with an exit or disposal activity to be recognized when the liability
is incurred.  Under EITF 94-3, a liability for an exit cost as generally defined in EITF 94-3 was recognized at the date
of the commitment to an exit plan. 
FAS 146 states that a commitment to a plan, by itself, does not create an obligation that meets the definition of a
liability.  Therefore, FAS 146 eliminates the definition and requirements for recognition of exit costs in EITF
94-3.  It also establishes that fair value is the objective for initial measurement of the liability.  FAS 146 is to
be applied prospectively to exit or disposal activities initiated after December 31, 2002.The Company does not expect the adoption of FAS 146 to have a material effect on its
consolidated financial statements.4)
FAS 148In December 2002, the FASB issued FAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an Amendment of FASB Statement No. 123.  FAS 148 amends FAS
123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123 to require
prominent disclosures in the financial statements about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The transition guidance and annual disclosure provisions of FAS 148 are
effective for financial statements issued for fiscal
years ending after December 15, 2002.The Company has elected to continue accounting for employee stock-based compensation
in accordance with APB 25 and related interpretations.F-103





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 -
RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL AND IN
THE UNITED STATES (continued):5)
FIN 45In November 2002, the FASB issued FASB Interpretation No. 45 Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
(FIN 45). FIN 45 requires the guarantor to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. It also elaborates on the disclosures to be made by a guarantor
in its financial statements about its obligations under certain guarantees that it has issued. Disclosures required under FIN
45 are already included in these financial statements. However, the initial recognition and initial measurement provisions of
FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002.The Company does not expect the adoption of FIN 45 to have a material effect on its
consolidated financial statements.6)
FIN 46In January 2003, the FASB issued FASB Interpretation No. 46  Consolidation
of Variable Interest Entities (FIN 46). Under this FIN, entities are separated into two populations: (1)
those for which voting interests are used to determine consolidation (this is the most common situation) and (2) those for
which variable interests are used to determine consolidation. The FIN explains how to identify Variable Interest
Entities  (VIE) and how to determine when a business enterprise should include the assets, liabilities, noncontrolling
interests, and results of activities of a VIE in its consolidated financial statements.The FIN is effective as follows: for variable interests in variable interest entities
created after January 31, 2003, the FIN shall apply immediately; for variable interests in variable interest entities created
before that date, the FIN shall apply  for public entities - as of the beginning of the first interim or annual
reporting period beginning after June 15, 2003.The Company does not expect the adoption of this FIN to have a material effect on its
consolidated financial statements.F-104





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APPENDIX I

Details of subsidiaries, proportionately consolidated companies, proportionately
consolidated joint ventures and associated companies as of December 31, 2002:

Name of company

Percentage

 shareholdingSubsidiaries:Baran Projects Construction Ltd. (hereafter - Baran Construction)


100Baran Inbar Projects (1987) Ltd. (hereafter - Inbar Projects)  99%
owneddirectly and 1% owned through Baran
Construction


100Baran Advanced Technologies (1986) Ltd. (hereafter - Baran Technologies)


100Baran Technology Products Management and Marketing Ltd. (hereafter - Baran


100Management)Baran Industries (91) Ltd. (hereafter - Baran Industries)


100Baran International Energies Ltd. (hereafter - Baran Energies)


100Baran  Raviv Telecom Ltd. (hereafter - Baran Raviv)  50.1% owned
directlyand 49.9% owned through Baran Construction


100Baran Infrastructure and Construction Ltd. (hereafter - Baran
Infrastructure)


100Baran Engineering and Projects (1983) Ltd. (hereafter - Baran Engineering)(formerly  Baran Petrochemical Engineering
Ltd.)


100Enco Systems Projects (1997) Ltd. (hereafter - Enco) - through Baran
Industries


100A. Etzion Consultants and Engineers Ltd. (hereafter - A. Etzion) - through
Enco


100Mobipower Ltd. (former TPS)


63.64Mobipower B.V. - through Mobipower Ltd.


95B & W Projects Inc. (hereafter - B&W)


100BMEC Limited - through B&W


100Barantec Inc. (hereafter - Barantec) - through Baran Technologies


100Notev Management and Operation Ltd. (hereafter - Notev)


100H.A.J.I. Ltd. (hereafter - H.A.J.I.) - through Baran Energies


100Industrial Centers E.O.D. Ltd. (hereafter - E.O.D.) - through Baran
Energies


50 (1)Baran Group B.V. (hereafter - Group B.V.) - through Baran Group


100Baran Raviv (Netherlands) International B.V. (hereafter  Baran Raviv B.V.)
-through Baran Raviv


100Baran Raviv GmbH - through Baran Raviv B.V.


100LEAD Control Ltd.


50.1Westmontage GmbH (hereafter - Westmontage) - through Group B.V.


55Baran Raviv Telecom (Thailand) Limited - through Group B.V.


100Baran Telecom Inc.


100Proportionately Consolidated Companies:Nejeva Holding B.V  through Group B.V.


50Nes-Pan Ltd. (hereafter - Nes-Pan) - through Baran Management


50A.R. - A.D.I.R. Constructions Ltd. (hereafter - A.R. - A.D.I.R.)


50Meissner Baran Ltd. (hereafter - Meissner Baran) - through Baran Industries


46. 5 (2)Baran Mer International Telecommunications, Technology, Industry and Trade
Ltd.(hereafter - Baran Mer) - through Baran Raviv


50Green Anchors Ltd. - through Nas Pan


25Proportionately Consolidated Joint Ventues:A.A.B. Joint Venture  Nachshonim Project (hereafter -
Nachshonim)


33.33Joint Venture Dagan Areas (hereafter - Dagan Areas)


25Associated Companies:Tefen Industrial Engineering and System Analysis Ltd. (hereafter - Tefen) -
throughBaran Industries


31.19A.L.D. - Advanced Logistics Developments Ltd. (hereafter - A.L.D.)


55.32 (3)(1) Percentage of control  60%.(2) Percentage of control  50%.(3) Percentage of control  33.3%F-105





BARAN GROUP LTD.

(An Israeli Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APPENDIX II

SCHEDULE - VALUATION AND QUALIFYING ACCOUNTS

Three years ended December 31, 2002Column A

Column B

Column C

Column D

Column E

Column FBalance at

 beginning

 of year

Additions in

 respect of

 companies

 consolidated

 for the

 first time

Additions

 charged to

 cost and

 expense

Deductions

 from

 reserves

Balance

 at end

 of periodDescriptionAllowance for doubtful accounts:Adjusted NIS (in thousands):Year ended December 31, 2000


136



38



136







310Year ended December 31, 2001


310



2,418







(122
)


2,609Year ended December 31, 2002


2,606



7,323







(2,154
)


7,775Valuation allowance for deferred taxassets:Adjusted NIS (in thousands):Year ended December 31, 2000


(4,343
)






(1,094
)






(5,437
)Year ended December 31, 2001


(5,437
)






(5,782
)






(11,219
)Year ended December 31, 2002


(11,219
)






(1,489
)






(12,708
)Warranty provisionAdjusted NIS (in thousands):Year ended December 31, 2000


16,417







5,634







22,051Year ended December 31, 2001


22,051











(470
)


21,581Year ended December 31, 2002


21,581



(263
)


1,840



(12,193
)


10,965F-106





Brightman Almgor
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164
Israel

Tel: +972 (3)6085555
Fax: +972 (3)609 4022
Info@deloitte.co.il
www.deloitte.co.il






Independent
Auditors Report To The Shareholders ofMeissner-Baran Ltd.




We have the accompanying balance
sheets of Meissner-Baran Ltd. (the Company) as of December 31, 2002 and 2001
and the related statements of operations, changes in shareholders equity and cash
flows for each of the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Companys Board of Directors and management.
Our responsibility is to express an opinion on these financial statements based on our
audits.


We conducted our audits in accordance
with auditing standards generally accepted in the United States of America, and in Israel,
including those prescribed by the Israeli Auditors regulations (Mode of
Performance), 1973. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation, we believe that our audits
provides a reasonable basis for our opinion.


In our opinion, the financial
statements referred to above present fairly, in all respects, the financial position of
the Company as of December 31, 2002 and 2001 and results of its operations, its changes in
shareholders equity and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally accepted in
Israel. Accounting principles generally accepted in Israel vary in certain respects from
accounting principles generally accepted in the United States of America. The application
of the latter would have affected the determination of the results of operations of each
three years in the period ended December 31, 2002 and determination os shareholders
equity and financial position as of December 31, 2002 and 2001, to the extent summarized
in Note 18.


As explained in Note 2b, the
aforementioned financial statements are presents in values adjusted for changes in the
general purchasing power of the Israeli currency, in accordance with Opinions of the
Institute of certified Public Accountants in Israel.


s / Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu



Tel-Aviv, IsraelMarch 13,
2003




F-107
Brightman Almgor
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164
Israel

Tel: +972 (3)6085555
Fax: +972 (3)609 4022
Info@deloitte.co.il
www.deloitte.co.il








Independent
Auditors ReportTo  The Joint Venture of A.A.B JOINT VENTURE
 ABB SUSA / A. Arenson/ Baran Group


We have the accompanying balance
sheets of A.A.B JOINT VENTURE  ABB SUSA / A. Arenson/ Baran Group (the Joint
Venture) as of December 31, 2002 and 2001 and the related statements of operations
and cash flows for each of the year ended December 31, 2002 and for the period from
inception (April 5, 2001) to December 31, 2001. These financial statements are the
responsibility of the Joint Ventures management. Our responsibility is to express an
opinion on these financial statements based on our audits.


We conducted our audits in accordance
with auditing standards generally accepted in the United States of America, and in Israel,
including those prescribed by the Israeli Auditors regulations (Mode of
Performance), 1973. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation, we believe that our audits
provides a reasonable basis for our opinion.


In our opinion, the financial
statements referred to above present fairly, in all respects, the financial position of
the Joint Venture as of December 31, 2002 and 2001 and results of its operations and its
cash flows for the year ended December 31, 2002 and for the period from inception (April
5, 2001) to December 31, 2001, in conformity with accounting principles generally accepted
principles. Accounting principles generally accepted in Israel vary in certain respects from
accounting principles generally accepted in the United States of America.
In addition, in our opinion, theses financial statements have been prepared in
accordance with the Israeli Securities Regulations (Preparation of annual Financial
Statements) , 1993.


As explained in Note 2A, these
financial statements are presented in values adjusted for changes in the general
purchasing power of the Israeli currency, in accordance with pronouncements of the
Institute of certified Public Accountants in Israel.


s / Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu



Tel-Aviv, IsraelFebruary
3, 2003





F-108
AUDITORS REPORT
To the Shareholders of Tefen 
Industrial Engineering And System Analysis Ltd.


We have audited the consolidated
balance sheets of Tefen  Industrial Engineering And System Analysis Ltd. (hereafter
 the Company) as of December 31, 2002 and 2001, and related consolidated statements
of income, changes in shareholders equity and cash flows for each of the three years
in the period ended December 31, 2002. These financial statements are the responsibility
of the companys Board of Directors and management. Our responsibility is to express
an opinion on these financial statements based on our audit.


We did not audit the financial
statements of subsidiaries, whose assets included in consolidation constitute
approximately 61% and 47% of the total consolidated assets as at December 31, 2002 and
2001, respectively and whose revenues included in consolidation constitute approximately
80%, 65%% and 72% of the total consolidated revenues for the three years ended December
31, 2002, respectively. The financial statements of the above subsidiaries were audited by
other auditors, whose report have been furnished to us and our opinion, insofar as it
relates to amounts included for those companies, is based solely on the reports of the
other auditors.


We conducted our audits with auditing
standards generally accepted in Israel and in the United State of America including those
prescribed by the Israeli Auditors (Mode of Performance) Regulation, 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the companys Board of Directors and management, as
well as evaluating the overall financial statements presentation. We believe that our
audits, and the reports of the other auditors, provide a reasonable basis for our opinion.


In our opinion, based upon our audits
and on the reports of the above-mentioned other auditors referred to above, the financial
statements referred to above, present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2002 and 2001 and the consolidated
results of operations, changes in shareholders equity and cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in (GAAP) Israel.


Accounting principles generally
accepted in Israel vary in certain respects from accounting principles generally accepted
in the United States as allowed by item 18 to Form 20-F. The application of the latter
would have affected the determination of consolidated income for each of the three years
in the period ended December 31, 2002, and the determination of shareholders equity
as of December 31, 2002 and 2001 to the extent summarized in our letter dated March 3,
2003 in respect thereof.


As explained in note 2, the
consolidated financial statements refered to above are presented in values adjusted for
the changes in the general purchasing power of the Israeli currency, in accordance with
pronouncements of the Institute of Certified Public Accountants in Israel.


Ramat-Gan,
Israel,   March 3, 2003.


           Sincerely yours,
        s / LION, ORLITZKY & CO.
 Certified Public Accountants (Isr.)F-109
REPORT
OF INDEPENDENT AUDITORS


To the shareholders of A.L.D Advanced
Logistics Developments.


We have audited the consolidated
balance sheets of A.L.D Advanced Logistics Developments (the Company) as of
December 31, 2002 and 2001 and the related consolidated statements of income, changes in
shareholders equity and cash flows for each of the three years in the period ended
December 31, 2002. These financial statements are the responsibility of the Companys
Board of Directors and management. Our responsibility is to express an opinion on these
financial statements based on our audits.


We did not audit the financial
statements of certain subsidiaries, whose assets included in consolidation constitute
approximately 20% and 13% of the total consolidated assets as of December 31, 2002 and
2001 and whose revenues included in consolidation constitute approximately 47%, 31% and
13% of the total consolidated revenues for the years ended December 31, 2002, 2001
and 2000. The financial statements of these subsidiaries were audited by other independent
auditors, whose reports have been furnished to us, and our opinion, insofar as it relates
to amounts included for these companies, is based on the reports of the other independent
auditors.


We conducted our audits in accordance
with auditing standards generally accepted in Israel and in the United States, including
those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973. Those
Standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Companys Board of Directors and management, as
well as evaluating the overall annual financial statements presentation. We believe that
our audit and the reports of other independent auditors provides a reasonable basis for
our opinion.


In our opinion, based upon our audits
and the reports of the other independent auditors referred to above, the aforementioned
financial statements present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2002 and 2001 and the consolidated results of
its operations, changes in shareholders equity and its cash flows for each of the
three years in the period ended December 31, 2002, in conformity with generally accepted
accounting principles (GAAP) in Israel.



Accounting principles generally accepted in Israel vary in certain respects from accounting principles generally
accepted in the United States and as allowed by item 18 to the Form 20-F. The application of the latter would
have affected the determination of consolidated income for each of the three years in period ended December 31,
2002, and the determination of shareholders' equity as of December 31, 2001 and 2002 to the extent summarized in
note 20 to the consolidated financial statements.

  As explained in note 1c, the consolidated financial statements referred to above are presented in values adjusted
  for the changes in the general purchasing power of the Israeli currency, in accordance with pronouncements of the
Institute of Certified Public Accountants in Israel.



s / Oren Horowitz C.P.A
(Isr)


March 25, 2003




F-110
INDEPENDENT
AUDITORS REPORT


The board of DirectorsSoHar, Inc.West
 Covina, California


We
have the accompanying balance sheet of SoHar, Inc., as of December 31, 2002 and the
related statements of income, stockholders equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audit.


We
conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements ate free of material
misstatement. An audit includes examining, on a lest basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.


In
our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of SoHar, Inc., as of December 31, 2002, and the results
of its operations and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.


s /  Goodrich, Goodyear
& Hinds


Long Beach, California
March 15, 2003




F-111
INDEPENDENT
AUDITORS REPORT
Board of DirectorsBarantec,
Inc.Clifton,New Jersey


We have audited the accompanying balance
sheet of Barantec, Inc. as of December 31, 2002 and the related statements of operations
and deficit, and cash flows for the year then ended. These financial statements are the
responsibility of the Companys management. Out responsibility is to express an
opinion on these financial statements based on our audit.


We conducted our audit in accordance
with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting and amounts and disclosures in the
financial statements. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluation the overall financial
statement presentation. We believe that out audit provides reasonable basis for our
opinion.


In our opinion the financial
statements referred to above present fairly, in all material respects, the financial
position of Barantec, Inc. as of December 31, 2002, and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.


s / Banker Associates


Tenafly, New JerseyJanuary
 30, 2003






F-112
REPORT OF INDEOENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of DirectorsTefen
 USA, Ltd.
We have audited the accompanying
balance sheet of Tefen USA, Ltd. (a New Mexico Corporation) as of December 31, 2002, and
the related statements of earnings and retained earning and cash flows for the year then
ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements
based on out audit.


We conducted our audit in accordance
with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence, supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimated made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our
opinion.


As more fully described in Note A to
the financial statements, the Company has included its proportionate share of the assets,
liabilities, revenues and expenses of its fifty percent owned subsidiary Tefen IT, LLC. In
our opinion, accounting principles generally accepted in the United States of America
require that such an investment be accounted for on the equity method.


In our opinion, except for the
effects of including a proportional share of the assets, liabilities, revenues, and
expenses of Tefen IT, LLC, as discussed in the preceding paragraph, the financial
statements referred to above present fairly, in all respects, the financial position of
Tefen USA, Ltd. as of December 31, 2002, and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally accepted
in the United States of America


s / Atkinson & Co.,
Ltd.


Albuquerque, New MexicoFebruary
12, 2003




F-113
Independent
Auditors report to the Shareholders of Tefen Ltd.


We have audited the financial
statements of Tefen Ltd. for the year ended 31st, December 2002. these
financial statements have been prepared under historical cost convention and the
accounting policies set out on page 6 of the financial statements.


This report is made solely to the
companys members as a body, in accordance with Section235 of the Companies Act 1985.
Our audit work has been undertaken so that we might state to the companys members
those matters we are required to sate to them in an auditors report and for no other
purpose. To the fullest extent permitted bi law, we do not accept or assume responsibility
to anyone other than the company and the companys members as a body, for our audit
work, for this repot, or for the opinions we have formed.


Respective
responsibilities of directors and auditors


As described in the Statement of
Directors Responsibilities the companys directors are responsible for the
preparation of the financial statements in accordance with applicable law and United
Kingdom Accounting Standards.


Our responsibility is to audit the
financial statements in accordance with relevant legal and regulatory requirements and
United Auditing Standards.


We report you our opinion as to
whether the financial statements give a true and fair view and are properly prepared in
accordance with the Companies Act 1985. we also report to you if, in our opinion, the
Directors Report is not consistent with the financial statements, if the company has
not kept proper accounting records, if we have not received all the information and
explanations we require for our audit, or if information specified by law regarding
directors remuneration and transactions with the company is not disclosed.


We read the Directors Report
and consider the implications for our report if we become aware of any apparent
misstatements within it.


Basis of audit opinion


We conducted out audit in accordance
with United Kingdom Auditing Standards issued by the Auditing Practice Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts and disclosures
in the financial statements. It also includes an assessment of the significant estimates
and judgments made by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the companys circumstances,
consistently applied and adequately disclosed.


We planned and performed our audit so
as to obtained all information and explanations which we consider necessary in order to
provide us with sufficient evidence to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements.


Opinion


In our opinion the financial
statements give a true and fair view of the state of the companys affairs as at
31st December 2002 and of its profit for the year then ended and have been
properly prepared in accordance with Companies Act 1985.



St Paul's House,
London, EC4P 4BN
s / MOORE STEPHENS
Chartered Accountant
 Registered Auditor18 March 2003



F-114