SECURITIES AND EXCHANGE COMMISSIONWashington,
 D.C. 20549______________

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
 OF 1934for the fiscal year ended December 31, 2003 ______________

TECHNOPRISES LTD.(Formerly BVR Technologies
 Limited)

(Exact Name of Registrant as Specified in its charter and Translation of Registrant's
 Name into English)

Israel(Jurisdiction of incorporation
 or organization)

12 Raoul Wallenberg, Tel-Aviv, Israel 69719(Address of principal executive offices)______________

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

Not Applicable

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

Ordinary Shares, no par value per share(Title
 of Class)

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

Indicate the number of outstanding shares of each
 of the issuer's classes of capital or common stock as of the close of the period covered by the annual
 report:

9,837,701 shares

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.

Yes |X|No |_|

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

Item 17 |_|Item 18 |X|

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Table of Contents

|            |                                                                              | Page
|----------- | ---------------------------------------------------------------------------- | ----
|            |                                                                              |     
|            |                                                                              |     
|Item 1.     | Identity of Directors, Senior Management and Advisors                        | 2   
|Item 2.     | Offer Statistics and Expected Timetable                                      | 2   
|Item 3.     | Key Information                                                              | 2   
|Item 4.     | Information on the Company                                                   | 12  
|Item 5.     | Operating Financial Review and Prospects  Managements Discussion           |     
|            | and Analysis                                                                 | 25  
|Item 6.     | Directors, Senior Management and Employees.                                  | 32  
|Item 7.     | Major Shareholders and Related Party Transactions                            | 38  
|Item 8.     | Financial Information                                                        | 41  
|Item 9.     | Offer and Listing.                                                           | 42  
|Item 10.    | Additional Information                                                       | 43  
|Item 11.    | Quantitative and Qualitative Disclosure of Market Risk.                      | 58  
|Item 12.    | Description of Securities Other than Equity Securities                       | 58  
|Item 13.    | Defaults, Dividend Arrearages and Delinquencies.                             | 59  
|Item 14.    | Material Modifications to the Rights of Security Holders and Use of Proceeds | 59  
|Item 15.    | Controls and Procedures                                                      | 59  
|Item 16.A  | Audit Committee Financial Expert                                             | 59  
|Item 16.B  | Code of Ethics                                                               | 59  
|Item 16.C  | Principal Accountant Fees and Services                                       | 60  
|Item 16.D  | Exemptions from the Listing Standards for Audit Committees                   | 60  
|Item 16.E  | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 60  
|Item 17.    | Financial Statements                                                         | 61  
|Item 18.    | Financial Statements                                                         | 61  
|Item 19.    | Exhibits                                                                     | 61  

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PART I

Item 1. Identity of Directors, Senior Management and Advisors

Information not required in Annual Report on Form
 20-F.

Item 2. Offer Statistics and Expected Timetable

Information not required in Annual Report on Form
 20-F.

Item 3. Key Information

Selected Financial Data

The following selected consolidated financial data
 as of December 31, 2002 and 2003 for the years ended December 31, 2001, 2002 and 2003 have been derived
 from our audited consolidated financial statements. These financial statements have been prepared in
 accordance with generally accepted accounting principles in Israel, which differ in certain aspects
 from those followed in the United States, as described in Note 12 to our consolidated financial statements.
 The consolidated selected financial data as of December 31, 1999, 2000 and 2001 and for the years ended
 December 31, 1999 and 2000 have been derived from other consolidated financial statements not included
 in this annual report and have also been prepared in accordance with Israeli GAAP. The selected consolidated
 financial data set forth below should be read in conjunction with and are qualified by reference to
 Item 5, Operating and Financial Review and Prospects and the consolidated financial statements and
 notes thereto and other financial information included elsewhere in this annual report. The following
 selected consolidated financial information reflects the operations of the company prior to the transaction
 described below in Item 3, Key Information  Recent Developments that was consummated on February
 18, 2004.

Technoprises Ltd. (Formerly BVR Technologies Ltd.) Historical Financial Information

|                                                  | Year ended December 31               
|------------------------------------------------- | -------------------------------------
|                                                  |                                      
|                                                  | 1999                                 
|                                                  |                                      
|                                                  | (in thousands, except per share data)
|Consolidated Statement of Operation Data          |                                      
|Israeli GAAP:                                     |                                      
|Services to related parties                       | $                                    
|Cost of services to related parties               |                                      
|                                                  |                                      
|Gross profit                                      |                                      
|                                                  |                                      
|Selling, general and administrative expenses, net |                                      
|                                                  |                                      
|Operating loss                                    |                                      
|                                                  |                                      
|Financial income (expenses), net                  |                                      
|Other income (expenses)                           |                                      
|Income tax benefits (expenses)                    |                                      
|Equity in losses of affiliates                    |                                      
|                                                  |                                      
|Loss from continuing operations                   |                                      
|Income (loss) from discontinued operation         |                                      
|                                                  |                                      
|Net income (Loss)                                 | $                                    
|                                                  |                                      
|Basic earnings (loss) per share from:             |                                      
|Continuing operations                             | $                                    
|Discontinued operations                           |                                      
|                                                  |                                      
|Total earnings (loss) per share                   | $                                    
|                                                  |                                      
|Weighted average number of ordinary shares        |                                      
|outstanding                                       | 9,108                                
|                                                  |                                      
|U.S. GAAP:                                        |                                      
|Net loss                                          | $                                    
|                                                  |                                      
|Loss per share                                    | $                                    
|                                                  |                                      

- 2 -

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|                     | As at December 31
|-------------------- | -----------------
|                     |                  
|                     | 1999             
|                     |                  
|                     | (in thousands)   
|Balance Sheet Data:  |                  
|Israeli GAAP:        |                  
|Working capital      | $                
|Total assets         |                  
|Total liabilities    |                  
|Shareholders equity |                  

Forward Looking Statements

This Annual Report on Form 20-F contains forward-looking
 statements. We urge you to consider that statements that use the terms believe, expect, plan,
 intend, estimate, anticipate and similar or corollary expressions are intended to identify forward-looking
 statements. These statements reflect our current views about future events and are based on assumptions
 and are subject to risks and uncertainties. Forward-looking statements include statements about:

- our strategy;
- the anticipated development and release of and market demand for new products;
- our anticipated capital expenditures and liquidity;
- our development of revenue sources;
- our expansion into new markets;
- the market acceptance of our products; and
- our technological advances.

Forward looking statements may be found in the
 sections of this annual report entitled Risk Factors, Managements Discussion and Analysis of Financial
 Condition and Results of Operations and Business and in other sections of this annual report. Actual
 results could differ materially from those anticipated in these forward-looking statements as a result
 of various factors, including all the risks discussed in Risk Factors and elsewhere in this Annual
 Report on Form 20-F.

Except as required by applicable law, including
 the securities laws of the U.S., we do not intend to update or revise any forward-looking statements
 as a result of new information or future events.

Recent Developments

Technoprises Ltd. is a result of a transaction
 between TechnoCross Ltd. (formerly known as Technoprises Apros & Chay MB Ltd., TechnoCross), a
 closely held company, the shareholders of TechnoCross and BVR Technologies (BVR) which has been publicly
 traded under the symbol BVRT and subsequently under the symbol TNOLF.OB.

BVR, TechnoCross and the shareholders of TechnoCross
 entered into a Share Purchase Agreement, dated December 22, 2003, pursuant to which BVR purchased all
 of the issued and outstanding share capital of TechnoCross. In consideration,
 BVR issued to the shareholders of TechnoCross and to other people and entities (designated by the shareholders
 of TechnoCross) a total of 88,539,309 ordinary shares of BVR, par value NIS 0.01 per share, which at
 the time constituted 90% of BVRs issued and outstanding capital stock. The transaction was accounted
 for as a reverse acquisition. On April 13, 2004 the name of Technoprises Apros & Chay Ltd. was changed
 to TechnoCross Ltd. On April 26, 2004 BVRs name was changed by the Israeli Companies Registrar to Technoprises
 Ltd.

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Throughout this prospectus, references to the business
 and operations of BVR shall mean BVRs business and operations prior to the effective time of the transaction.
 Any references to the business and operations of TechnoCross shall mean TechnoCross business and operations
 prior to the effective time of the transaction and any references to Technoprises or the Company shall
 mean the business and operations of the combined company following the transaction.

Technoprises mission is to enhance the experience
 of business, leisure and entertainment content by leveraging and commercializing leading-edge technologies
 that enable the capture of content from any source, enrich it by matching it with complementary content
 from other sources, and package and deliver it in a personalized manner to any digital device. Technoprises
 is currently comprised of the following units and assets:

- 100% of the issued and outstanding equity (subject to a certain option granted to Unicorp) of TelemAtik Cross-Media
    Ltd. (TCM).
- TVGate, an interactive TV (iTV) messaging technology previously owned by Comverse Technologies, Inc. and which is currently owned by TCM.
- 100% of the issued and outstanding equity of E.V.R. Entertainment Applications of Virtual Reality Ltd. (EVR) that designs and markets broadband access systems.
- 100% of the issued and outstanding share capital of TechnoCross.
- A license from Unicorp Ltd. granted to TechnoCross (our wholly-owned subsidiary) to develop and operate businesses under the Watchow concept.
- 100% of the issued and outstanding share capital of Technoprises U.S.A. Inc.

On April 22, 2004, we entered into a term sheet
 with the shareholders of Araneo Ltd. pursuant to which we agreed, subject to the satisfactory completion
 of due diligence and entering into a definitive agreement, to acquire Araneo, a manufacturer of IP-based
 television and Video On Demand (VOD) and set-top boxes, using the Linux operating system.

Risk Factors

Risks Related To Our Business

We are in the early stages of development and have no operating history upon
 which you can base your investment decision.

The Company is an outcome of the combination between
 BVR, which divested substantially all of its assets through 2003, and TechnoCross, which is a developmental
 stage company with no operating history and no current revenues. There is no guarantee that we will
 be able to successfully develop our products and generate revenue in the future from the sales of such
 products. There are no assurances that we will be able to raise sufficient capital in order to finance
 our cash requirements in connection with the development of our products. There is no assurance that
 if we do develop a product that will generate revenues that we will be able to maintain such potential
 market share over time or that we will be able to develop additional products.

- 4 -

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We have a recent history of operating losses and expect to operate at a loss
 through the foreseeable future.

We operated at a loss since the inception of TechnoCross
 and expect to operate at a loss for the foreseeable future. We are currently spending significant funds
 on research and development of our new products and currently have no revenues. We do not anticipate
 making an operating profit in the foreseeable future. This increases the risk associated with the investment
 in our ordinary shares.

The market for our products is highly competitive and these competitive pressures
 may result in lower prices or reduced demand for our products.

Competition in our industry is intense and we expect
 competition to increase. Some of our competitors are more established, enjoy greater market recognition
 and have greater financial and marketing resources than we do. Our principal competitors in the market
 for content distribution include well-established companies such as Cisco, Microsoft, Yahoo and Intel.
 These competitors and others may be able to respond more quickly to new or emerging technologies or
 changes in customer requirements or benefit from greater economies of scale.

If we do not develop and market new products and product enhancements, we
 will not be able to generate sufficient revenues to fund our operations.

The market for content matching and distribution
 of content over broadband networks is characterized by:

- rapid technological change;
- frequent product introductions and enhancements; and
- changes in customer and end-user requirements.

Because of these factors, we must continually develop
 and market new products.

We cannot be sure that we will successfully complete
 the development and introduction of new products or that any new products developed will achieve acceptance
 in the marketplace. We may also fail to develop and deploy new products and product enhancements on
 a timely basis. In either case, our revenues and income could suffer and we may not be able to enter
 into the markets in which we wish to operate.

We operate in a rapidly evolving industry, which may make it difficult for
 investors to evaluate our business.

The technologies and services used in the content
 distribution industry have been developing rapidly. As a result of this rapid and continual change in
 the industry, you should consider our prospects in light of the risks and difficulties frequently encountered
 by companies in an early stage of development. These risks include our ability to:

- 5 -

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- attract and retain users for our products;
- expand the content and services that we offer and, in particular, develop and aggregate innovative new content and service offerings;
- respond effectively to rapidly evolving competitive and market dynamics and address the effects of mergers and acquisitions among our competitors;
- maintain, expand and enhance our relationships with international media companies and other strategic partners; and
- increase awareness of our brand and user loyalty.

Issuance of additional shares will dilute the interest of our shareholders.

Since the acquisition by BVR of TechnoCross we
 have issued a significant number of our ordinary shares to investors in order to fund our operations
 and acquisitions. In addition, we are planning on making certain acquisitions pursuant to which we will
 be required to issue a significant number of our ordinary shares. Issuances of these shares will have
 a substantial dilutive effect on our shareholders.

We depend on intellectual property rights of third parties and failure to
 maintain or acquire licenses could harm our business.

We depend on third party intellectual property
 such as the Lucent and Watchow licenses and other software licenses used by EVR Ltd. in its products.
 We anticipate entering into additional licensing agreements for intellectual property in the future
 in connection with the development and selling of our products. We believe we are currently in compliance
 with all material provisions of our existing licenses and that the licensing agreements adequately protect
 our rights. If problems or delays arise with respect to the timely development, quality and provision
 of such intellectual property to us, our customers may be adversely affected and our results of operations
 will be negatively affected. Failure to acquire new licenses could harm our business.

Undetected hardware and software errors may increase our costs and impair
 the market acceptance of our products. We could be subject to warranty claims and product recalls, which
 could be expensive and adversely affect our financial condition.

We are developing complex products that are susceptible
 to undetected hardware and software errors or failures. Products may experience failures when first
 introduced, as new versions are released or at any time during their lifecycle. Any product recall as
 a result of errors or failures, and the associated negative publicity, could result in the loss of or
 delay in market acceptance of our products and adversely affect our business and reputation.

Our proprietary technology is difficult to protect and unauthorized use of
 our proprietary technology by third parties may impair our ability to compete effectively.

Our success and ability to compete depends in large
 part upon protecting our proprietary technology. We currently rely on a combination of trade secret
 and intellectual property laws, nondisclosure and other contractual agreements and technical measures
 to protect our proprietary rights.

- 6 -

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In addition, we have one approved patent and several patent applications. We
 require employees and consultants to execute confidentiality agreements. These measures may not be sufficient
 to protect our technology from third-party infringement or to protect us from the claims of others.

We depend on a limited number of key personnel who would be difficult to replace.
 If we lose the services of these individuals, our business will be adversely affected.

Our success depends on our ability to identify,
 hire and retain skilled personnel. Our industry is characterized by a high level of employee mobility
 and aggressive recruiting among competitors for personnel with track records of success. We may not
 be able to attract and retain skilled personnel or may incur significant costs in order to do so. Any
 loss of services of a member of senior management or other key personnel would negatively affect our
 business, at least until a suitable replacement is identified, hired and acclimated.

If key personnel were to leave Technoprises or if we are unsuccessful in attracting
 qualified personnel, our ability to develop products could be materially harmed.

Our success depends in large part on our ability
 to attract and retain highly qualified scientific, technical and business personnel experienced in the
 development, manufacture and marketing of the systems and products we are developing for the broadband
 and cross-media application markets. Our business and financial results could be materially harmed by
 the inability to attract or retain qualified personnel.

We made certain acquisitions in the past and we may make additional acquisitions
 in the future, which pose integration and other risks that could harm our business.

We may seek to acquire additional complementary
 businesses, products, services and technologies. As a result of these acquisitions, we may be required
 to incur additional debt and expenditures and issue additional ordinary shares to pay for the acquired
 business, product, service or technology, which will dilute our existing shareholders ownership interest
 and may delay, or prevent, our profitability. These acquisitions may also expose us to risks such as:

- the possibility that we may not be able to successfully integrate acquired businesses;
- the possibility that senior management may be required to spend considerable time negotiating agreements and integrating acquired businesses; and
- the possible loss or reduction in value of acquired businesses.

On April 22, 2004, we signed a term sheet to acquire
 all the outstanding shares of Araneo Ltd. If the business of Araneo is not in the condition we believe
 it to be in, we may be required to incur substantial additional costs in connection therewith. If incurred,
 these costs could materially adversely affect our business, financial condition and results of operations.

We cannot assure you that we would successfully
 overcome these risks or any other problems encountered with these acquisitions.

- 7 -

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If the market price of our ordinary shares continues to be highly volatile,
 the value of an investment in our ordinary shares may decline.

Within the last 12 months, our ordinary shares
 have traded between $0.06 and $0.41 per share. The market price of our ordinary shares has been and
 may continue to be highly volatile. Announcements may have a significant impact on the market price
 of our ordinary shares. These announcements may include:

- status of the development of our products;
- our operating results;
- market conditions for our industry in general; and
- general economic and market conditions.

The stock market has from time to time experienced
 extreme price and volume fluctuations, which have particularly affected the market prices for emerging
 companies, and which have often been unrelated to their operating performance. These broad market fluctuations
 may adversely affect the market price of our ordinary shares. In addition, sales of substantial amounts
 of our ordinary shares in the public market could lower the market price of our ordinary shares.

Substantial future sales of our ordinary shares may depress their market price.

If our shareholders sell substantial amounts of
 our ordinary shares in to the market, the market price of our ordinary shares may fall. As of August 10,
 2004, the ten-day average daily volume of our ordinary shares traded on the bulletin board was 16,000
 shares per day. As of August 10, 2004 there were 133,077,010 of our ordinary shares issued and outstanding,
 a relatively large number compared to the trading volume of our ordinary shares. Therefore, any attempt
 by our shareholders to sell a significant amount of shares might result in a decline in our share price.

Three of our shareholders are in a position to control matters requiring a
 shareholder vote. This may adversely affect the market price of our ordinary shares.

Apros & Chay MB Ltd. beneficially owns approximately
 36.45% of our outstanding ordinary shares and Avigdor Olshansky beneficially owns approximately 6.60%
 of our outstanding ordinary shares. In addition, Adv. Rami Joulus holds 7.96% of our outstanding shares
 in trust for various people and entities. Under a contemplated agreement between Adv. Joulus and most
 of the entities for which he holds the shares in trust, such entities will sign a proxy under which
 Prosper Abitbol (who is the chairman of Apros & Chay MB Ltd.) and/or Adam Ofek (who is the Managing
 Director of Apros & Chay MB Ltd.) will vote their shares as long as the shares are held in trust.
 Such agreements have not yet been signed. There is a written agreement between Apros & Chay MB Ltd.
 and Avigdor Olshansky to vote their shares together on matters presented for a vote by the shareholders.

If these shareholders vote their shares together,
 they will have sufficient voting power to:

- elect all of our directors;
- control our management; and
- approve or reject any merger, consolidation or sale of substantially all of our assets.



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As a result, Apros & Chay MB Ltd., Avigdor
 Olshansky together with Prosper Abitbol and/or Adam Ofek can exert significant influence over decisions
 affecting us while this agreement is in effect. This concentration of ownership of our ordinary shares
 could delay or prevent mergers, tender offers or other purchases of our ordinary shares. Therefore,
 this concentration of ownership may adversely affect our share price.

We have obligations to third-parties to register their Technoprises shares
 for resale. Failure to do so would result in liquidated damages.

We have granted certain investors in the company
 rights to register their ordinary shares within a specified time period. We had an obligation to file
 a Form F-1 registration statement with the Securities and Exchange Commission for shares purchased from
 us by a group of investors on February 18, 2004, no later than April 2, 2004. We did not file the required
 registration statement by such date and therefore, pursuant to the Subscription Agreement with such
 investors, we are obligated to pay them liquidated damages in an amount equal to 2% for each thirty
 days of delay or part thereof of the greater of the market value of their shares and the purchase price
 they paid for such shares and their warrants. We might be subject to additional damages if such registration
 statement is not declared effective within a certain period of time.

We had an obligation to file a Form F-1 registration
 statement with the Securities and Exchange Commission for shares purchased from us by a group of investors
 on April 21, 2004, no later than May 19, 2004. We did not file the required registration statement by
 such date and therefore, pursuant to the Registration Rights Agreement with these shareholders, we are
 obligated to pay them liquidated damages in an amount equal to 2% of the purchase price they paid for
 each thirty days of delay or part thereof. We might be subject to additional damages if such registration
 statement is not declared effective within a certain period of time.

In addition to the foregoing, we are under an obligation
 to register the shares we issued to Comverse Technologies, Inc. in connection with the acquisition of
 TVGate. To date, we have not registered these shares.

We have an obligation to register shares issuable
 to Bank Hapoalim pursuant to an agreement, dated May 20, 2004, no later than September 17, 2004.

Under the Term Sheet with Araneo Ltd. we will be
 required to register the shares which will be issued to the shareholders of Araneo Ltd. within 60 days
 of the consummation of the Araneo transaction.

Our failure to comply with the foregoing contractual
 obligations to register the shares issued to third parties might result in significant liabilities that
 could adversely affect our financial results and condition.

If penny stock regulations become applicable to our ordinary shares they will
 impose restrictions on the marketability of our ordinary shares, the ability of our shareholders to
 sell our shares could be impaired.

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The SEC has adopted regulations that generally
 define a penny stock to be an equity security that has a market price of less than $5.00 per share
 or an exercise price of less than $5.00 per share subject to certain exceptions. Exceptions include
 equity securities issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such
 issuer has been in continuous operation for more than three years, or (ii) net tangible assets of at
 least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii)
 average revenue of at least $6,000,000 for the preceding three years. Unless an exception is available,
 the regulations require that prior to any transaction involving a penny stock, a risk of disclosure
 schedule must be delivered to the buyer explaining the penny stock market and its risks. Our ordinary
 shares are currently trading at under $5.00 per share. If at any time we fail to meet one of the exceptions,
 our ordinary shares will be considered a penny stock. As such the market liquidity for our ordinary
 shares will be limited to the ability of broker-dealers to sell it in compliance with the above-mentioned
 disclosure requirements.

You should be aware that, according to the SEC,
 the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns
 include:

- control of the market for the security by one or a few broker-dealers;
- boiler room practices involving high-pressure sales tactics;
- manipulation of prices through prearranged matching of purchases and sales;
- the release of misleading information;
- excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
- dumping of securities by broker-dealers after prices have been manipulated to a desired level, which hurts the price of the stock and causes investors to suffer loss.

We are aware of the abuses that have occurred
 in the penny stock market. Although we do not expect to be in a position to dictate the behavior of
 the market or of broker-dealers who participate in the market, we will strive within the confines of
 practical limitations to prevent such abuses with respect to our ordinary shares.

We have failed to provide certain required audited financial statements in this annual report on Form 20-F and in our annual report on Form 20-F for the year ended December 31, 2002.  These deficiencies could limit our ability to raise capital and could impact the trading of our securities.

Brightcom
  Technologies Ltd. was a significant equity investment of BVR for the years ended
  December 31, 2002 and 2001. As such, under Rule 3-09 of Regulation S-X, we are
  required to provide separate audited financial statements of Brightcom Technologies
  Ltd. as of and for the years ended December 31, 2002 and 2001. The financial
  statements of Brightcom Technologies Ltd. included in this annual report on
  Form 20-F and in our annual report on Form 20-F for the year ended December
  31, 2002 are unaudited. In 2003, Brightcom ceased its operations, it does not
  have active management in place and we could not get access to relevant materials,
  facts and details or get required explanations regarding certain issues that
  were unclear in order to complete an audit. Therefore, we could not obtain an
  audit of Brightcom's financial statements for the years ended December 31, 2002
  and 2001. As a result, our annual reports on Form 20-F for the years ended December
  31, 2003 and 2002 are considered deficient. This deficiency could result in
  our inability to register shares held by existing shareholders and to raise
  additional capital. It also could impact the ability of our shares to continue
  to trade on the Over The Counter Bulletin Board market.

Risks Related to Our Operations in Israel

We are headquartered in Israel and therefore our results of operations may
 be adversely affected by political, economic and military instability in Israel.

Our principal offices and manufacturing facilities
 and many of our suppliers are located in Israel. Therefore, political, economic and military conditions
 in Israel directly affect our operations. Since the establishment of the State of Israel in 1948, a
 number of armed conflicts have taken place between Israel and its Arab neighbors. Since September 2000,
 there has been a marked increase in hostilities between Israel and the Palestinians. We cannot predict
 the effect on us of any increase in the degree of violence by the Palestinians against Israel or the
 effect of military action elsewhere in the Middle East. The future of peace efforts between Israel and
 its Arab neighbors remains uncertain. Any future armed conflicts or political instability in the region
 would likely negatively affect business conditions and adversely affect our results of operations. Furthermore,
 several countries continue to restrict or ban business with Israel and Israeli companies. These restrictive
 laws and policies may seriously limit our ability to make sales in those countries.

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Our results of operations may be negatively affected by the obligation of
 our personnel to perform military service.

Many of our executive officers and employees in
 Israel are obligated to perform at least 30 days and up to 40 days, depending on rank and position,
 of military reserve duty annually and are subject to being called for active duty under emergency circumstances.
 There are proposals to increase this annual commitment. If a military conflict or war arises, these
 individuals could be required to serve in the military for extended periods of time. Our operations
 could be disrupted by the absence for a significant period of one or more of our executive officers
 or key employees or a significant number of other employees due to military service. Any disruption
 in our operations could adversely affect our business.

It may be difficult to enforce a U.S. judgment against us and our executive
 officers and directors.

Because substantially all of our assets and the
 assets of a substantial majority of our directors and executive officers, are located outside the U.S.,
 a judgment obtained in the U.S. against us or any of them may not be collectible within the U.S. Furthermore,
 service of process upon these individuals, a substantial majority of whom reside outside the U.S., may
 be difficult to obtain within the U.S.

In addition, there is doubt as to the enforceability
 of civil liabilities under the Securities Act and the Securities Exchange Act in original actions instituted
 in Israel. See Enforceability of Civil Liabilities for additional information about the difficulty
 in enforcing a judgment under U.S. securities laws in Israel.

Provisions of Israeli law may delay, prevent or make difficult an acquisition
 of us, which could prevent a change of control and therefore depress the price of our shares.

Provisions of Israeli corporate and tax law may
 have the effect of delaying, preventing or making more difficult a merger with, or other acquisition
 of, us. This could cause our ordinary shares to trade at prices below the price for which third parties
 might be willing to pay to gain control of us. Third parties who are otherwise willing to pay a premium
 over prevailing market prices to gain control of us may be unable or unwilling to do so because of these
 provisions of Israeli law. See Management  Approval of Related Party Transactions Under Israeli Law
 for additional information about some anti-takeover effects of Israeli law.

Your rights and responsibilities as a shareholder will be governed by Israeli
 law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.

We are incorporated under Israeli law. The rights
 and responsibilities of holders of our ordinary shares are governed by our memorandum of association,
 our articles of association and by Israeli law. These rights and responsibilities differ in some respects
 from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a
 shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders
 and to refrain from abusing his power in the company, including, among other things, in voting at the
 general meeting of shareholders on certain matters. See Management  Approval of Related Party Transactions
 Under Israeli Law for additional information concerning this duty.

- 11 -

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Item 4. Information on the Company

Overview

History and Development of BVR

BVR was founded on October 8, 1986 and commenced
 operations in 1987. Beginning with its inception in 1986, BVR engaged in the development, manufacture
 and marketing of advanced training and computer-based simulation systems for military applications.
 In 1998, BVR completed a spin-off of its defense-related activities to BVR Systems (1998) Ltd., and,
 consequently, became a management company with commercial portfolio companies. In May 2003, BVR entered
 into an agreement to sell all of our patent rights to BVR Systems, in consideration for the payment
 of $12,000 plus value added tax.

BVR continued operations as a high-technology holding
 company. BVR made five investments in high-technology companies. BVR distributed the shares of two publicly
 traded portfolio companies pro-rata among its shareholders. BVR distributed the shares of Nexus Telocation
 Systems Ltd. in July 2001 and the shares of VIZRT Ltd. in April 2002. In September 2002 BVR distributed
 additional shares of Nexus Telocation Systems Ltd. that it had withheld in anticipation of a withholding
 tax obligation, pursuant to the receipt of a tax ruling that allowed such distribution.

Following the distribution of the shares of Nexus
 and VIZRT, BVR remained invested in three companies: Coresma, which operates in the field of broadband
 access technology, BrightCom Technologies Ltd., which operates in the field of integrated silicon and
 software Bluetooth solutions for smart networking, and Unisfair Inc., which operates in the field
 of online fair and exhibition.

In January 2003, BVR distributed approximately
 $1,500,000 to its shareholders as cash dividend and continued to follow a policy of full distribution
 of available liquid assets.

During 2003, BVR divested itself of its investments
 in Unisfair and BrightCom. In January 2003, BVR sold its Unisfair shares to several entities including
 BCS Growth Fund (Israel) L.P., an affiliate of Clal Industries & Investments Ltd., and to Luna Hi-Tech,
 an entity controlled by BVRs CEO, Yaron Sheinman, for a total consideration of $25,000. In June 2003,
 BrightCom entered into an agreement to sell substantially all of its assets. In consideration, the buyer
 assumed certain of BrightComs liabilities, paid an initial payment of $50,000 and will make future
 payments of between $50,000 and $15,000,000 pursuant to an earn-out based on sales of BrightComs products
 over time. The Company will not receive consideration from this sale and any future payments by the
 purchaser of the assets to Forever Blue Technologies Ltd. (the successor to BrightCom) that would be
 potentially distributable to the Company will instead be payable to the shareholders of BVR at the time
 of the transaction.

Following the above transactions, the only remaining
 asset of BVR was a 37% ownership stake in Coresma which remains in the Company. Coresma is currently
 insolvent and has no employees or operations. On May 20, 2004 we acquired from Bank Hapoalim the debt
 owed to it by Coresma. On May 25, 2004, we filed with the District Court in Tel-Aviv, Israel, an urgent
 request to enforce our rights under the bond we acquired from Bank Hapoalim and to appoint a receiver
 for Coresma.

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TechnoCross (Prior to the Transaction with
 BVR)

TechnoCross was formed as an Israeli private company
 in January 2004. Its shareholders prior to the transaction with BVR were Apros & Chay MB Ltd., Prosper
 Abitbol (who held the shares registered under his name in trust for various people and entities who
 contributed to technologies, know-how or services to TechnoCross or its subsidiaries and for other potential
 partners and investors) and Avigdor Olshansky.

At the time of the closing of the transaction with
 BVR, TechnoCross owned the following assets:

- 100% of the issued and outstanding shares of TCM;
- the technology and know-how of TVGate, which was the Interactive TV (iTV) messaging technology of Comverse which was owned by TCM; and
- a license from Unicorp to develop and operate businesses under the Watchow concept.
- TCM had agreements with several people and entities with respect to contribution of know-how and certain technology rights to TCM in exchange for equity in the Company.

The Transaction Between BVR Technologies
 and TechnoCross.

BVR, TechnoCross and the shareholders of TechnoCross
 entered into a Share Purchase Agreement, dated December 22, 2003, pursuant to which BVR purchased all
 of the issued and outstanding share capital of TechnoCross. In consideration, BVR agreed to issue to
 the shareholders of TechnoCross a total of 88,539,309 ordinary shares of BVR, par value NIS 0.01 each.
 In order to satisfy certain obligations of the parties the shares BVR issued were distributed as follows:

- 48,500,000 ordinary shares were issued to Apros & Chay MB, Ltd.;
- 8,780,264 ordinary shares were issued to Avigdor Olshansky.;
- ordinary shares that were otherwise issuable in consideration for all of the shares of TechnoCross were instead issued by BVR, as follows:

| |  | 1. | 7,500,000 ordinary shares were issued in a private placement to four investors at a purchase price of $0.09 per share.                                                 
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 2. | 2,250,000 ordinary shares were issued to Comverse Ltd; and                                                                                                             
| |  | 3. | 21,509,045 ordinary shares were issued to certain other people and entities who have contributed technologies, know-how or services to TechnoCross or its subsidiaries.

Pursuant to the purchase agreement, the shareholders
 of TechnoCross granted to the shareholders of BVR immediately prior to the transaction, a put option
 to sell their BVR shares to them at a price per share of $0.04 (four cents) per BVR share. The put option
 shall be exercisable in the event that during the twelve (12) month period from August 18, 2004 to August
 18, 2005, the average market capitalization of the Company shall be not less than US$ 6,500,000 for
 a period of sixty (60) calendar days. Immediately following the occurrence of such triggering event,
 the shareholders of TechnoCross will provide a notice of offer to the shareholders of BVR providing
 them with not less than thirty (30) days to exercise the put option at the put option price from the
 date such offer is effective (subject and determined pursuant to any applicable registration requirements).
 This put option may be terminated in the event of a material uncured breach of any representations or
 warranties of BVR which will result in direct losses in excess of $100,000.

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In the agreement, the parties agreed to the following additional covenants that
 are still in effect:

- BVR, Technoprises and TCM will not issue securities in connection with any transaction contemplated by the agreement, or other transactions prior to the effective date of the transaction in a manner that will dilute the holdings of the shareholders of BVR at the time of the transaction below 10% of Technoprises issued and outstanding share capital, on a fully-diluted basis.
- Future acquisitions of technology based entities, IP assets or technology by or on behalf of the shareholders of TechnoCross, their respective shareholders, subsidiaries, parent companies and affiliates, in the IT sector in the fields of telecommunications and media for the cross media environment, shall be made by Technoprises.
- So long as the directors of BVR (who served as directors of BVR as of October 1, 1998 and as of the closing of the transaction with TechnoCross) shall be subject to any possible proceeding by reason of the fact that they were directors of BVR, Technoprises shall obtain and maintain D&O insurance in reasonable amounts from established and reputable
insurers. In all policies of D&O insurance, the previous BVR directors shall be named as an insured in such a manner as to provide the previous BVR directors the same rights and benefits as are accorded to the most favorably insured members of BVRs current board members. So far, such insurance has not been available.

Industry Background

We develop products for the distribution of content
 via broadband networks. We believe that the Internet and the various networks associated with it, including
 but not limited to corporate intranets, cable, broadband and dialup networks, and voice and video networks,
 will converge into a network of networks. In that environment, we believe that successful vendors
 will be capable of providing an end-to-end spectrum of products aimed not at a particular technology
 platform but at solutions to networking problems that span all the segments that currently define the
 industry. As such, many of our strategic initiatives and investments are aimed at meeting the requirements
 of such a network of networks.

Strong technological advances over the last decade,
 combined with the popularization of the Internet, has had a profound effect on the entertainment and
 media industry. Each new innovation such as MP3, broadband web access, interactive digital television
 and P2P has had a powerful impact on the entertainment and media sector, bringing along new opportunities
 and challenges. According toPriceWaterhouseCoopersindustry research report Entertainment and Media Outlook: 2003-2007-Global
 Overview aggregate global spending in the entertainment and media industry will grow from approximately
 $1.09 trillion in 2002 to $1.37 trillion in 2007, reflecting an annual growth rate of 4.8%. Spending
 is expected to grow rapidly after 2004, based on an anticipated improvement in the economic environment,
 more stable political conditions, and new technologies currently in the pipeline coming into the market.

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Several key themes effecting the industry are:

- the increase in TV and radio advertising on the account of print and out-of-home advertising;
- consumer migration to next-generation technologies offsetting the impact of aging platforms in the Internet, home video, television distribution, and video game segments;
- rising broadband Internet access is resulting in increased spending in several market segments; and
- traditional distribution channels are in transition, driving DVD sell-through and boosting spending on video games and consumer books but cutting into music sales.

Overview of Our Current Business

Our goal is to build a company that will provide
 technological synergy and contribute to the vision of a complete global cross media platform, resulting
 in leadership in personal content distribution. Our business currently is comprised of three components:

- TCM.
- EVR.
- Watchow.

On April 22, 2004, we entered into a term sheet
 with the shareholders of Araneo Ltd., a development stage company,  pursuant to which our wholly-owned subsidiary, EVR, will acquire
 Araneo in exchange for our shares. Araneo is a manufacturer of IP-based television and Video On Demand
 (VOD) set-top boxes, using the Linux operating system.

Through these components and others that will be
 added in the future, either through in-house development, licensing or acquisition, we are building
 a solution that will enable the capture of content from any source, enrich it by matching it with complementary
 content from other sources, package and deliver it to any device, thus enhancing the experience of business,
 leisure and entertainment content for consumers all around the world.

TelemAtik Cross-Media (TCM)

TCM was formed to integrate and merge several technologies,
 previously developed or conceived by members of its founding team, in order to provide a joint platform
 in the content area, for managing and delivering different sorts of content for business, leisure and
 entertainment, distributing it in the accurate format to the right end user on different devices.

TCM is developing service-based solutions for telecommunication
 providers, media distributors and creators and large corporate enterprises leveraging next-generation
 network technology. Its new Open Suite Digital Content Platform will help businesses to implement
 growth strategies and leverage technology in the new digital content environment. This innovative technology
 will be the backbone of our overall vision to create the ability to take content from any source, enrich
 it by matching it with complementary content from other sources, package and deliver it to any device
 (such as personal computers, television sets, cellular phones, PDAs and radio) thus, enhancing the experience
 of business, leisure and entertainment for consumers.

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TCMs products are currently in their conceptual
 stages and we do not anticipate their sale in the foreseeable future. Ultimately, they will form part
 of the overall platform. At this stage, they can be viewed as three individual elements CrossMed 24/7,
 Content Delivery System and TVGate.

CrossMed 24/7will provide operators with an innovative solution for all their content management needs. It will allow
 operators to aggregate and store content in multiple formats from multiple sources and to manage the
 entire content delivery chain - requests, discovery, personalization, packaging and delivery to any
 device based on user and usage profiles. CrossMed 24/7 utilizes the Emotional Marketing Model that enables
 the characterization of a person according to several predetermined emotional categories on the basis
 of the persons emotional structure. This is achieved using voice recognition techniques or a questionnaire
 that is completed by the person. The model enables its user to anticipate certain preferences of the
 person and give the opportunity to distribute to him/her media content that can be expected to fit his/her
 character and preferences. By applying this technology to a content gathering and distribution system
 TCM is developing a system that will match content from various content distributors to the end-user,
 based on the end-users emotional preferences. This can also be used as a marketing and advertising
 tool that will allow advertisers to enhance the effectiveness of their marketing activities by targeting
 end-users who are more likely to be more susceptible to such advertising. The Emotional Marketing Model
 has been tested on more than 9,000 people and has shown a significant statistical correlation between
 the characters of that person as identified by the model and certain consumption patterns and preferences.
 The model was developed by Dr. Yoram Levanon and Dr. Lan Lossos. A patent application has been filed
 by Dr. Levanon in the United States in connection with the Emotional Marketing Model and TCM has been
 granted an exclusive license to use the model for the related content management applications.

Content Delivery System (CDS)will be a comprehensive solution that manages data delivery and distribution in an efficient, friendly
 and economic manner. It will deal with all the aspects related to distributing and delivering content,
 over any media. CDS will make an optimal use of network infrastructure while being attentive to the
 specific requirements of any delivery infrastructure.

TVGate

TVGate, was formed in 2000 by Comverse Technology
 to offer cable TV and direct broadcasting satellite operators an opportunity to expand the horizons
 of the television with a broad array of interactive enhanced services built around a concept whereby
 the TV is transformed into a TV Home Communications Center. The merging of interactive services and
 television, will enable subscribers to interact in new ways with their favorite entertainment outlets.

On December 17, 2003, Technoprises acquired certain
 intellectual property, technologies and assets of TVGate from Comverse Technology in exchange for (i)
 $750,000 in cash, payable in seven installments through June 30, 2005, (ii) ordinary shares of the Company
 with a value of $450,000 and (iii) a put option pursuant to which Comverse will have the right to require
 the Company to purchase shares of the Company issued to Comverse in an aggregate value of $300,000,
 during a period of one year following the issuance of such shares. The Company is required to issue
 the shares issuable to Comverse and to deliver the put option to Comverse not later than January 1,
 2006. As of May 31, 2004, payments to Comverse in the amount of $540,000 were still due to be made.

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iTVGate is an iTV Communication Platform  that
 enables cable and direct broadcasting satellite operators to offer end users a wide array of iTV messaging
 and third party applications. The platform is based on the concept of one management, one provisioning,
 one user profile database and complies with all telco-grade requirements. iTVGate offers an a la
 carte selection of modular unified communication services: TV E-mail (Tmail), TV Fax (T-Fax), TV-SMS,
 TV-Chat, TV-Instant Messaging, TV-Telephony, TV-Voice mail, TV-Video mail and more. It also enables
 the operator to offer its subscribers additional third-party applications such as multi-user games,
 using iTVGate capabilities.

iTVGate is a carrier-grade, highly scalable system
 that complies with CATV/DBS environments. It will enable major TV operators to exploit the advantages
 of the triple-play (telephone, television and internet via cable) opportunities and increase their average
 revenue per user, reduce their digital churn and acquire new customers by implementing user-friendly
 innovative applications that leverage the operators investments in digital infrastructure.

TVGate offers cable and satellite operators two
 business options: a revenue share option and a platform sale option based on a per subscriber licensing
 fees. Revenues from TVGate are expected to be generated through:

| | a) | Sales of products utilizing the existing iTVGate platform, these include integration of the technology within commercial systems promoted in partnership with complimentary players, including content providers and TV networks, to provide TV messaging. A number of such opportunities are currently under discussion. In each case, these are likely to involve significant development and customization.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                               
| | b) | Sales of enhanced products, including the combination of the iTVGate platform with the Emotional Marketing model, enabling the delivery of marketing and other content via TV which meets individual viewer preferences.                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                               
| | c) | The incorporation of the TVGate technologies as an integral component in the overallTechnoprises vision of full cross-media, enabling the delivery of rich content of any type to the TV.                                                                                                                                                                                                                     

EVR

EVR Ltd. commenced commercial operations in early
 2004 in the broadband access systems market. EVRs core technology and expertise covers Data Over Cable,
 Voice over IP (VoIP), and Video on Demand over IP (VoDoIP). Its products include:

| | 1. | EVRs core technology in the digital broadcasting of data over cable, voice over IP and video on demand over IP.                                               
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Subscriber Devices - Consumer Premises Equipment (CPE) that includes Cable Modems, IP Set Top Boxes as well as VoIP devices.                                   
| | 3. | Headend Devices - Cable Modem Termination System (CMTS), and Cross Media Router (CMR) that may in the future include video media servers.                      
| | 4. | Management system that includes provisioning and routing server to enable easy access to the network, and management software that monitors broadband networks.

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Manufacture of EVRs products is currently being
 subcontracted to local subcontractors that operate in the destination markets of such products. The
 EVR products are marketed to Telcos, cable operators, real estate investment trust companies, Internet
 Service Providers, and systems integrators. EVRs sales and marketing division is organized into two
 primary geographic regions, the Americas and International. Lately, EVR has established its first Far
 Eastern distribution agreement with a distributor in China. The existing sales channels are via a network
 of distributors, value-added resellers and Internet service providers in many countries. Recently, EVR has begun to sell its products, with one order shipped to Romania for $15,700 and a second order shipped to Norway for $13,900.

On July 22, 2004 EVR signed a distribution agreement
for Cable Modem Termination System (CMTS) equipment with Jiangsu Yitong Ltd., a major manufacturer and distributor of Cable Access TV (CATV) products
in China. Under the terms of the agreement, Yitong has committed to minimum purchase orders of approximately $1 million in CMTSs amd related
equipment, with a potential for additional sales based on market conditions.

LucentAgreement

On May 28, 2004 Technoprises entered into an agreement
 with Lucent Technologies under which the Company (through EVR) will utilize Lucents DOCSIS 1.0 &
 1.1 CMTS in order to develop certain CMTS technologies and generate products relating to cross media
 router technology (CMR) and home media gateway (HMG) technology.

As consideration for the development of the CMTS
 technology we will pay Lucent $1,500,000, of which $500,000 have been paid to date. The remaining $1,000,000
 will be payable based on completion of certain milestones between August 1, 2004 and March 1, 2005.
 As consideration for the development of the CMR and HMG technologies we will pay Lucent an aggregate
 of $390,000, of which no payments have been made. Such payments are due between July 30, 2004 and August
 31, 2004. See also note 1A9 in the consolidated financial statements and other
financial information included elsewhere in this annual report.

In consideration for the licenses to the patents
 set froth in the agreement granted to us from Lucent we will pay Lucent royalties as follows:

- 2% of the fair market value of each product based on such patents which are sold, leased or put into use by us or any of our affiliates.
- 20% of the fair market value of products sold that are based on DOCSIS 1.0 technology, up to a total amount of royalties of $920,000 and thereafter 5% of the fair market value of such products.
- For products based on DOCSIS 1.1 technology, a royalty based on fair market value of units shipped as follows: 3% for the first 1,000 units, 2% for the next 1,000 units and 1% for any additional unit.
- We agreed to pay Lucent minimum royalties in connection with the DOCSIS licenses of $5,000 on October 1, 2005 and $5,000 on October 1, 2006.

EVRs Products

The following is a more detailed description of
 EVRs products.

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Headend Equipment:

CMR - Cross Media Router

The CMR is a system that enables and manages the
 distribution and delivery of video contents over DSL, cable, terrestrial and satellite broadcasting
 and wireless systems. EVRs CMR makes it easy to segment large systems into distinct zones of operation
 to provide customized video programming services. The CMR consists of an enclosure with replaceable
 circuit blades and associated software. The functionality of the CMR includes Routing (100/1000 Base-T),
 video service switching, video storage with DVR applications in the network, video encoding, video transcoding,
 and video encapsulation. In addition, it will provide VOD services, including enhanced video applications.
 It is capable of accepting video source in analogue or digital, standard definition (SD) or high definition
 (HD) formats. The video source will be compressed in MPEG2, MPEG4, H.264 or WM9. It can be configured
 to deliver both SD or HD compressed video. The compressed video will be encapsulated for delivery in
 an IP network. The compressed video bit rate can be either pre-configured or automatically negotiated
 via communication protocols.

The CMR has flexible, scalable product architecture,
 allowing for technology advances and taking advantage of new processing power and lower cost technologies.
 It is able to adapt to various network architectures and markets. It further includes capability to
 adapt to variable access and display devices. It also utilizes communication protocols to support a
 wide variety of end-points and is being designed for broadcast and service provider requirements with
 remote management and fault protection.

Cable Modem Termination System (CMTS)

EVRs fully integrated, cable modem termination
 system (CMTS) is designed to meet the increasing demand placed on broadband over cable systems from
 new subscribers and to handle the dynamic loads from existing subscribers. The CMTS allows for scalability
 that can increase subscriber capacity quickly and within a limited budget. The scalable hardware design
 of the CMTS uses DOCSIS 1.1 and Euro-DOCSIS 1.1 standards and offers a single downstream channel using
 64 or 256QAM modulations and upstream channel supporting QPSK and or 16QAM modulation. The architecture
 supports up to 8 upstream channels with single channel expansion cards that can be factory or field
 installed. This scalability and flexibility allows the operator to make maximum use of its capital budget.

The cost of operations of the CMTS is relatively
 low as a result of reduced training time and maintenance associated with friendly Linux based generic
 management system. EVRs support tools make installation and maintenance of the CMTS simple. The command
 line interface with context sensitive help and variable prompts can be accessed locally through a serial
 port on the front panel or remotely through the built-in network secure Telnet server supporting multiple
 clients.

CPE

Cable Modems

EVRs cable modem is DOCSIS / Euro-DOCSIS 2.0 hardware
 ready, and in the process to be certified DOCSIS / Euro-DOCSIS 1.1 CableLabs / tComlabs. This ensures
 trouble-free connectivity to other DOCSIS devices and transfer rates of up to 42/56 Mbps downstream
 and 10 Mbps upstream. In multi-user environments, the cable modem can handle up to 15 users simultaneously
 making it an ideal component for a home or small office network. Cable operators can remotely manage
 the cable modem with any standard SNMP-based device. Memory-resident web pages provide detailed information
 about the modems operation, including upstream and downstream frequencies, MAC addresses and IP addresses.
 The cable modems software can be field upgraded, eliminating costly on-site service calls.

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IP STB -Araneo

Araneo provides a high-performance user-friendly
 consumer IP TV box that maintains the television experience by transparently connecting TV to the Internet.
 The device, using advanced innovative technology, was designed for use in broadband settings that allow
 for the delivery of TV and video through broadband connections. The box also allows incumbent communications
 companies the ability to offer broadcast over IP to their customers. Using the Araneo box, traditional
 phone companies can broaden their product offerings to offset decreases in their established voice and
 data customer base due to similar data and voice offerings by cable companies and providers.

A key competitive feature of the Araneo product
 is its high performance and low-cost, which makes it a viable alternative for todays cost-sensitive
 TV and delivery market. The Company has production and distribution agreements with IBM, Accentures
 Imagine Broadband Division, BMK, Beta Research and AVC.

The Araneo IP TV Platform is driven by integrated
 controllers developed by IBM. It receives MPEG video streams that are delivered over DVB or IP, and
 played directly on televisions. Using highly integrated devices, the platform provides a powerful PowerPC405
 core, high-density memories, a fast 100 MBits Ethernet interface and hardware decoding of video and
 audio streams including lip synchronization.

The TV/IP Module is an IP-based digital video
 receiver that will be integrated into the existing architecture of new television units for use with
 broadband technologies such as DSL and cable modems as well as local area networks. The modular and
 compact design allows for both standard and customizable implementations, which will allow television
 viewers to connect to both conventional/analog television channels as well as digital content that is
 streamed over IP networks. The comprehensive TV component is a platform-independent solution that interfaces
 with all standard content, preparation, communication and device layers. The combination of the Linux
 operating system and a Java Virtual Machine makes this solution compatible with any existing or future
 video content format.

Management System

EVRs generic Network Management and Control System
 is in its design stages. It will offer a complete management system with an advanced quality of service
 manager that provides full control over assigned bandwidths for EVRs entire family of products. The
 system will support subscriber access control, authorization and authentication access, easy modification
 of the subscriber database, standard billing interface, subscriber registration, service provisioning,
 and routing. EVRs Management System is a software management solution that allows operators to seamlessly
 manage both the CPE and the head end systems.

EVRs Management System implements classic, client-server
 SNMP Web-based architecture and are based on multiple operating systems (Windows, Linux, Unix). Designed
 to be highly scaleable, a single EVR Management System server can simultaneously manage multiple CMTSs,
 thousands of cable modems, and an unlimited number of subscriber records stored in the database. This
 design leads to a highly adaptable, cost-effective solution that can accommodate operator needs now
 and in the future.

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CallUpNet

In cooperation with Consortium of Integrated Technologies,
 EVR is currently developing the CallUpNet Technology (Celltec) which will enable the use of a single
 phone number to receive calls from throughout the world by an IP box connected to broadband internet.

Watchow

Watchow Portals, www.watchow.com, is a concept
 developed by Unicorp Ltd. for internet protocol and TV portals that intends to offer a comprehensive
 branded network of properties and services to consumers and businesses worldwide. As the first online
 access to the cross-media, Watchow expects to be a leading desktop in terms of multi-devices access,
 personal video recording on line, household and business cross-media user access, reaching audience
 worldwide. Through this website, users will have access to the various means of rich media that will
 be distributed directly to their desktop.

TechnoCross owns an exclusive, worldwide, perpetual
 license from Unicorp to use this portal as part of its application pursuant to an Exclusive License
 Agreement between the Company, Unicorp and Cat4view Ltd. As consideration for the license we were required
 to pay Unicorp and Cat4view 5% of the gross revenues generated from the use of the portal up to a maximum
 amount of royalties equal to $2,500,000. At any timer prior to August 18, 2004, Unicorp and Cat4view
 had the right to elect to exchange the rights to receive royalties for an aggregate of 20% of the shares of TCM.
 On July 25, 2004, Unicorp and Cat4view exercised their right under
 the license and as a result and subject to obtaining shareholder approval
 Unicorp and Cat4view will own 17% and 3% of the capital stock of TCM, respectively.

We expect Watchows revenues to be derived principally
 from services, including marketing services, fees and listings. The expected costs of generating such
 revenues consist of expenses associated with the production and usage of the Watchow network, mainly
 fees paid to third parties for: content included on Watchow online media properties, Internet connection
 charges, satellite, CATV, Terrestrial and Wireless infrastructures, equipment depreciation, and technology
 license fees.

Acquisition of Coresmas Debt

On May 20, 2004 we entered into an agreement with
 Bank Hapoalim in Israel to acquire the debt owed to it by Coresma (including all fixed charges and floating
 charges on goodwill, equipment and all assets that secure the loan) in consideration for a purchase
 price of $1,900,000, payable as follows: (i) $1,300,000 payable in our ordinary shares no later than
 July 19, 2004, based on the price of our ordinary shares during the 30-day period immediately after
 May 20, 2004, (ii) a warrant to purchase our ordinary shares with an aggregate exercise price of $500,000
 at an exercise price equal to the 30 day average trading price of our ordinary shares commencing on
 May 20, 2004, however no less than $0.10 and no more than $0.30 per share and (iii) $100,000 in cash,
 payable in four equal monthly installments commencing on November 20, 2004. In July, 2004 we issued to Bank Hapoalim 5,200,000 of our ordinary
 shares.

We are under an obligation to register the shares
 issued to Bank Hapoalim no later than September 17, 2004.

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On May 25, 2004, we filed with the District Court
 in Tel-Aviv, Israel, an urgent request to enforce our rights under the bond we acquired from Bank Hapoalim
 and to appoint a receiver for Coresma.

Competition

Competition in our industry is intense, and we
 expect competition to increase. Most of our competitors are more established, enjoy greater market recognition
 and have greater financial and marketing resources than we do.

The markets for EVRs products are very competitive
 and EVR expects that competition will increase in the future. EVRs current and potential competitors
 include providers of asymmetric cable modems, other types of cable modems and other broadband CMTS access
 products. The principal competitors in the data-over-cable market include, Motorola, Inc., Cisco Systems,
 Inc., Scientific Atlanta Inc., Com21, Inc., Terayon Communication Systems, Inc., Arris and ADC, as well
 as a number of smaller, more specialized companies. Competitors that compete with EVR in the hotel in-room
 access market include CAIS Internet, Inc., and Wayport, Inc.

TVGate also operates in a very competitive market.
 Direct competitors include companies such as Integra 5, Connect TV and TMT. In addition, several large
 companies in the communications industry are also considering competing solutions.

Capital Expenditures

To date we have received net proceeds from private
 placements in an aggregate amount of $2,650,000. We anticipate that our capital expenditures during
 the next two years will amount to $50,000 with respect to fixed assets.

Industry Standards and Government Regulations

To the knowledge of the Company, it is currently
 not subject to any industry standards or government regulations. The Company is currently working with
 several companies in the communications market to develop its products and will assure that such products
 comply with any applicable industry standards. Further, since the Companys products will be used by
 the operators of broadband communication networks, it is probable that such operators will be subject
 to government regulation and not the company that will provide the technological solutions to such operators.

Intellectual Property and Proprietary Rights

We rely on a combination of trade secrets and confidentiality,
 non-disclosure and assignment of inventions agreements to protect our proprietary rights. In addition,
 the Company, through its subsidiaries, has one patent and six patent applications pending in the U.S.

Our policy is to require employees and consultants
 to execute confidentiality agreements when their relationship with us begins. We also seek these protective
 agreements from suppliers and subcontractors. These agreements provide that confidential information
 developed or made known during the course of a relationship with us is to be kept confidential and not
 disclosed to third parties, except in specific circumstances.

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Property, Plants and Equipment

We do not own any real property. We lease office
 space of approximately 732 square meters located at 12 Raoul Wallenberg, Tel-Aviv, Israel, pursuant
 to a Sublease Agreement dated March 9, 2004. Our sublease expires on March 31, 2005. Pursuant to the
 lease we pay monthly rent payments of approximately NIS 26,658 (approximately $5,950) and maintenance
 payments of approximately NIS 11,200 (approximately $2,500).

On June 14, 2004 we entered into a lease agreement
 pursuant to which we lease an additional office space of 276 square meters in the same building. Under
 such agreement, the lease of the additional space will expire on July 31, 2007. Pursuant to such agreement
 we pay monthly rent payments for the additional space (and 6 parking places) of approximately NIS 14,269
 (approximately $3,170) and maintenance payments of approximately NIS 4,126 (approximately $917). Under
 such agreement we further agreed with the landlord to extend the term of the lease for the original
 space until July 31, 2007, under terms similar to those of the additional space lease.

We believe that our current facilities are adequate
 for our operations as currently conducted. If additional facilities are required, we believe that we
 could obtain additional facilities at commercially reasonable prices.

Seasonality

Our business is not subject to seasonality.

Conditions in Israel

We are incorporated under Israeli law and our principal
 offices are located in Israel. Therefore, political, economic and military conditions in Israel directly
 affect our operations.

Political Conditions

Since the establishment of the State of Israel
 in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. A state
 of hostility, varying from time to time in intensity and degree, has led to security and economic problems
 for Israel. Israel signed a peace agreement with Egypt in 1979 and a peace agreement with Jordan in
 1994. Since 1993, several agreements have been signed between Israel and Palestinian representatives
 about conditions in the West Bank and Gaza.

Since September 2000, relations between Israel
 and the Palestinian Authority have deteriorated, and Israel has experienced continuing unrest in the
 areas administrated by the Palestinian Authority, which has resulted in terror attacks against Israeli
 targets and citizens both in Israel and in the areas administrated by the Palestinian Authority. A performance-based,
 multi-phase plan to end the Israeli-Palestinian conflict, known as the Road Map, was prepared by the
 U.S., the European Union, United Nations and Russia and was released on April 30, 2003.

Despite the progress towards peace between Israel
 and its Arab neighbors, there are countries, companies and organizations that continue to participate
 in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. Although
 we are precluded from marketing our products to these countries, we believe that in the past the boycott
 has not had a material adverse effect on our business. However, restrictive laws, policies or practices
 directed towards Israel or Israeli businesses could possibly have an adverse impact on the expansion
 of our business.

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Unless exempt, all male adult citizens and permanent
 residents of Israel under the age of 48 are obligated to perform military reserve duty annually. In
 addition, all these individuals are subject to being called to active duty at any time under emergency
 circumstances. Many of our officers and employees are currently obligated to perform annual reserve
 duty. Although we have operated effectively under these requirements since we began operations, we cannot
 assess the full impact of these requirements on our workforce or business if conditions should change.
 In addition, we cannot predict the effect on our business of a state of emergency in which large numbers
 of individuals are called up for active duty.

Economic Conditions

Israels economy has been subject to numerous destabilizing
 factors, including a period of rampant inflation in the early to mid-1980s, low foreign exchange reserves,
 fluctuations in world commodity prices, military conflicts and civil unrest. The Israeli government
 has intervened in the economy by utilizing fiscal and monetary policies, import duties, foreign currency
 restrictions and control of wages, prices and exchange rates. The Israeli government has periodically
 changed its policies in all these areas.

The domestic security situation in Israel and the
 global slowdown in demand for high-tech imports continue to be the main factors affecting economic activity
 in Israel in 2002 and 2003.

The Israeli governments monetary policy contributed
 to relative price and exchange rate stability in recent years, despite fluctuating rates of economic
 growth and a high rate of unemployment. There can be no assurance that the Israeli government will be
 successful in its attempts to keep prices and exchange rates stable. Price and exchange rate instability
 may have a material adverse effect on our business.

The following shows, for the periods indicated,
 the rate of inflation in Israel, the rate of devaluation of the NIS in Israel and the rate of inflation
 adjusted for devaluation.

|             |  |                   |   |             |      |               |  | Inflation
|------------ |  | ----------------- | - | ----------- | ---- | ------------- |  | ---------
|Year ended   |  | Israeli Inflation |   | Devaluation |      | Adjusted For 
|December 31, |  | Rate %            |   | Rate %      |      | Devaluation %
|             |  |                   |   |             |      |              
|1999         |  | 1.3               |   |             | (0.2 | )             |  | 1.5      
|2000         |  | 0                 |   |             | (2.7 | )             |  | 2.7      
|2001         |  | 1.4               |   |             | 9.3  |               |  | (7.9     
|2002         |  | 6.5               |   |             | 7.3  |               |  | (0.8     
|2003         |  | (1.9              | ) |             | (0.8 | )             |  | (1.1     

Trade Relations

Israel is a member of the United Nations, the International
 Monetary Fund, the International Bank for Reconstruction and Development and the International Finance
 Corporation. Israel is also a member of the World Trade Organization and is a signatory of the global
 agreement on trade in services and to the agreement on basic telecommunications services. In addition,
 Israel has been granted preferences under the generalized system of preferences from the U.S., Australia,
 Canada and Japan. These preferences allow Israel to export the products covered by these programs either
 duty-free or at reduced tariffs.

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Israel and the European Economic Community, now
 known as the European Union, concluded a free trade agreement in 1975. This agreement confers advantages
 to Israeli exports to most European countries and obligates Israel to lower its tariffs on imports from
 these countries over a number of years. In November 1995, Israel entered into a new agreement with the
 European Union, which redefines rules of origin and other improvements, such as providing for Israel
 to become a member of the research and technology programs of the European Union. In 1985, Israel and
 the U.S. entered into an agreement to establish a free trade area. The free trade area has eliminated
 all tariff and some non-tariff barriers on most trade between the two countries. On January 1, 1993,
 an agreement between Israel and the EFTA, which includes Austria, Norway, Finland, Sweden, Switzerland,
 Iceland and Liechtenstein, established a free-trade zone between Israel and the EFTA nations. In recent
 years, Israel has established commercial and trade relations with a number of other nations, including
 Russia, China, India, Turkey and other nations in Eastern Europe and Asia.

Assistance from the U.S.

Israel receives significant amounts of economic
 assistance from the U.S., averaging approximately $3 billion annually over the last several years. We
 cannot assure you that U.S. economic assistance will continue at or near amounts received in the past.
 If U.S. economic assistance is eliminated or reduced significantly, the Israeli economy could suffer
 material adverse consequences and this could adversely impact us.

Item 5. Operating Financial Review and Prospects  Managements Discussion
 and Analysis

The following discussion of our financial condition
 and results of operations should be read together with our consolidated financial statements and the
 related notes which appear elsewhere in this Annual Report on Form 20-F. The following discussion contains
 forward-looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties.
 Our actual results may differ materially from those anticipated in the forward-looking statements. Factors
 that could cause or contribute to those differences include those discussed in Risk Factors and elsewhere
 in this Annual Report on Form 20-F.

Overview

On December 22,
2003, we purchased all of the issued and outstanding capital of Technocross . In
consideration we issued to the shareholders of Technocross and to other people
90% of our issued and outstanding capital stock. The transaction was accounted
for as a reverse acquisition.

Our mission is to enhance the experience of business,
 leisure and entertainment content by leveraging and commercializing leading-edge technologies that enable
 the capture of content from any source, enrich it by matching it with complementary content from other
 sources, and package and deliver it in a personalized manner to any digital device. Technoprises is
 currently comprised of the following units and assets:

- 100% of the issued and outstanding equity (subject to a certain option granted to Unicorp) of TelemAtik Cross-Media Ltd. (TCM).
- TVGate, an interactive TV (iTV) messaging technology previously owned by Comverse Technologies, Inc. and which is currently owned by TCM.

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- 100% of the issued and outstanding equity of E.V.R. Entertainment Applications of Virtual Reality (EVR) that designs and markets broadband access systems.
- 100% of the issued and outstanding share capital of TechnoCross.
- A license from Unicorp Ltd. to TechnoCross to develop and operate businesses under the Watchow concept.
- 100% of the issued and outstanding share capital of Technoprises U.S.A. Inc.

On April 22, 2004, we entered into a term sheet
 with the shareholders of Araneo Ltd. pursuant to which we agreed, subject to the satisfactory completion
 of due diligence and entering into a definitive agreement, to acquire Araneo, a manufacturer of IP-based
 television and Video On Demand (VOD) and set-top boxes, using the Linux operating system.

We are an early-stage company and we currently
 have no revenues.

Critical Accounting Policies and Estimates

The preparation of financial statements requires
 management to make estimates and assumptions that affect the reported amounts of assets and liabilities
 and the disclosure of contingent liabilities at the date of the financial statements and the reported
 amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates
 its estimates and judgments. Management bases its estimates and judgments on historical experience and
 on various other factors that are believed to be reasonable under the circumstances, the results of
 which form the basis for making judgments about the carrying values of assets and liabilities that are
 not readily apparent from other sources. Under different assumptions or conditions, actual results may
 differ from these estimates.

Technoprises Ltd. (Formerly BVR Technologies
 Ltd.)

Management believes that the following critical
 accounting policies, among others, affect the more significant judgments and estimates used in the preparation
 of the Technoprises consolidated financial statements for the three years ended December 31, 2003 which
 have been prepared in conformity with generally accepted accounting principles in Israel, which differ
 in certain respects from those followed in the United States, as described in Note 12 to the consolidated
 financial statements.

Investment in affiliates

Investment in affiliates, with respect to which
 we can exercise significant influence over operating and financial policies (generally, entities in
 which we hold 20% to 50% of ownership or voting rights) are presented according to Israeli Accounting
 Standard No. 68, using the equity method of accounting.

Goodwill is amortized using the straight-line method
 over the estimated useful life, which is 10 years.

From time to time, we review our investments in
 order to identify if there has been a decrease in their value, which is not of a temporary nature. Such
 a review is being performed where there is evidence that the value of permanent investments has been
 harmed, including a decline in stock market prices, the investee companys sequential loss, the segment
 in which the investee company operates, the value of the goodwill aggregated in the investment and other
 parameters.

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We discontinue applying the equity method when
 our investment is reduced to zero and we have not guaranteed obligations of the affiliate or otherwise
 committed to provide further financial support to the affiliate.

Investment in privately held companies in which
 we do not have the ability to exercise significant influence over operating and financial policy of
 the affiliate, are recorded at the lower of cost or estimated fair value.

Deferred Taxes

We record a valuation allowance to reduce our deferred
 tax assets to the amount that is more likely than not to be realized. While we have considered future
 taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the
 valuation allowance, in the event we determine that we would be able to realize our deferred tax assets
 in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase
 income in the period such determination was made. Likewise, should we determine that we would not be
 able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred
 tax asset would be charged to income in the period such determination was made.

Technoprises Ltd.

Management believes the following critical accounting
 policies, among others, will affect the more significant judgments and estimates used in the preparation
 of the Technoprises consolidated financial statements for the years commencing January 1, 2004, which
 will be prepared in conformity with generally accepted accounting principles in the United States.

Revenue Recognition

Primarily, our revenue will be generated from the
 sale of software and software related products. We will recognize revenue pursuant to Statement of Position
 No. 97-2, Software Revenue Recognition, as modified by SOP 98-9, Modification of SOP 97-2, Software
 Revenue Recognition, With Respect of Certain Transactions, Staff Accounting Bulletin (SAB) No. 101,
 Revenue Recognition in Financial Statements, and SAB 104, Revenue Recognition. SAB 101 summarizes
 the staffs views in applying generally accepted accounting principles to revenue recognition in financial
 statements. SAB 104 modifies certain guidance provided in SAB 101.

Inherent in the revenue recognition process are
 significant management estimates and judgments, which influence the timing and amount of revenue recognition.
 In accordance with the governing revenue recognition guidelines, if the arrangement between vendor and
 purchaser does not require significant production, modification, or customization of software, revenue
 should be recognized when all of the following criteria are met:

- persuasive evidence of an arrangement exist;
- delivery has occurred;

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- the vendors fee is fixed or determinable; and
- collectibility is probable.

Contract accounting is applied where services include
 significant software modification, development or customization. In such instances, the arrangement
 fee is accounted for in accordance with SOP 81-1 Accounting for Performance of Construction-Type and
 Certain Production-Type Contracts, whereby the revenue is recognized, generally using the percentage-of-completion
 method measured on labor input hours. The complexity of the estimation process and judgment related
 to the assumptions, risks and uncertainties inherent with the application of the percentage-of-completion
 method of accounting affects the amounts of revenue reported in its consolidated financial statements.

Since we intend to sell products, which are currently
 in development, we cannot predict the nature of our contracts and identity of our customers. If those
 criteria mentioned are not met, revenue recognition could be deferred to a subsequent period and our
 financial statement could be materially effected.

Software Development Costs

Development costs related to software products
 are expensed as incurred until technological feasibility of the product has been established. Technological
 feasibility is established upon completion of a working model. Expenses incurred between the completion
 of the product design and the point at which the product is ready for general release are capitalized
 in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer
 Software to Be Sold, Leased, or Otherwise Marketed. Capitalized software costs are amortized on a product-by-product
 basis. The annual amortization is the greater of the amount computed using the ratio that current gross
 revenues for a product bear to the total of current and anticipated future gross revenues for that product
 or the straight-line method over the remaining estimated economic life of the product, including the
 period being reported on. Amortization begins when the product is available for general release to customers.

Accounting for asset purchases and business
 combinations

We are required to allocate the purchase price
 of acquired assets and business combinations to the tangible and intangible assets acquired, liabilities
 assumed, as well as in-process research and development based on their estimated fair values. Such a
 valuation requires management to make significant estimates and assumptions, especially with respect
 to intangible assets.

Managements estimates of fair value are based
 upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions
 may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

Other estimates associated with the accounting
 for these acquisitions may change as additional information becomes available regarding the assets acquired
 and liabilities assumed resulting in changes in the purchase price allocation.

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Results of Operations

Years Ended December 31, 2002 and 2003

Revenues.
 In 2003, we had no revenues compared to $145,000 in 2002. The decrease in revenues was due to the complete
 cessation of management fees paid to us by our affiliates.

Gross profit.
 In 2003, our gross profit decreased to $0 from $20,000 in 2002. The decrease in the gross profit was
 due to the complete cessation of management fees paid to us by our affiliates. Any expenses, previously
 associated with providing such services were not incurred during the year.

General and administrative expenses.. General and administrative expenses consist primarily of compensation costs for administration and
 management personnel, rental and professional fees. General and administrative expenses decreased by
 42% from $975,000 in 2002 to $562,000 in 2003. The decrease was primarily due to significant decreases
 in salaries and related expenses. The operating expenses were reduced in 2003 as a result of a decision
 to enhance shareholder value by reducing the number of employees we employed.

Financial income, net.Net financial expenses in 2003 were $2,000 compared to income of $108,000 in 2002. The decrease was primarily
 due to the reduction in our income from interest on short-term deposits which was caused by the reduction
 of interest rates and the decrease of short term deposit amounts.

Other income (loss).. Other income, net, increased from a loss of $1,792,000 in 2002 to a net profit of $64,000 in 2003.
 This included a gain of $25,000 arising on the sale of our investment in one of our affiliates.

Share in losses of affiliates.. In 2003, our share in the losses of our affiliates was $0, as compared to $2,407,000 in 2002. This
 was due to the fact that all investments in affiliates have been either disposed of or have been completely
 written off prior to 2003.

Net Loss.
 As a result of the above, net loss for the year ended December 31, 2003 totaled $385,000 compared to
 a net loss of $5,083,000 in the 2002 fiscal year.

Years Ended December 31, 2001 and 2002

Revenues.
 In 2002, our revenues amounted to $145,000 compared to $267,000 in 2001. The decrease in revenues was
 due to the cessation of management fees paid to us by our affiliates starting from the third quarter
 of 2002.

Gross profit.
 In 2002, our gross profit decreased to $20,000 from $61,000 in 2001. The decrease in the gross profit
 was mainly due to the cessation of management fees paid to us by our affiliates starting from the third
 quarter of 2002, while our expenses associated with providing such services did not decrease proportionately.
 As a result, the gross profit as a percentage of revenues decreased from 22.8 % in 2001 to 18.3% in
 2002.

General and administrative expenses.. General and administrative expenses consist primarily of compensation costs for administration and
 management personnel, rental and professional fees. General and administrative expenses decreased by
 2% from $994,000 in 2001 to $975,000 in 2002. The decrease was primarily due to a significant decrease
 of $497,000 in salaries and related expenses. However, such decrease was for the most part offset against
 a $250,000 one-time payment for early termination of our lease agreement, as well as against $177,000
 doubtful debts. Operating expenses were reduced in 2002 as a result of a decision to enhance shareholder
 value by reducing the number of employees we employed.

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Financial income, net.Net financial income was $476,000 in 2001 as compared to income of $108,000 in 2002. The decrease was
 primarily due to the reduction in our income from interest on short term deposits which was caused by
 the reduction of interest rates and the decrease of short term deposit amounts.

Other income (loss).In 2002, other loss consisted primarily of losses derived from one-time deductions in the value of investments
 in our affiliates. Other income, net, decreased to a loss of $1,792,000 in 2002 from other loss, net,
 of $2,193,000 in 2001. These deductions in the value of our investments in affiliates erased completely
 the value of investments in our affiliates.

Share in losses of affiliates.. In 2002, our share in the losses of its affiliates decreased to $2,407,000 from $2,576,000 in 2001.
 In 2002, our share in the losses of Coresma totaled $1,060,000, our share in the losses of BrightCom
 totaled $1,120,000 and our share of losses in Unisfair totaled $220,000.

Net Loss.
 As a result of the above, net loss for the year ended December 31, 2002 totaled $5,083,000 compared
 to a net loss of $13,101,000 in the 2001 fiscal year.

Liquidity and Capital Resources

Our principal sources of liquidity since BVRs
 inception have been private and public sales of equity securities, borrowings from banks, convertible
 loans, cash from the exercise of options, grants from the OCS and, to a lesser extent, cash from operations.
 Since the transaction between BVR and TechnoCross, our principal source of liquidity has been sales
 of equity securities.

On March 3, 2004 we raised $750,000 from third
 party investors in exchange for our ordinary shares and warrants to buy our ordinary shares. On April
 21, 2004 we raised an additional $2,250,000 from other third-party investors in exchange for ordinary
 shares and warrants.

On July 23, 2004 we
raised $900,000 through the issuance of secured convertible notes to a group of
investors led by Duncan Capital LLC. The notes bear interest of 5% and mature on
June 30, 2005. The holders of the notes have the right to convert any amount
outstanding under the notes into our ordinary shares at a price of $0.10 per
share, subject to certain adjustments. We have an obligation to register the
shares underlying the notes no later than September 7, 2004.

We had cash and cash equivalents of $485,000 as
 of December 31, 2003 and $2,435,000 as of December 31, 2002. Since February 17, 2004, we incurred losses and had no revenues. We do not anticipate having a positive cash flow from operations in the near future. Our current cash and cash equivalents are
 not sufficient to fund our planned growth. We are planning to raise further amounts of up to $10,000,000
 from the sale of equity securities. There are no assurances we will be successful in raising such funds. Our continuing operations depend on our ability to raise such funds.

On May 11, 2004 we signed a term sheet with Econor for the purchase of up to $5,000,000 of our ordinary shares from time to time over the course
of 24 months after an effective registration of the shares. We are entitled to request an equity investment by Econor during the 24 month period, pursuant to which we will issue our ordinary shares to Econor with an
aggregate purchase price equal to the equity investment, subject to the market price and associated fees. Such put shall be subject
to certain restrictions. The market price shall be the lowest daily volume weighted average price of the ordinary shares during the five
consecutive trading days beginning on the first trading day after the put date. The purchase price shall be 98% of the market price. Upon the initial put and all
subsequent puts, Econor or its assignees shall receive 5% of the gross proceeds of the put. Upon the closing of the transaction, we shall issue Econor $250,000 worth of our ordinary shares.

Tabular Disclosure of Contractual Obligations

The following table summarizes our contractual
 obligations and commercial commitments as of March 31, 2004:

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|Contractual                                       |  |         |  | Less than |  |         |  |         |  |         |  |         |  | After  
|------------------------------------------------- |  | ------- |  | --------- |  | ------- |  | ------- |  | ------- |  | ------- |  | -------
|Obligations (1)                                   |  | Total   |  | 1 Year    |  | 2 Years |  | 3 Years |  | 4 Years |  | 5 Years |  | 5 Years
|                                                  |  |         |  |           |  |         |  |         |  |         |  |         |  |        
|Short-term debt and other current liabilities (2) |  | 650,000 |  | 440,000   |  | 210,000 |  |        |  |        |  |        |  |       
|Long-term debt                                    |  |        |  |          |  |        |  |        |  |        |  |        |  |       
|Operating leases                                  |  |        |  |          |  |        |  |        |  |        |  |        |  |       
|Other long term liabilities                       |  |        |  |          |  |        |  |        |  |        |  |        |  |       
|Total contractual obligations                     |  | 650,000 |  | 440,000   |  | 210,000 |  |        |  |        |  |        |  |       

| |     |                                                                                                                                         
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Does not include contractual obligations entered into after March 31, 2004, whether described in this Annual Report on Form 20-F or not.
| | (2) | Consists of payments to Comverse in connection with the acquisition of the TVGate technology.                                           

Research and Development, Patents and Licenses,
 etc.

Each of our subsidiaries and divisions has different
 research and development goals and has spent varying amounts on company sponsored research and development
 activities since the inception of TechnoCross. We have provided information on each of our subsidiaries
 and divisions research and development policies in the Section titled Business.

Trend Information

We are an early stage company. In order to fund
 our research and development activities and the development of our products we will need to raise capital
 through debt and/or equity issuances. Since the beginning of the global economic downturn in 2000 the
 ability of early-stage companies to raise funds in the capital markets and from private investors has
 significantly decreased. This trend continues today and will most likely affect our ability to raise
 additional funds or the pricing of any future financings.

Beginning in fiscal 2001, the global telecommunications
 market deteriorated, reflecting a significant reduction in capital spending by established service providers.
 This trend intensified during fiscal 2002 and continued into fiscal 2003. Reasons for the market deterioration
 included the general economic slowdown, network overcapacity and limited availability of capital. The
 significant slowdown in capital spending in our target markets creates uncertainty as to the level of
 demand for the products we are developing. As a result of this uncertainty, accurate forecasting of
 market penetration, near- and long-term results, earnings and cash flow remains difficult.

For additional trends affecting the industry see
 Business  Industry Background below.

Impact of Inflation and Fluctuation of Currencies on Results of Operations,
 Liabilities and Assets

Most of our revenues will be denominated in dollars.
 However, a large portion of our costs is incurred at our facilities in Israel, resulting in a substantial
 portion of our operating expenses being denominated in NIS. Our NIS costs, as expressed in dollars,
 are influenced by the extent to which any increase in the rate of inflation in Israel is not offset
 (or is offset on a lagging basis) by a devaluation of the NIS in relation to the dollar. A devaluation
 of the NIS against the dollar would result in an increase in operating income, as expressed in dollars,
 while an increase in the value of NIS against the dollar would result in an increase in our operating
 expenses and adversely affect our operating income, as expressed in dollars.

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The annual rate of deflation in Israel was 1.9%
 in 2003 and the annual rate of inflation in Israel was 6.5% in 2002, 1.4% in 2001, 0% in 2000 and 1.3%
 in 1999. The NIS strengthened against the dollar by approximately 7.6% in 2003 and 2.7% in 2000 and
 weakened against the dollar by approximately 7.3% in 2002 and 9.3% in 2001.

Significant Subsidiaries

TCM and EVR are our significant subsidiaries that
 are wholly-owned, both of which are organized under the laws of Israel.

Market Risks and Variable Interest Rates

Market risks relating to our operations result
 mainly from changes in interest rates and exchange rates, and we use financial instruments to limit
 exposure.

On December 31, 2003, our liquid assets were comprised
 of bank deposits, and we had no investments in liquid equity securities that were subject to market
 fluctuations. Our deposits and liabilities are based on variable interest rates, and their value as of December
 31, 2003 was therefore not exposed to changes in interest rates. Should interest rates either increase
 or decrease, such change may affect our results of operations due to changes in the cost of our liabilities
 and the return on our assets that are based on variable rates.

Recent Private Issuances
      
On March 3, 2004, we issued to (i) Platinum Partners Value Arbitrage Fund LP,
(ii) Platinum Partners Global Macro Fund LP, (iii) Colbart Birnet LP and (iv)
196 Beach 113 Corp., an aggregate of 7,500,000 ordinary shares (for a price of
$0.09 per share) and warrants to purchase up to 22,500,000 additional of our
ordinary shares subject to certain restrictions (for an aggregate price of
$75,000). As consideration for the ordinary shares and the warrants, the
investors paid an aggregate amount of $750,000.
     
Pursuant to the subscription agreement among the Company and the investors, the
investors purchased 7,500,000 ordinary shares of the company and three warrants:
(i) A Warrants to purchase up to 7,500,000 ordinary shares of the Company for an
exercise price of $0.35 per ordinary share, exercisable at any time until March
3, 2007; (ii) B Warrants to purchase up to 7,500,000 ordinary shares of the
Company for an exercise price of $0.15 per ordinary share, exercisable from the
time of the effectiveness of this registration statement and until 60 days
thereafter; and (iii) C Warrants to purchase up to 7,500,000 ordinary shares of
the Company for an exercise price of $0.50 per ordinary share, exercisable from
the time of the effectiveness of this registration statement and until three
years thereafter. The C warrants may be exercised by a holder only up to an
amount of ordinary shares issued to such holder as a result of its exercise of B
warrants. We have agreed not to issue shares for a price per share below $0.10
until 180 days after the effective date of the registration statement covering
such shares. Any breach of the foregoing provision will result in the reduction of the exercise price and in the issuance
of additional shares and warrants to the investors.
     
On April 21, 2004, we privately placed with third-party investors 22,500,000
newly issued ordinary shares and warrants to purchase up to 67,500,000 ordinary
shares to a group of investors for an aggregate purchase price of $2,250,000. As
a part of the private placement we issued Class A, B and C warrants, each of
which is exercisable to purchase an equivalent number of shares of ordinary
shares as were purchased by that investor in the private placement. The per
share warrant exercise prices are: $0.20 per share for the A warrant; $0.35 per
share for the B warrant and $0.50 per share for the C warrant.
All warrants are first exercisable on the earlier of 65 days after the closing
of the private placement transaction (June 20, 2004) or the actual date that a
registration statement registering the investors' shares has been declared
effective by the SEC. The A warrants will be exercisable until approximately
eight (8) months after effectiveness of such registration statement. Each of the
B warrants and C warrants are exercisable until April 30, 2007. All warrants are
subject to certain limitations on their exercise. In addition, a C warrant may
be exercised only to the same proportion as the holder has actually exercised an
A warrant. We have agreed to file a registration statement to register the
shares (including the shares underlying the warrants) for resale by the
investors. We have agreed not to issue shares for a price per
share below $0.10 until 180 days after the effective date of the registration
statement covering such shares. Any breach of the foregoing provision will result
in the reduction of the exercise price and in the issuance of additional shares and warrants to the investors.
     
On April 22, 2004 we entered into a term sheet to acquire Araneo Ltd. in
exchange for ordinary share with a market value of $2,000,000. The number of
ordinary shares issued will be determined by the average trading price of the
Company's ordinary shares within a 30-day period commencing on a date to be
determined by the parties. The completion of the transaction is subject to the
execution of a definitive acquisition agreement and to the satisfaction of
customary closing conditions.
     
On May 20, 2004 we entered into an agreement with Bank Hapoalim in Israel to
acquire the debt owed by Coresma to Bank Hapoalim (including all fixed charges
and floating charges on goodwill, equipment and all assets that secure the loan)
in consideration for a purchase price of $1,900,000, payable as follows: (i)
$1,300,000 payable in our ordinary shares no later than July 19, 2004, based on
the price of our ordinary shares during the 30-day period immediately after May
20, 2004, (ii) warrants to purchase our ordinary shares with an aggregate
exercise price of $500,000 at an exercise price equal to the 30 day average
trading price of our ordinary shares commencing on May 20, 2004, but not less
than $0.10 and not more than $0.30 per share and (iii) $100,000 in cash, payable
in four equal monthly installments commencing on November 20, 2004. We are under
an obligation to register the shares issued to Bank Hapoalim no later than
September 17, 2004. In July, 2004 we issued 5,200,000 ordinary shares to Bank Hapoalim.
     
On June 9, 2004 we signed a term sheet with a third party investor for the
issuance of a one-year senior convertible note in the amount of $2,000,000. The
note will bear interest of 5% per annum and will be convertible into ordinary
shares at a price of $0.10 per share. The note will be secured by a first lien
on substantially all our assets. The note will be redeemable at the option of
the company in part or in whole at a redemption price equal to 120% of the face
value of the note. In addition, we will issue to the investor a warrant to
purchase a number of ordinary shares equal to 50% of the ordinary shares into
which the note will be convertible. The warrant exercise price will be the
market price at the date of closing but not less than $0.10. We will be required
to register the shares underlying the note and the warrant within 45 days of the
closing. In connection with the transaction we will pay the placement agent a
commission of 10% of the aggregate cash proceeds in cash and a warrant to
purchase 10% of the ordinary shares issued in the transaction (assuming
conversion of the note and warrant). Additional fees might be payable if
additional investors participate in the transaction.

On July 27, 2004 we issued
7,000,000 of our ordinary shares to several consultants in exchange for their
services.

Off-Balance Sheet Transactions

We have not engaged in nor been a party to off-balance sheet transactions.

Item 6. Directors, Senior Management and Employees.

Directors and Executive Officers

The following table sets forth information for
 our current directors and executive officers. Unless otherwise stated, the address for our directors
 and executive officers is c/o Technoprises Ltd., 12 Raoul Wallenberg, Tel-Aviv, Israel.

|Name               | Age |  | Position                                                
|------------------ | --- |  | --------------------------------------------------------
|                   |     |  |                                                         
|Prosper Abitbol    | 49  |  | Chairman of the Board &ChiefExecutive Officer,          
|                   |     |  | Chairman of the boards ofdirectorsof TCM,               
|                   |     |  | TechnoCross & EVR                                       
|Adam T. Ofek       | 42  |  | President, Chief Financial Officer and Director         
|Avigdor Olshansky  | 60  |  | Chief Executive Officer of TCM                          
|Pinchas Greenfield | 57  |  | President of TCM                                        
|Dr. Yoram Levanon  | 59  |  | Technology Advisor                                      
|David Vita         | 46  |  | Chief Operating Officer of EVR                          
|Raymond Eskenazi   | 54  |  | Chief Executive Officer of Araneo                       
|Lior Ostashinsky   | 27  |  | Vice President Finance and Investor Relations, Secretary
|Sam Klepfish       | 29  |  | Managing Director U.S. Operations                       
|Michel Habib       | 38  |  | Director                                                
|Stephen J. Kohn    | 65  |  | Director                                                
|Jerry Cahn         | 54  |  | Director                                                
|Yossy Zaykovsky    | 32  |  | Director                                                
|Leah Siegel        | 41  |  | Director                                                

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Prosper Abitbolhas served as our Chairman of the Board and Chief Executive Officer since February 2004. Mr. Abitbol
 is currently also serving as the Chairman of Radio Kol Hashalom, a private radio station and the Chairman
 of the International Association for the Social Exploitation of the Technological Breakthroughs  MediCall
 (AIEST). From mid 2001 to mid 2003, Mr. Abitbol studied Torah and Jewish sciences. From 1999 to 2003
 Mr. Abitbol served as the CEO of Unicorp Ltd, a strategic marketing firm. Mr. Abitbol is Chairman of
 Apros & Chay MB, Ltd.

Adam T. Ofekhas served as our President, Chief Financial Officer and as a Director since February 2004. Mr. Ofek
 served as the Chief Executive Officer of MBI Partners from November 1999 to 2003 and served from September
 1996 to July 1999 as the Chief Executive Officer of Solid ISG Capital Markets LLC, an Israeli investment
 house and a member of Nasd, FSA and Easdaq. Mr. Ofek is a senior managing partner at Apros & Chay
 MB, Ltd.

Avigdor Olshanskyhas served as the Chief Executive Officer of TCM since January 2004. Mr. Olshansky is also the founder
 and Chief Executive of Screenpeaks Limited, Telem-Atik and Cat4View. He has served as chairman of Screenpeaks
 since 1999.

Pinchas Greenfieldhas served as the President of TCM since March 2004. From April 2003 to February 2004 he served as an
 IT advisor to various entities. From 1977 to 2002 he was the head of the Information Technology department
 in a large agency associated with the Israeli government.

Dr. Yoram Levanonhas served as our Technology Advisor since March 2004. Since 1999 Dr. Levanon has served as Managing
 Director of M.S.R Ltd. and a Senior Professor at the Netanya Academic College, Israel and Bar Ilan University,
 Israel.

David Vitahas served as the Chief Operating Officer of EVR since February 2004. From May 2003 to May 2004 he was
 VP Marketing and Business Development of NiliMED Ltd. From June 2002 to April 2003 he was COO and director
 of REPtor Ltd. and from October 1999 to May 2002 he was employed as a Fund Manager by Invest IL, a private
 investment company. Mr. Vita also served as Middle East Representative for the State of Massachusetts
 Trade Office between 1992 and 2001.

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Raymond Eskenazihas served as Araneo's Chief Executive Officer since May 2004. In 2000 he founded Araneo Ltd. and served
 as its CTO and acting CEO until April 2004. From 1995 to 2000 he developed several embedded platforms
 in the digital video and communication fields for various clients.

Lior Ostashinskyhas served as our Vice President Finance and Investor Relations since May 2004 and as our Secretary since August 2004. From October 2003 to
 May 2004 Mr. Ostashinsky was an analyst at Migdal Capital Markets Economic Division. Prior to that
 Mr. Ostashinsky completed a BA degree in Business Management.

Sam Klepfishhas
 served as our Managing Director U.S. Operations  since May 2004. From January 2001 to May 2004 Mr. Klepfish was an
 investment banker and consultant at Phillips Nizer, a New York law firm. Since January 2001 Mr. Klepfish
 has been a member of the steering committee of Tri-State Ventures, a New York investment group. From
 1998 to December 2000 Mr. Klepfish was an asset manager for several investors in small cap entities.

Michel Habibhas served as our director since May 2004. Since February 2003, Mr. Habib has been Director, Business
 Development at Elron Electronics Industries. Prior to that, from August 2001 to January 2003 Mr. Habib
 served as head of investment banking for the Israel branch of ING Bearings. Prior to that, from September
 1999 to January 2001 he was Vice President Investment Banking for Cukierman & Co. Investment House
 Ltd. From January 1997 to August 1999 he was the Israeli counsel for economic affairs to New England.

Stephen J. Kohnhas served as our director since February 2004. He is the Managing Partner of Presidio Strategic Capital,
 a position he has held since November 2002. From 1995 until present time he has been working as an independent
 consultant in the financial business.

Jerry Cahnhas served as our director since April 2004. He is the Executive Director ofPresentation Excellence, a resource center for executives he formed in 1999. In addition, he is a principal
 for PortfolioIR, an investor and public relations firm he co-founded in July 2001.

Yossy Zaykovskywas elected as our external director on May 31, 2004. Since April 2004, Mr. Zaykovskyhas served as Chief Financial Officer of Brother-Reshef (Israel)
 Ltd. and Reshef, Computers & Peripheral Equipment (1982) Ltd. From January 2002 to March 2003, Mr.
 Zaykovsky was employed by Vega Consultants Ltd., an Israeli financial consulting firm. From October
 1999 through December 2001 Mr. Zaykovskyworked as an accountant with Kesselman & Kesselman, the Israeli affiliate of PriceWaterhouseCoopers.
 From May 1998 through September 1999 Mr. Zaykovskyworked as an accountant with Raba Kapiloto & Co., an Israeli accounting firm. Prior to that, from
 1994 to April 1998, Mr. Zaykovsky served as Marketing Manager for Exclusive Optical Eyewear Ltd. in
 Israel.

Leah Siegelwas elected as our external director on May 31, 2004. Since 1997 Ms. Siegel has been working as an independent
 consultant in the marketing sales and communications areas to various Israeli companies. From November
 2000 to December 2001 she worked as an operations manager at Credit Suisse First Boston.

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Board Practices

We are incorporated in Israel and therefore we
 are subject to various corporate governance matters under Israeli law relating to independent directors,
 the audit committee and the internal auditor under applicable Israeli law.

Each of our directors is elected for a one-year
 term. However, Adam Ofek and Prosper Abitbol have been elected for a three-year term. Their three-year
 terms expire at the general meeting of shareholders to be held in 2007, and their directorship periods
 were ratified in the annual generals meeting of our shareholders on May 31, 2004. We elected Yossy Zaykovskyand Leah Siegel, as our new external directors, as required by Israeli
 law. In accordance therewith, the appointment of the external directors is for a three-year term which
 will expire at the annual general meeting of the shareholders to be held in 2007. Their terms may be
 extended by one additional three year-term to through 2010.

External Directors

Under Israeli law, Israeli companies whose shares
 are publicly traded in or outside of Israel are subject to the following requirements relating to independent
 directors:

- companies must appoint two external directors that may not be or have been affiliated with the company or its principals at any time during the previous two years;
- external directors must be elected by a majority vote at a shareholders meeting. In addition to the majority vote requirement, either of the following conditions must be satisfied:
- at least one-third of the shares held by shareholders other than controlling shareholders must be voted in favor of the election of the external director; or
- the total number of shares voted against the election of the external director and held by shareholders other than controlling shareholders, must not represent more than 1% of the aggregate voting rights in the company;
- the term of an external director is three years and may be extended by vote of the shareholders for one additional term of three years, and an external director can be removed from office only under limited circumstances;
- if all directors are of the same gender, the next new external director must be of the other gender;
- each committee of the board of directors is required to include at least one external director; and
- independent directors may only be compensated in amounts as specified in the Companies Regulations Rules for the Remuneration and Expense for external directors, as approved from time to time by the Minister of Justice.

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Israeli law provides that a person may not be appointed
 as an external director if the person, a relative, partner or employer of the person or any entity under
 the persons control has, as of the date of the persons appointment to serve as an external director,
 or had during the two years preceding that date, any affiliation with:

- the company;
- any entity controlling the company; or
- any entity controlled by the company or by any entity controlling the company.

No person can serve as an external director if
 the persons position or other business creates, or may create, a conflict of interest with the persons
 responsibilities as an independent director or may otherwise interfere with the persons ability to
 serve as an independent director.

Our existing articles of association and Israeli
 law provide for a board of directors of not less than four directors and not more than ten directors,,
 as may be fixed from time to time by vote of the board of directors. Under our existing articles of
 association, all directors generally serve until the next annual meeting. Our articles of association
 allow the appointment of directors (even if they are not external directors) for periods of up to three
 years (up to the third annual meeting following their appointment). Pursuant to Israeli law, external
 directors serve a three year term which may be extended for an additional term of three years. Our directors
 may at any time and from time to time appoint any other person a director, whether to fill a vacancy
 or to add a director to serve until the first general meting of shareholders after such appointment,
 subject to the maximum number of directors permitted under our articles of association. A majority of
 all holders of ordinary shares may also appoint and dismiss directors.

Audit Committee and Internal Auditor

Under Israeli law, the board of directors of a
 public company must appoint an audit committee. The audit committee must be comprised of at least three
 directors, including all of the independent directors. The audit committee may not include the chairman
 of the board, any director who is employed by the company or regularly provides service, a controlling
 shareholder or their relatives.

Also, under Israeli law, the board of directors
 of a public company must appoint an internal auditor proposed by the audit committee. The role of the
 internal auditor is to examine whether a companys acts comply with the law and proper business procedure.
 The internal auditor may not be an interested party or office holder, or a relative of any interested
 party or office holder, and may not be a member of the companys independent accounting firm.

The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002, as well as related
 new rules subsequently implemented by the Securities and Exchange Commission, require foreign private
 issuers, such as us, to comply with various corporate governance practices. We intend to take all actions
 necessary for us to maintain compliance with applicable corporate governance requirements of the Sarbanes-Oxley
 Act and rules adopted by the Securities and Exchange Commission.

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Committees

Our board of directors has formed an audit committee.
 The audit committee, which currently consists of Stephen J. Kohn, Yossy Zaykovsky and Leah Siegel exercises
 the powers of the board of directors for our accounting, reporting and financial control practices and
 the powers and duties imposed on the audit committee under the Companies Law. Once appointed by the
 annual shareholders meeting, the external directors will also be members of our audit committee, as
 required under the Companies Law. Yossy Zaykovsky, a member of our Audit Committee, meets the criteria
 of an Audit Committee Financial Expert under the applicable rules and regulations of the SEC, and
 his designation as the Audit Committees Financial Expert has been ratified by the Board.

Compensation of Directors and Executive Officers

The aggregate direct labor costs associated with
 all of our directors and officers as a group for the year ended December 31, 2003 (including persons
 who served as directors or officers for only a portion of 2002) was approximately $139,303.

Under Israeli law, any agreement with officers
 and directors of the company regarding compensation needs the approval of the audit committee, our board
 of directors and shareholders. On June 20, 2004, our Audit Committee approved certain agreements with
 members of our management team which are subject to further approval of our board and shareholders.
 See Transactions with Related Parties below.

On June 20, 2004 our Audit Committee resolved that
 our external directors will be compensated as set forth in the Israeli Companies Regulations. Other
 members of our board (excluding Prosper Abitbol, Adam Ofek and our external directors) shall receive
 monthly fees of $750 and $300 for every board or committee meeting they attend. In addition, each of
 them will receive options to purchase 520,000 of our ordinary shares, vesting over a three-year period.

Employee and Director Share Options

From time to time we grant stock options to officers,
 directors and employees at an exercise price equal to the fair market value of our ordinary shares on
 the date of grant. All the options vest over periods ranging from two to five years commencing on the
 date of grant and have expiration dates up to seven years from the date of grant.

The Company does not have any option plans in place.

As of March 30, 2004, options to purchase 70,000
 ordinary shares were outstanding all of which were fully vested and exercisable. As of March 31, 2004,
 the weighted average exercise price of all outstanding options was $4.27 per share.

The board of directors and our shareholders have
 adopted resolutions to reserve an option pool of 24,000,000 ordinary shares for future option grants
 for employees, consultants, directors and officers of the company and our subsidiaries under a new option
 plan which will be approved by the board.

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Employees

As of May 31, 2004, we had 22 employees, 19 of
 which were located in Israel and 3 located in the United States. In addition we have 13 consultants
 advising us on a regular basis.

Competition in Israel for technical personnel is
 intense. We believe we can attract talented engineering and other technical personnel. None of our employees
 are represented by a labor union, and we have not experienced any work stoppage. We believe our relations
 with our employees to be good and that our future success will depend on our continuing ability to hire,
 integrate and retain qualified personnel.

Our employees in Israel are subject to Israeli
 labor laws and regulations and other special practices and employment customs. The laws and regulations
 principally concern matters such as paid annual vacation, paid sick days, the length of the workday,
 payment for overtime and severance pay. Israeli law generally requires severance pay equal to one months
 salary for each year of employment upon the retirement or death of an employee or termination of employment
 without a valid legal reason. Furthermore, Israeli employees and employers are required to pay predetermined
 sums to the National Insurance Institute, which is similar to the U.S. Social Security Administration.
 Since January 1, 1995, these amounts also include payments for national health insurance. The payments
 to the National Insurance Institute by us amount to approximately 15% of wages, up to a specified amount,
 of which the employee contributes two-thirds and the employer contributes one-third.

In addition, by order of the Israeli Ministry of
 Labor and Welfare, the provisions of a collective bargaining agreement between the Histadrut (the General
 Federation of Labor in Israel) and the Industrialists Association in Israel may be applicable to a segment
 of our employees other than managerial, finance and administrative, and marketing and sales personnel.
 This collective bargaining agreement principally concerns cost of living increases, vacation and holiday
 pay, length of the workday, wage tariffs, termination and severance payments. We provide our employees
 with benefits and working conditions that are at least as favorable as the conditions specified in the
 collective bargaining agreement.

Item 7. Major Shareholders and Related Party Transactions.

Major Shareholders

Percentages

The following table shows information about the
 beneficial ownership of our ordinary shares as of August 10, 2004, including shares that may be acquired
 pursuant to options that are exercisable within 60 days of the date of August 10, 2004, by:

- each person or entity known to own beneficially more than 5% of our outstanding ordinary shares;
- each director or officer who beneficially holds more than 1% of our outstanding ordinary shares; and
- all other directors and executive officers of the company as a group.

Percentage ownership is based on 133,077,010 ordinary
 shares issued and outstanding as of May 31, 2004. The shareholders listed below do not have any different
 or special voting rights from any other shareholders of our company. Except where otherwise indicated,
 we believe, based on information furnished by the owners, that the beneficial owners of the ordinary
 shares listed below have sole investment and voting power with respect to such shares.

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|Name of Beneficial Owner                                            | Number of ShareBeneficially Owned |  | Percentageof Class
|------------------------------------------------------------------- | --------------------------------- |  | ------------------
|Apros & Chay MB, Ltd.                                               | 48,500,000                        |  | 36.45             
|Prosper Abitbol (1)                                                 | 48,500,000                        |  | 36.45             
|Adam Ofek (2)                                                       | 12,125,000                        |  | 9.11              
|Avigdor Olshansky                                                   | 8,780,264                         |  | 6.60              
|Platinum Partners Global Macro Fund, LP (3)                         | 8,000,000                         |  | 5.75              
|Platinum Partners Value Arbitrage Fund, LP (4)                      | 12,000,000                        |  | 8.45              
|Alpha Capital AG (5)                                                | 12,000,000                        |  | 8.45              
|Bristol Investment Fund Ltd. (6)                                    | 14,000,000                        |  | 9.75              
|Stonestreet LP (7)                                                  | 16,000,000                        |  | 11.03             
|Platinum Long Term Growth (8)                                       | 8,000,000                         |  | 5.75              
|Rami Joulus(9)                                                      | 10,592,141                        |  | 7.96              
|Informa Capital (1993) Ltd. (10)                                    | 7,956,904                         |  | 5.98              
|All Directors and Executive Officers of the Company as a Group (11) | 59,630,837                        |  | 44.81             

(1) Prosper Abitbol is an officer and director
 of Apros & Chay MB, Ltd. He beneficially owns 75% of the share capital of Apros & Chay MB, Ltd.
 and has voting and dispositive control over the shares beneficially owned by Apros & Chay MB, Ltd.

(2) Adam Ofek is an officer and director of Apros
 & Chay MB, Ltd. and owns together with members of his family 25% of the share capital of Apros &
 Chay MB, Ltd.

(3) Comprised of (i) 2,000,000 ordinary shares
 and (ii) 6,000,000 ordinary shares underlying warrants exercisable within 60 days of the date hereof.

(4) Comprised of (i) 3,000,000 ordinary shares
 and (ii) 9,000,000 ordinary shares underlying warrants exercisable within 60 days of the date hereof.

(5) Comprised of (i) 3,000,000 ordinary share and
 (ii) 9,000,000 ordinary shares underlying warrants exercisable within 60 days of the date hereof.

(6) Comprised of (i) 10,500,000 ordinary shares
 and (ii) 10,500,000 ordinary shares underlying warrants exercisable within 60 days of the date hereof.

(7) Comprised of (i) 4,000,000 ordinary shares
 an (ii) 12,000,000 ordinary shares underlying warrants exercisable within 60 days of the date hereof.

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(8) Comprised of (i) 2,000,000 ordinary shares
 and (ii) 6,000,000 ordinary shares underlying warrants exercisable within 60 days of the date hereof.

(9) These shares are held in trust for various
 employees and consultants pending obtaining a certain tax ruling that would allow the distribution of
 the shares. Mr. Joulus has voting control over such shares.

(10) Based on a Form 13G, dated February 18, 2004,
 filed by Informa Capital (1993) Ltd., Mr. Haim Geyer and Pernod Investments Ltd., each of Haim Geyer,
 as Director of Informa Capital (1993) Ltd. and Pernod Investments Ltd., as controlling stockholder of
 Informa Capital (1993) Ltd., may be deemed to share voting and dispositive power with respect to these
 shares.

(11) Other than Prosper Abitbol, Adam Ofek and
 Avigdor Olshansky, none of the officers and directors of the company individually beneficially own more
 than 1% of the issued and outstanding shares of the company.

Rights in Shares, Significant Changes in Shareholders and Controlling Shareholders

In connection with the transaction between BVR
 and TechnoCross, on February 18, 2004 the Company affected a 1:50 stock split of the Companys issued
 and un-issued ordinary shares and subsequently cancelled 49 of each 50 ordinary shares. Subsequent to
 these changes, the authorized share capital of the Company consists of NIS 300,000 divided into 30,000,000
 ordinary shares, nominal value NIS 0.01 each and the issued share capital of the Company is 9,837,701
 ordinary shares, nominal value NIS 0.01 each. The purpose of the changes in the capital stock was to
 reduce stamp taxes in Israel which is derived from the par value and number of outstanding shares. Immediately
 thereafter, the company authorized additional share capital of NIS 1,700,000, divided into 170,000,000
 Ordinary Shares, nominal value NIS 0.01 each, such that the our authorized share capital would be NIS
 2,000,000, divided into 200,000,000 Ordinary Shares, nominal value NIS 0.01 each.

At a shareholders meeting held on May 31, 2004,
 our shareholders approved the following changes in our share capital: (i) the conversion of our ordinary
 shares from shares of NIS 0.01 par value each into shares of non par value each; and (ii) the increase
 of our authorized share capital by additional 300,000,000 ordinary shares. Consequently, as of May 31,
 2004, our authorized share capital was comprised of 500,000,000 ordinary shares non par value each,
 of which 120,877,010 were issued and outstanding.

Our shareholders further authorized our board of
 directors to affect a reverse stock split at a range of 4-8:1 within a period of six months (as shall
 be resolved by the Board), in the event that the market condition will indicate that a decrease in the
 number of our ordinary shares outstanding would encourage interest in, and promote liquidity of, our
 ordinary shares. As of June 30, 2004, such reverse split was not affected.

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Related Party Transactions

Special Payment to BVRs Chief Executive Officer

In connection with the transaction between BVR
 and Technoprises, BVR made a one-time payment in the amount of $50,000 plus VAT to its then existing
 Chief Executive Officer, Yaron Sheinman, for his services to BVR between May 1, 2003 and the time of
 the transaction.

In connection with the transaction between BVR
 and Technoprises, certain directors, executive officers, employees and service providers to Technoprises
 and its subsidiaries received 10,592,141 ordinary shares of the Company that otherwise would have been
 issued to the shareholders of Technoprises. Such shares are currently held in trust, for tax ruling
 purposes.

Apros & Chay and Avigdor Olshansky Participation Right

On April 1, 2004 our board of directors resolved
 to grant Apros & Chay and Avigdor Olshansky a right to participate in the investment round of the
 Subscription Agreement, dated April 21, 2004 and to purchase, at a price of $0.10 per share, up to such
 number of shares which will enable them to maintain their respective shareholdings in the Company, as
 of prior to the closing of such investment round on terms similar to such agreement. This participation
 right is subject to the approval of the audit committee, a further approval of the board of directors
 and the approval of our shareholders. The audit committee approved such participation right on June
 20, 2004. The approval of the board and the shareholders is yet to be obtained.

On June 20, 2004 our Audit Committee resolved to
 grant Apros & Chay and Avigdor Olshansky a right to participate in the investment round of the Term
 Sheet, dated June 9, 2004 and to purchase, at a price of $0.10 per share, up to such number of shares
 and warrants which will enable them to maintain their respective shareholdings in the Company, as of
 prior to the closing of such investment round on terms similar to such agreement. This participation
 right is subject to the approval of the board and our shareholders, which is yet to be obtained.

Watchow License

We license the rights to the Watchow portal from
 Unicorp Ltd. Prosper Abitbol, our Chairman and Chief Executive Officer controls Unicorp Ltd.

Sale of Unisfair and BrightCom to Yaron Sheinman and Others

During 2003, BVR divested itself of its investments
 in Unisfair and BrightCom. In January 2003, BVR sold its Unisfair shares to BCS Growth Fund (Israel)
 L.P., an affiliate of Clal Industries & Investments Ltd., and to an entity controlled by Yaron Sheinman,
 BVRs CEO, for a total consideration of $25,000.

Item 8. Financial Information.

Consolidated Statements and Other Financial Information

See Consolidated Financial Statements attached
 to this Form 20-F.

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Legal Proceedings

On March 21, 2004 a financial claim for an amount
 of $291,260 was filed by CastlenetTechnology Inc. in the Magistrates
 Court of Tel-Aviv, against Coresma, the Company, Yaron Sheinman and Aviv Tzidon (previous officers and
 directors of the Company) and previous officers of Coresma. Castlenet claims that Coresma owes Castlenet
 $291,260 for products supplied to Coresma and for which Castlenet claims that Coresma has not paid.
 Castlenet claims that the court should pierce the corporate veil of Coresma and thus hold us responsible
 for the claimed amount, as the Company is a major shareholder of Coresma, and knew or should have known
 of Coresmas inability to pay the claimed amount prior to the time Coresma ordered such products from
 Castlenet. We have been advised by our legal counsel that the risk associated with such claim is minimal.

On May 27, 2004, a former employee of Coresma filed
 a claim against Coresma, EVR and us in the District Labor Court of Tel-Aviv for an aggregate amount
 of NIS 80,420.74 (approximately $17,870) claimed to be due for completion of severance payments and
 executive insurance deposits which were not paid by Coresma. We have been advised by our legal counsel
 that the risk associated with such claim is minimal.

On June 9, 2004 we received a letter from counsel
 to certain directors of BVR prior to the transaction between BVR and TechnoCross claiming breach of
 the Companys obligation to provide D&O insurance to such directors as set forth in Section 8.4
 of the Stock Purchase Agreement between BVR and TechnoCross. We have contacted several insurance brokers
 in an attempt to purchase such coverage but have been advised that such insurance is not available.
 We are currently seeking a resolution to the issue.

We are not aware of any other material legal proceedings
 to which the Company is party.

Dividend Distributions

Our articles of association do not require shareholder
 approval for the declaration of dividends. Any future determination to pay cash or other dividends will
 be at the discretion of our board of directors and will be subject to our articles of association and
 Israeli law. We currently expect to retain all future earnings, if any, to finance the development of
 our business, and do not anticipate paying any cash dividends in the foreseeable future. Any future
 determination relating to dividend policy will be made by our board of directors and will depend on
 a number of factors, including future earnings, capital requirements, financial condition and future
 prospects and other factors the board of directors may deem relevant.

Item 9. Offer and Listing.

Share Listings and Trading Prices

The primary trading market for our ordinary shares
 is the Over the Counter Bulletin Board Market, under the symbol TNOLF.OB. Prior to April 26, 2004
 our shares traded under the symbol BVRT.OB and prior to August 4, 2003 our shares traded on the Small
 Cap Market, under the symbol BVRT. On July 19, 2004 our symbol was changed to TNOLE.OB as a result of our failure to timely file our annual report on Form 20-F. The table below sets forth the high and low reported sales prices
 of our ordinary shares, as reported by the Nasdaq Small Cap Market and the Over the Counter Bulletin
 Board Market during the specified financial periods. These prices represent inter-dealer quotations
 without retail markup, markdown, or commission and may not necessarily represent actual transactions.

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|Period                                      | High ($) |  | Low ($)
|------------------------------------------- | -------- |  | -------
|Year                                        |          |  |        
|                                            |          |  |        
|1999                                        | 9.72     |  | 2.00   
|2000                                        | 20.00    |  | 2.00   
|2001                                        | 4.25     |  | 0.18   
|2002                                        | 0.66     |  | 0.08   
|2003                                        | 0.37     |  | 0.06   
|                                            |          |  |        
|Quarter                                     |          |  |        
|                                            |          |  |        
|First quarter 2002                          | 0.65     |  | 0.37   
|Second quarter 2002                         | 0.61     |  | 0.20   
|Third quarter 2002                          | 0.28     |  | 0.08   
|Fourth quarter 2002                         | 0.29     |  | 0.12   
|First quarter 2003                          | 0.37     |  | 0.10   
|Second quarter 2003                         | 0.32     |  | 0.12   
|Third quarter 2003                          | 0.15     |  | 0.06   
|Fourth quarter 2003                         | 0.28     |  | 0.08   
|First quarter 2004                          | 0.41     |  | 0.22   
|Second quarter 2004 (through June 23, 2004) | 0.30     |  | 0.19   
|                                            |          |  |        
|Month                                       |          |  |        
|                                            |          |  |        
|January 2004                                | 0.41     |  | 0.25   
|February 2004                               | 0.37     |  | 0.25   
|March 2004                                  | 0.34     |  | 0.26   
|April 2004                                  | 0.30     |  | 0.25   
|May 2004                                    | 0.28     |  | 0.19   
|June 2004                                   | 0.29     |  | 0.24   

On August 10, 2004, the last reported sale price
 of our ordinary shares on the Over the Counter Bulletin Board was $0.17 per share. As of June 10, 2004
 we had 41 shareholders of record.

Item 10. Additional Information.

Our Memorandum and Articles of Association

In February 2000, the Companies Ordinance (New
 Version)-1983 was replaced by theCompanies Law-1999 (the Companies
 Law). Since our Articles were approved before the enactment of the Companies Law, they are not always
 consistent with the provisions of the new law. In all instances in which the Companies Law changes or
 amends provisions in the Companies Ordinance, thereby making our Articles inconsistent with the Companies
 Law, the provisions of the Companies Law apply (unless specifically stated otherwise in the Companies
 Law). Similarly, in all places that our Articles refer to a Section of the Companies Ordinance that
 has been replaced by the Companies Law, the Articles shall be understood to be referring to the relevant
 Section of the Companies Law.

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Our objective, as stated in our Articles and in
 our Memorandum of Association, is to engage in any lawful activity. We have currently outstanding only
 one class of securities, our Ordinary Shares, having no nominal value . Holders of Ordinary Shares have
 one vote per share, and are entitled to participate equally in the payment of dividends and share distributions
 and, in the event of a liquidation of the Company, in the distribution of assets after satisfaction
 of liabilities to creditors. No preferred shares are currently authorized. Our Articles may be amended
 by a resolution carried at a General Meeting by an ordinary majority (over 50%) of those who voted is
 required . Our Articles require that we hold our annual general meeting of shareholders each year no
 later than 15 months from the last annual meeting, at a time and place determined by the board of directors.
 No business may be commenced until a quorum of two or more shareholders unless such meeting is an extraordinary
 meeting then no business may be commenced until a quorum of two or more shareholders holding at least
 25% of the voting rights are present in person or by proxy. Shareholders may vote in person or by proxy.
 Resolutions regarding the following matters must be passed at a general meeting of shareholders:

- amendments to our Articles;
- appointment or termination of our auditors;
- appointment and dismissal of directors;
- approval of acts and transactions requiring general meeting approval under the Israeli Companies Law;
- increase or reduction of our authorized share capital or the rights of shareholders or a class of shareholders by a Special Majority, as provided in Sections 286 and 287 of the Israeli Companies Law;
- any merger as provided in section 320 of the Israeli Companies Law; and
- the exercise of the board of directors powers by the general meeting, if the board of directors is unable to exercise its powers and the exercise of any of its powers is vital for our effective management, as provided in section 52(a) of the Israeli Companies Law.

A special meeting of our shareholders may be convened
 by the board, or by request of one or more shareholders holding at least 5% of paid up share capital
 or by request of at least two directors or directors which are 25% of the than acting directors. Shareholders
 requesting a special meeting must submit their proposed resolution with their request. Within 21 days
 of receipt of the request, the board must convene a special meeting or the requesting shareholders may
 convene a meeting by themselves upon seven days notice to all shareholders.

Our existing Articles adopted on May 31, 2004,
 provide that although directors are to be elected at an annual general meeting, between annual meetings,
 the board shall be empowered to appoint or dismiss directors by a majority vote of the directors in
 the event the board of directors is comprised of less than ten directors. Notwithstanding the foregoing,
 however, holders of the majority of the Companys shares may appoint or remove directors by the delivery
 of a written notice of appointment or dismissal to the Company by such shareholders.

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Our existing Articles, allow the board of directors
 to declare a dividend to be paid to the shareholders according to their rights and benefits in the profits,
 and to further allow the board to decide the time of payment.

Insurance and Indemnification of Directors and Officers

Section 258 of the Companies Law, 1999 (the Israeli
 Companies Law) prohibits a company from exculpating an officer or director from liability for the breach
 of his/her duty of loyalty. The company may exculpate an officer or director from liability for the
 breach of his/her duty of care, may insure his liability for a breach of these duties, or indemnify
 him/her for a breach, but only according to the provisions of the following sections:

Section 259 of the Israeli Companies Law permits
 a company to provide in its Articles of Association that an officer or a director of the company may
 be exculpated, to the extent provided in the Articles, from liability for the breach of his/her duty
 of care.

Section 260A of the Israeli Companies Law permits
 a company to provide in its Articles of Association that the company may indemnify an officer or a director
 in such capacity, for:

- monetary liability incurred pursuant to a judgment, including a settlement or arbitration decision approved by a court, in an action brought by a third party;
- reasonable legal expenses incurred in an action brought against the director or officer by or on behalf of the company or others; and
- reasonable legal expenses incurred in defending criminal charges of which the director or officer was acquitted, or as a result of a criminal charge that does not require proving criminal intent of which the director or officer was convicted.

Section 260B of the Israeli Companies Law specifies
 that the indemnification provision in a companys Articles of Association may be a general obligation
 to indemnify in advance, provided it is limited to events the board of directors can foresee when providing
 the obligation and that it is limited to a sum the board of directors determines is reasonable in the
 circumstances, or a provision permitting the company to indemnify an officer or a director on an ad
 hoc basis after the fact.

Section 261 of the Israeli Companies Law permits
 a company to provide in its Articles of Association that the company may insure an officer or a director.
 This insurance may cover liability for breach of the duty of care or, to the extent the officer or director
 acted in good faith and has a reasonable basis to believe that the act would not prejudice the company,
 for the breach of the duty of loyalty. A companys Articles of Association may also allow it to insure
 officers and directors for monetary liabilities incurred as a result of an act or an omission committed
 in connection with his serving as an officer or director of the company.

All of these provisions are specifically limited
 in their scope by the Israeli Companies Law, which provides that a company may not indemnify an officer
 or director nor enter into an insurance contract that would provide coverage for any monetary liability
 incurred as a result of any of the following:

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- a breach by the officer or director of the duty of loyalty, unless the officer or director acted in good faith and has a reasonable basis to believe that the act would not prejudice the company;
- an intentional or reckless breach by the officer or director of the duty of care;
- any act of omission done with the intent to derive an illegal personal benefit; or
- any fine levied against the director or officer.

Sections 142-148 of the Registrants Articles of Association, as amended, provide
 as follows:

The Company may exempt any Director, General Manager,
 President, CEO, Deputy General Manager, assistant General Manager and any person holding such office
 in the Company, even if bearing a different title, and any other manager being directly subordinated
 to the General Manager (each, an Officer) from his/her liability to the Company for breach of duty
 of care, to the maximum extent permitted by law, before or after the occurrence giving rise to such
 liability.

Subject to the provisions of the Israeli Companies
 Law, the Company may exempt and release, in advance or retroactively, any Officer from liability resulting
 from his/her breach of his/her duty of care to the Company.

Subject to the provisions of the Israeli Companies
 Law, the Company may procure, as the board may from time to time determine, Directors and Officers
 liability insurance covering the liabilities of an Officer for any act committed by her/him in her/his
 capacity as an Officer, in respect of any of the following:

- breach of duty of care towards the Company or towards any other person;
- breach of fiduciary duty towards the Company; provided, that such Officer acted in good faith and had a reasonable basis to assume that his/her action would not harm the interests of the Company;
- financial liabilities imposed on him/her in favor of a third party; or
- any other event for which insurance of an Officer is or may be permitted.

Subject to the provisions of the Israeli Companies
 Law, the Company may undertake in advance or retroactively indemnify any past or present Officer in
 respect of a liability or expense as detailed below, imposed on him/her as a result of an act carried
 out in his/her capacity as an Officer. However, if made in advance, such undertaking will be limited
 to circumstances that, in the Boards opinion, are foreseeable at the time of the approval of the indemnification
 undertaking and will be limited to the amount fixed by the board as reasonable under the circumstances
 which shall not exceed 25% of the Companys shareholders equity at such time.

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An indemnity, as provided above, may be issued in respect of a liability or expense
 as follows:

- a monetary liability imposed on an Officer in favor of a third party under a judgment, including a judgment by way of compromise or judgment of an arbitrator approved by a court;
- reasonable expenses of the proceedings, including legal fees, expended by the Officer or imposed on him by the court for proceedings initiated against him by or on behalf of the Company or by a third party; criminal proceedings in which the Officer was acquitted; or criminal proceedings in which he was convicted in an offense, which did not require proof of criminal intent; or
- any other liability or expense for which the indemnification of an Officer is not precluded by Law.

Subject to the provisions of the Israeli Companies
 Law, the Company may issue an undertaking in advance or retroactively to indemnify any person, including
 an Officer, who acts or acted on behalf or at the request of the Company as a director or officer of
 another company in which the Company, directly or indirectly, is a shareholder, or in which the Company
 has any other interest. Such indemnity will be in respect of a liability or expense referred to above,
 imposed on him as a result of an act carried out by him in his capacity as a director or officer of
 the other company. However, such undertaking, if made in advance, will be limited circumstances that,
 in the boards opinion, are foreseeable at the time of the approval of the indemnification undertaking
 and will be limited to the amount set by the board as reasonable under the circumstances which shall
 not exceed 25% of the Companys shareholders equity at such time.

Subject to the provisions of the Israeli Companies
 Law, nothing in the Articles will limit the Company, in any manner, from entering into an agreement
 of liability insurance, or in granting an exemption or indemnification in respect of:

- an Officer, or a director or officer of another company as provided in Article 147 above, to the extent that the insurance, exemption or indemnity is not prohibited by law; or
- any person who is not an officer, or a director of another company as provided in Article 147 above, including but not limited to employees and representatives of the Company.

The Company may adopt in the near future such corporate
 resolutions which will allow the Company to identify and/or insure its directors and Officers to the
 maximum extent permitted under the Israeli Companies Law and the Companys Articles.

Material Contracts

On December 17, 2003, Technoprises acquired certain intellectual
property, technologies and assets of TVGate. See "Item 4. Information on the Company - TVGate."

On May 20, 2004 we entered into an agreement with Bank Haupoulon to acquire debt
owned by Coresma. See "Item 4. Information on the Company - Acquisition of Coresma Debt."

On May 28, 2004 we entered into an agreement with
 Lucent Technologies. See Item 4. Information on the Company - EVR - Lucent Agreement. Except as otherwise
 disclosed in this annual report we have no other material contracts.

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Exchange Controls and Other Limitations Affecting Security Holders

Non-residents of Israel may freely hold and trade
 our ordinary shares under general and specific permits issued under the Israeli Currency Control Law,
 1978. Our Memorandum of Association and Articles of Association do not restrict the ownership of ordinary
 shares by non-residents of Israel. Neither the Memorandum of Association and Articles of Association
 nor Israeli law restrict the voting rights of non-residents.

Under the general permit given through the Israeli
 Currency Control Law, 1978, non-residents of Israel who buy our ordinary shares inside or outside of
 Israel with any foreign currency are able to receive a number of types of distributions in freely repatriable
 U.S. dollars or specified other currencies. These distributions include dividends, proceeds from the
 sale of shares and any amounts payable on the dissolution, liquidation or winding-up of Technoprises.

In the last several years, the Government of Israel
 liberalized its policies regarding exchange controls and investments in Israel and abroad.

Taxation

Certain U.S. Tax Considerations

The following summary describes the material U.S.
 federal income tax consequences to U.S. Holders (as defined below) arising from the purchase, ownership
 and disposition of our ordinary shares. This summary is based on current provisions of the Internal
 Revenue Code of 1986, as amended (the Code), the final, temporary and proposed U.S. Treasury Regulations
 promulgated thereunder and administrative and judicial interpretations thereof, all of which are subject
 to change, possibly with retroactive effect. For purposes of this summary, the term U.S. Holder refers
 only to any of the following beneficial owners of our ordinary shares:

- an individual who is either a U.S. citizen or a resident of the U.S. for U.S. federal income tax purposes and who is not an Israeli resident for Israeli tax purposes;
- a corporation (or an entity taxable as a corporation) created or organized under the laws of the U.S. or any political subdivision thereof;
- an estate, the income of which is subject to U.S. federal income tax regardless of the source of its income;
- a trust (including certain trusts that are deemed to have met the following requirements), if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and (b) one or more U.S. persons have the authority to control all the substantial decisions of the trust; or
- a flow-through entity (such as a partnership or a limited liability company that is not treated as a corporation for U.S. federal tax purposes), to the extent the partnership or membership interests therein are beneficially owned by U.S. Holders.

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This discussion does not consider all aspects of
 U.S. federal income taxation that may be relevant to particular U.S. Holders by reason of their specific
 circumstances, including potential application of the alternative minimum tax, or any aspect of state,
 local or non-U.S. federal tax laws. In addition, this summary is directed only to U.S. Holders that
 hold our ordinary shares as capital assets and does not address the considerations that may be applicable
 to particular classes of U.S. Holders, including financial institutions, insurance companies, broker-dealers,
 tax-exempt organizations, persons holding our ordinary shares as part of a straddle, hedge or conversion
 transaction, or holders, directly, indirectly or through attribution, of 10% or more of the aggregate
 value or voting power of our outstanding ordinary shares. It is assumed for purposes of this discussion
 that no U.S. Holder is engaged in a trade or business in Israel or has a fixed base (such as a business
 office) or a permanent establishment therein.

Each U.S. Holder should consult with its own tax
 advisor as to the particular tax consequences to such holder of the purchase, ownership and sale of
 our ordinary shares, including the effects of applicable state, local, foreign or other tax laws and
 possible changes in the tax laws.

U.S. Trade or Business

A non-U.S. corporation that is engaged in a trade
 or business in the United States is subject to U.S. corporate income tax with respect to its net income
 effectively connected to such trade or business. Such corporation is required to file U.S. federal corporate
 income tax returns annually. If the corporation fails to file such returns, any deductions attributable
 to any such U.S. trade or business that ordinarily would reduce the corporations U.S. federal taxable
 income may be disallowed. In such an event, the corporation would be subject to U.S. federal income
 tax on its gross (rather than net) income, if any, that is effectively connected to such U.S. trade
 or business of the corporation.

Our management believes that we are not (and never
 have been) engaged in a trade or business in the United States. Accordingly, we should not be subject
 to any U.S. federal corporate income tax on any portion of our income. However, because the determination
 as to whether a non-U.S. corporation (such as ours) is engaged in a U.S. trade or business is fact-specific,
 the Internal Revenue Service (the IRS) may disagree with our conclusion and treat all or a portion
 of our income as taxable in the United States. Any such determination may adversely affect our cash
 flow from operations and may reduce our net income.

Distributions With Respect to Our Ordinary Shares

For U.S. federal income tax purposes, each U.S.
 Holder will include in its gross income upon a distribution with respect to our ordinary shares the
 amount of cash and the fair market value of any property distributed to such holder and will also include
 in such gross income the amount of any Israeli income tax withheld by us as described below under Israeli
 Taxation  Taxation of Non-Resident Shareholders. In general, a distribution paid by us to a U.S. Holder
 with respect to our ordinary shares will be treated as a dividend to the extent that the distribution
 does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income
 tax purposes. The amount of any distribution that exceeds these earnings and profits will be treated
 first as a non-taxable return of capital, reducing the U.S. Holders tax basis in its ordinary shares,
 and then as capital gain. An individual U.S. Holders qualified dividend income currently is subject
 to federal income tax at a reduced rate of 15%. For this purpose, qualified dividend income generally
 includes dividends paid by a foreign corporation if either (a) the stock of such corporation with respect
 to which the dividends are paid is readily tradable on an established securities market in the U.S.
 (including the Nasdaq National Market), or (b) such corporation is eligible
 for the benefits of a comprehensive income tax treaty between the jurisdiction of its formation and
 the U.S., which includes an information exchange program and is determined to be satisfactory by the
 U.S. Secretary of the Treasury. The U.S. Secretary of the Treasury has determined the current Income
 Tax Convention between the U.S. and Israel, as amended (the United States-Israel Tax Treaty) to be
 satisfactory for this purpose. Dividends paid by a foreign corporation will not qualify for the 15%
 U.S. federal income tax rate, however, if such corporation is treated, for the tax year in which the
 dividends are paid or the preceding tax year, as a passive foreign investment company (PFIC) for
 U.S. federal income tax purposes. Based on the nature of our operations, we do not believe (as more
 fully explained below) that we will be treated as a PFIC for U.S. federal income tax purposes. Accordingly,
 dividend distributions with respect to our ordinary shares should be treated as qualified dividend
 income and, subject to the satisfaction by U.S. Holders of certain holding period requirements with
 respect to such shares, should be eligible for the reduced 15% U.S. federal income tax rate. U.S. Holders
 that are corporations will not be eligible for the 15% tax rate and generally will not be allowed a
 dividends received deduction for dividend distributions received on our ordinary shares.

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A cash dividend paid by the Company in NIS will
 be included in the income of U.S. Holders at the dollar amount of the dividend, based on the spot rate
 of exchange in effect on the date of the distribution. U.S. Holders will have a tax basis in such NIS
 for U.S. federal income tax purposes equal to that dollar value. Any subsequent gain or loss on the
 disposition of the NIS by the U.S. Holders arising from the exchange rate fluctuations will be taxable
 as ordinary income or loss and will be U.S.-source income or loss (rather than non-U.S.-source income
 or loss).

Dividends paid by us generally will be foreign
 source passive income for U.S. foreign tax credit purposes. Subject to certain limitations, U.S. Holders
 may elect to claim as a foreign tax credit against their U.S. federal income tax liability any Israeli
 income tax withheld from dividends received on our ordinary shares (as described below under Israeli
 Taxation  Taxation of Non-Resident Shareholders). U.S. Holders that do not elect to claim a foreign
 tax credit may instead claim a deduction for any such Israeli income tax withheld. In addition, special
 rules apply to the computation of a foreign tax credit relating to qualified dividend income. The
 rules relating to the U.S. foreign tax credit are complex, and U.S. Holders should consult their own
 tax advisors to determine whether and to what extent they would be entitled to this credit.

Sale or Exchange of Ordinary Shares

Subject to the discussion under the heading Passive
 Foreign Investment Company Status below, a U.S. Holders sale or exchange of our ordinary shares generally
 will result in the recognition by such U.S. Holder of capital gain or loss in an amount equal to the
 difference between the amount realized and the U.S. Holders tax basis in the ordinary shares sold.
 This gain or loss will be long-term capital gain or loss if the ordinary shares sold have been held
 for more than one year at the time of the sale or exchange. If the U.S. Holders holding period on the
 date of the sale or exchange is one year or less, such gain or loss will be a short-term capital gain
 or loss. Under current law, any long-term capital gains realized by an individual U.S. Holder are subject
 to U.S. federal income tax generally at a 15% tax rate. Any short-term capital gains are taxed at the
 ordinary income tax rates. In general, any capital gain recognized by a U.S. Holder upon the sale or
 exchange of our ordinary shares will be treated as U.S.-source income for U.S. foreign tax credit purposes.
 See also Israeli Taxation  Capital Gains Tax Applicable to Resident and Non-Resident Shareholders
 for a discussion of taxation by Israel of capital gains realized on sales of capital assets.

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Any capital loss realized upon the sale, exchange
 or other disposition of our ordinary shares generally will be deductible only against capital gains
 and not against ordinary income, except that in the case of non-corporate U.S. Holders, a capital loss
 is deductible in a given tax year to the extent of capital gains plus ordinary income up to $3,000.

A U.S. Holders tax basis in its ordinary shares
 generally will be equal to the purchase price paid therefor by such holder. The holding period of each
 ordinary share owned by a U.S. Holder will begin on the day following the date of the U.S. Holders
 purchase of such ordinary share and will include the day on which the ordinary share is sold by such
 holder.

Passive Foreign Investment Company Status

Generally, a foreign corporation is treated as
 a PFIC for U.S. federal income tax purposes for any tax year if, in such tax year, either (i) 75% or
 more of the corporations gross income is passive (the Income Test), or (ii) the average percentage
 of its assets during such tax year which produce, or are held for the production of, passive income
 (determined by averaging the percentage of the fair market value (or adjusted tax basis in certain circumstances)
 of its total assets which are passive assets as of the end of each quarter of such year) is 50% or more
 (the Asset Test). If a non-U.S. corporation is a PFIC, a U.S. shareholder thereof will be required
 to report any gain on the sale of the shares in such corporation as ordinary income rather than capital
 gain and to compute the tax liability on such gain, as well as on certain dividends and other distributions,
 as if the income has been earned ratably over each day in the U.S. shareholders holding period for
 such stock. The U.S. shareholder will be subject to the highest ordinary income tax rate for each taxable
 year in which the corporation was a PFIC in which the income was treated as having been earned, regardless
 of the tax rate otherwise applicable to such shareholders income during such taxable years. In addition,
 the federal income tax attributable to such prior years will be increased by an interest factor. Furthermore,
 if a corporation is a PFIC, a U.S. shareholder who inherits shares in such corporation from a decedent
 generally is denied the normally available step-up in the tax basis in such shares to their fair market
 value on the date of death and instead will hold such shares with a tax basis equal to the decedents
 tax basis.

Certain non-U.S. corporations that otherwise would
 fall within the Income and/or Asset Test are not treated as PFICs during the start-up year of such corporations
 or for the year in which any such corporation disposes of its active trade or business.

A U.S. shareholder who beneficially owns shares
 of a PFIC must file Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified
 Electing Fund) with the IRS for each tax year it holds shares in a PFIC. This form describes any distributions
 received with respect to these shares and any gain realized upon the disposition of these shares.

For any tax year in which a non-U.S. corporation
 is a PFIC, a U.S. shareholder may make an election (a QEF Election) to treat such shareholders shares
 as an interest in a qualified electing fund. Upon such election the U.S. shareholder would be required
 to include in income currently its proportionate share of the corporations earnings and profits for
 all tax years in which the corporation was a PFIC, regardless of whether the corporation made any distributions
 of earnings and profits to the U.S. shareholder. Any gain subsequently recognized upon the sale by the
 electing U.S. shareholder of its shares in the corporation generally would be taxed as capital gain
 and any purchaser of the QEF shares from a decedent would obtain basis step-up in such shares to their
 fair market value on the date of death (or an alternate valuation date, if applicable). A QEF Election,
 once made, cannot be revoked without the permission of the IRS.

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As an alternative to a QEF Election, a U.S. shareholder
 in a PFIC generally may elect to mark its PFIC shares to market annually, recognizing ordinary income
 or loss (subject to certain limitations) equal to the difference between the fair market value of the
 ordinary shares and their adjusted tax basis. Losses would be allowed only to the extent of any net
 mark-to-market gain accrued under the election. If a mark-to-market election with respect to PFIC shares
 is in effect on the date of a U.S. shareholders death, the normally available step-up in tax basis
 of the shares to their fair market value will not be available. Rather, the tax basis of the shares
 in the hands of a U.S. shareholder who acquired the shares from a decedent will be equal to the decedents
 tax basis in such shares.

We believe that we were not a PFIC in 2003 or any
 prior year because we met neither the Income nor the Asset Test for each such year. In addition, we
 believe that in connection with the disposition of substantially all of our business assets in 2002
 and 2003 for cash we met the exception from the PFIC rules for corporations disposing of one or more
 active businesses (described above). Our management does not expect us to become a PFIC in the future.
 However, the factual determination of our PFIC status is made annually and thus may be subject to change,
 and the IRS may disagree with our determinations regarding our PFIC status. Therefore, there can be
 no assurance that we will not become a PFIC in 2004 or in a future year (or that we were not a PFIC
 in a prior year).

If we were treated as a PFIC for U.S. federal income
 tax purposes for any year during a U.S. Holders holding period of our ordinary shares and the U.S.
 Holder did not make a QEF Election or a mark-to-market election as described above, any gain recognized
 by the U.S. Holder upon the sale of ordinary shares (or the receipt of certain distributions) would
 be treated as ordinary income. This income would be allocated over the U.S. Holders holding period
 with respect to its ordinary shares and an interest charge would be imposed on the amount of deferred
 tax on the income allocated to prior tax years. Such treatment could significantly reduce any return
 for a U.S. Holder with respect to its investment in the Company.

Many aspects of the PFIC rules are complex and
 their application to the Company is not completely clear. Furthermore, future administrative guidance,
 possibly with retroactive effect, may affect our status under the PFIC rules. WE URGE ANY PROSPECTIVE
 PURCHASER OF OUR ORDINARY SHARES TO CONSULT ITS OWN COUNSEL REGARDING THE POSSIBLE EFFECT, IF ANY, OF
 THE PFIC RULES UPON SUCH PURCHASER.

Information Reporting and Backup Withholding

Any dividends paid on our ordinary shares to U.S.
 Holders through a U.S. financial institution may be subject to U.S. federal tax information reporting
 requirements. In addition, if a U.S. Holder fails to certify on Form W-9 such holders social security
 number (or the federal employer identification number, if applicable), or upon notification by the IRS
 in certain circumstances, the financial institution paying the dividends on our behalf will be required
 to withhold U.S. backup withholding tax (currently at the tax rate of 28%). Furthermore, the proceeds
 of a U.S. Holders sale of our ordinary shares may be subject to tax information reporting and the U.S.
 backup withholding tax. Backup withholding generally will not apply if the U.S. Holder (i) is a corporation
 or other exempt recipient, or (ii) provides on Form W-9 such holders U.S. taxpayer identification number,
 certifies as to no loss of exemption from backup withholding and otherwise complies with any applicable
 backup withholding requirements. Any amounts withheld under the U.S.
 backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holders regular
 U.S. federal income tax liability, provided the required information is furnished to the IRS.

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Certain Israeli Tax Considerations

The following summary describes the current tax
 structure applicable to companies in Israel, with special reference to its effect on us. It also discusses
 Israeli income tax consequences material to persons purchasing our ordinary shares. To the extent that
 the summary is based on new tax legislation yet to be judicially or administratively interpreted, we
 cannot be sure that the views expressed will be consistent with any future interpretation. The summary
 is not intended, and should not be considered, to be legal or professional tax advice and does not exhaust
 all possible tax considerations. Therefore, you should consult your own tax advisor about the particular
 tax consequences of an investment in our ordinary shares.

Tax Reform in Israel

On January 1, 2003 a comprehensive tax reform took
 effect in Israel. Pursuant to the reform, resident companies are subject to Israeli tax on income accrued
 or derived in Israel or abroad. In addition, the concept of controlled foreign corporation was introduced
 according to which an Israeli company may become subject to Israeli taxes on certain income of a non-Israeli
 subsidiary if the subsidiarys primary source of income is passive income (such as interest, dividends,
 royalties, rental income or capital gains). The tax reform also substantially changed the system of
 taxation of capital gains.

General Corporate Tax Structure

Israeli companies are subject to tax at the rate
 of 36% of taxable income. However, the effective tax rate payable by a company that derives income from
 an approved enterprise may be considerably less, as further discussed below. Currently we do not have
 an approved enterprise status.

Tax Benefits under the Law for the Encouragement of Capital Investments, 1959

The Law for the Encouragement of Capital Investments,
 1959, provides that upon application to the Investment Center of the Ministry of Industry and Commerce
 of the State of Israel, a proposed capital investment in eligible facilities may be designated as an
 Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment
 program delineated both by its financial scope, including its capital sources, and by its physical characteristics,
 such as the equipment to be purchased and utilized under the program. The tax benefits derived from
 any certificate of approval relate only to taxable income derived from growth in manufacturing revenues
 attributable to the specific Approved Enterprise. If a company has more than one approval or only a
 portion of its capital investments are approved, its effective tax rate is the result of a weighted
 combination of the applicable rates. The tax benefits under the law are not available for income derived
 from products manufactured outside of Israel.

Taxable income of a company derived from an Approved
 Enterprise is subject to tax at the maximum rate of 25%, rather than the usual rate of 36%, for the
 benefit period. This period is ordinarily seven years beginning with the year in which the Approved
 Enterprise first generates taxable income, and is limited to 12 years from when production begins or
 14 years from the date of approval, whichever is earlier. A company owning an Approved Enterprise may
 elect to receive an alternative package of benefits, which allows the company to receive tax exemptions
 rather than grants. Under the alternative package, the companys undistributed income derived from an
 Approved Enterprise will be exempt from tax for a period of between two and ten years from the first
 year of taxable income, depending on the geographic location of the Approved Enterprise within Israel,
 and the company will be eligible for the tax benefits under the law for the remainder of the benefit
 period.

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The Investment Center bases its decision of whether
 to approve or reject a companys application for designation as an Approved Enterprise on criteria described
 in the law and related regulations, the then prevailing policy of the Investment Center and the specific
 objectives and financial criteria of the applicant. Therefore, a company cannot be certain in advance
 whether its application will be approved. In addition, the benefits available to an approved enterprise
 are conditional upon compliance with the conditions stipulated in the law and related regulations and
 the criteria described in the specific certificate of approval. If a company violates these conditions,
 in whole or in part, it would be required to refund the amount of tax benefits and any grants received
 plus an amount linked to the Israeli consumer price index and interest.

Certain of BVRs affiliates enjoyed Approved Enterprise
 benefits. Currently, neither the Company nor any of its affiliates enjoys Approved Enterprise benefits.

Tax Benefits for Research and Development

Israeli tax law allows a tax deduction in the year
 incurred for expenditures, including capital expenditures, in scientific research and development projects,
 if the expenditures are approved by the relevant Israeli government ministry and the research and development
 is for the promotion of the enterprise. Expenditures not so approved are deductible over a three-year
 period.

Tax Benefits Under the Law for the Encouragement of Industry (Taxes), 1969

According to the Law for the Encouragement of Industry
 (Taxes), 1969, an industrial company is a company resident in Israel, at least 90% of the income of
 which, exclusive of income from defense loans, capital gains, interest and dividends, is derived from
 an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose primary
 activity in a given tax year is industrial production activity. We believe that we currently qualify
 as an industrial company under this definition.

Under the law, industrial companies are entitled to the following preferred corporate
 tax benefits:

- deduction of purchases of know-how and patents over an eight-year period for tax purposes;
- the option to file a consolidated tax return with related Israeli industrial companies that satisfy conditions described in the law; and
- accelerated depreciation rates on equipment and buildings.

Our status as an industrial company is not contingent
 upon the receipt of prior approval from any governmental authority. However, entitlement to certain
 benefits under the law is conditioned upon receipt of approval from Israeli tax authorities. Also, the
 Israeli tax authorities may determine that we do not qualify as an Industrial
 Company, which would entail the loss of the benefits that relate to this status. In addition, we might
 not continue to qualify for Industrial Company status in the future, in which case the benefits described
 above might not be available to us in the future.

- 54 -

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Special Provisions Relating to Taxation Under Inflationary Conditions

The Income Tax Law (Inflationary Adjustments),
 1985 represents an attempt to overcome the problems presented to a traditional tax system by an economy
 undergoing inflation. The law is highly complex. Its features that are material to us can be described
 as follows:

- Under a special tax adjustment for the preservation of equity, corporate assets are classified broadly as either (a) fixed or inflation immune assets or (b) non-fixed or soft assets. If the corporations equity exceeds the depreciated cost of a companys fixed assets, the company may take a deduction which takes into account the effect of the annual inflationary change on such excess in any tax year of up to 70% of income with the excess being carried forward on a linked basis. The amount of the deduction is determined by multiplying this excess by the annual rate of inflation. If the depreciated cost of fixed assets exceeds a companys equity, then this excess is multiplied by the annual rate of inflation. The resulting amount is added to taxable income.
- Subject to limitations described in the law, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the increase of the Israeli consumer price index.
- Real gains, excluding inflationary gains, on traded securities held by companies that are not dealers in securities are taxable under the law, subject to rules that were modified as of January 1, 1999.
- In 2001, new regulations were enacted regarding inflationary adjustments. Pursuant to these regulations, the minister of finance is entitled to suspend the application of the law of inflationary adjustment with respect to a tax year, if the inflation rate for that tax year was less than 3 percent in the previous year.

Capital Gains Tax Applicable to Resident and Non-Resident Shareholders

Israeli law generally imposes a capital gains tax
 on the sale of capital assets located in Israel, including shares in Israeli resident companies, by
 both residents and non-residents of Israel, unless a specific exemption is available or unless a treaty
 between Israel and the country of the non-resident provides otherwise. Regulations promulgated under
 the Israeli Income Tax Ordinance provided for an exemption from Israeli capital gains tax for gains
 accrued before January 1, 2003 and derived from the sale of shares of industrial companies that are
 traded on specified non-Israeli markets, including The Nasdaq Stock Market, provided that the sellers
 purchased their shares either in the companys initial public offering or in public market transactions
 thereafter. This exemption does not apply to shareholders who are in the business of trading securities,
 or to shareholders that are Israeli resident companies subject to the Income Tax (Adjustments for Inflation)
 Law  1985. We believe that we are currently an industrial company, as defined in the Encouragement
 of Industry (Taxes) Law  1969. The status of a company as an industrial company may be reviewed by
 the tax authorities from time to time. There can be no assurance that the Israeli tax authorities will
 not deny our status as an industrial company, including with retroactive effect.

- 55 -

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On January 1, 2003, the Law for Amendment of the
 Income Tax Ordinance (Amendment No. 132), 5762-2002, known as the tax reform, came into effect thus
 imposing capital gains tax at a rate of 15% on gains derived on or after January 1, 2003 from the sale
 of shares in Israeli companies publicly traded on a recognized stock exchange outside of Israel. This
 tax rate does not apply to: (1) dealers in securities; (2) shareholders that report in accordance with
 the Income Tax Law (Inflationary Adjustment)  1985; or (3) shareholders who acquired their shares prior
 to an initial public offering. The tax basis of shares acquired prior to January 1, 2003 will be determined
 in accordance with the average closing share price in the three trading days preceding January 1, 2003.Non-Israeli residents will be exempt from Israeli capital gains
 tax on gains derived from the sale of shares publicly traded on the Nasdaq.Notwithstanding the foregoing, dealers in securities in Israel are taxed at regular tax rates applicable
 to business income. In any event, the provisions of the tax reform do not affect the exemption from
 capital gains tax for gains accrued before January 1, 2003, as described in the previous paragraph.

Taxation of Non-Resident Shareholders

Non-residents of Israel are subject to Israeli
 income tax on income accrued or derived from sources in Israel, including passive income such as dividends,
 royalties and interest. Under the United States-Israel Tax Treaty, on distributions of cash dividends
 to a U.S. Resident, Israeli income tax at the rate of 25% will be withheld at the source. The rate of
 such withholding tax will be reduced to 12.5% for dividends not generated by an Approved Enterprise
 (within the meaning of Israels Encouragement of Capital Investments Law (1959)) if the payee of the
 dividend is a U.S. Resident that is a U.S. corporation which beneficially owns 10% or more of our voting
 power throughout a certain period, and 15% for dividends paid by an Approved Enterprise that meets these
 conditions. To be eligible for these reduced withholding tax rates, the gross income of the payor corporation
 must meet certain requirements.

Foreign Exchange Regulations

Non-residents of Israel who hold our ordinary shares
 are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding
 up of our affairs, freely repatriable in non-Israeli currency at the rate of exchange prevailing at
 the time of conversion. However, Israeli income tax is required to have been paid or withheld on these
 amounts. In addition, the statutory framework for the potential imposition of exchange controls has
 not been eliminated, and may be restored at any time by administrative action.

Tax Ruling

In July 2001 we began a process of distributing
 certain of our assets to our shareholders. Since this distribution was done both by (i) in-kind transfer
 of securities of publicly-traded companies pro rata among our shareholders and (ii) the sale of securities
 or assets of privately-held companies and the resulting distribution of cash to our shareholders, we
 requested a tax ruling from the Israeli Income Tax Authority which would permit us to make such distributions
 under a special arrangement for us and for our shareholders. We reached an arrangement with the Israeli
 Income Tax Authority, which was approved by our shareholders on April 2, 2002.

- 56 -

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The Tax Ruling grants a special concession to us,
 allowing us to set off losses from the distribution of securities of publicly-traded companies against
 capital gains from the sale of securities in privately-held companies. We are liable for Israeli corporate
 taxes at the regular rate of 36% on our net income. The provisions of this special concession were contingent
 on three conditions: (a) our completion of the liquidation of our assets within two years of the date
 of the distribution of our shares in Nexus, which occurred in July, 2001, or a later date, pursuant
 to the approval of the Israel Tax Authority, (b) our receipt of net income of at least $5,500,000 from
 the distribution of our assets, and (c) our payment of a minimum of $2,000,000 in Israeli taxes regarding
 the distribution of our assets. The Company fully complied with all these conditions.

Pursuant to the Tax Ruling, each of our shareholders
 will be viewed by the tax authorities as disposing of their shares in consideration for the value of
 assets distributed to them by us, whether in the form of a distribution of securities or a cash distribution
 on the sale of assets. This deemed disposition is a potential taxable event in Israel. The Ruling provides
 that the consideration received by each shareholder will be deemed to include such shareholders pro
 rata share of the tax paid by us at the corporate level, and the shareholder will then receive a credit
 for that pro rata share of corporate tax on any tax it is liable to pay. The Israel Tax Authority is
 entitled to determine a higher value for the consideration received by each shareholder for its shares,
 if it is believed that the distribution was not done at fair market value.

Shareholders will be liable for capital gains tax
 on the deemed disposition of our shares depending on the personal facts and circumstances of each. Tax
 liability is calculated based on the deemed consideration received from us, minus the total amount that
 the shareholder paid for his shares. As noted above, each shareholder receives a tax credit for its
 pro rata share of the tax we paid at the corporate level. The Tax Ruling provides that we will withhold
 taxes at a rate of 5% of each distribution for the public shareholders. At the time of our distribution
 of the ordinary shares of Nexus Telocation Systems Ltd. pro-rata among the shareholders in July 2001,
 we treated the distribution as a dividend-in-kind, and withheld 25% of the Nexus distribution in anticipation
 of a withholding tax obligation at that rate. Pursuant to the approval and finalization of the Tax Ruling,
 we have paid as of September 2002 5% of the amount we distributed in satisfaction of our withholding
 tax obligations and transferred the remainder to persons from whom we deducted the 25% at the time of
 the Nexus distribution. According to the Nexus tax ruling, we were required to pay the Israeli Income
 Tax Authority $192,000 in February 2004. According to a tax ruling in January 2004, we are no longer
 entitled to utilize tax loss carry forwards for years ending on or before December 31, 2003.

A shareholder who asserts that all or a portion
 of the taxes withheld by us should be refunded, can approach the tax authority for a refund on an individual
 basis.

Under the Tax Ruling, interested party shareholders
 will not be exempt from Israeli tax on any gains received from the eventual sale of the securities such
 shareholders receive as a distribution from us. Yaron Sheinman and Aviv Tzidon, who are the founders
 and former directors of B.V.R., will calculate their taxes differently, as there is a component based
 on the share price of shares they owned prior to the spin-off of B.V.R. Systems (1998) Ltd. in 1998.
 Under certain circumstances, they may not be liable for any Israeli capital gains tax.

- 57 -

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Documents on Display

We are subject to the informational requirements
 of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports
 and other information with the SEC. These materials, including this Annual Report and its exhibits,
 may be inspected and copied at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington,
 D.C. 20549 and at the SEC's regional office at 500 West Madison Street, Suite 1400, Chicago, Illinois
 60661. Copies of these documents are also available at the SECs website, http://www.sec.gov. Copies
 of the material may be obtained by mail from the public reference branch of the Securities and Exchange
 Commission at this address at rates specified by the Securities and Exchange Commission. Please call
 the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference
 room.

Item 11. Quantitative and Qualitative Disclosure of 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.

We develop and manufacture products in Israel and
 intend to sell them in the U.S., Israel and other countries. As a result, our financial results could
 be affected by factors such as changes in foreign currency exchange rates or weak economic conditions
 in foreign markets. As most of our sales are made in dollars, a strengthening of the dollar could make
 our products less competitive in foreign markets. In addition, the lower value of the dollar compared
 to the NIS increases the operating expenses reported in our financial statements. Our interest income
 is sensitive to changes in the general level of interest rates in the U.S. and Israel since the majority
 of our investments are in short-term instruments. Due to the nature of our short-term investments, we
 do not believe that there is any material market risk exposure. Therefore, no quantitative tabular disclosures
 are required.

We believe that the rate of inflation in Israel
 will have a minor effect on our business to date. However, our dollar costs in Israel will increase
 if inflation in Israel exceeds the devaluation of the NIS against the dollar or if the timing of such
 devaluation lags behind inflation in Israel.

Item 12. Description of Securities Other than Equity Securities.

Not applicable.

- 58 -

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use
 of Proceeds.

Not applicable.

Item 15. Controls and Procedures

As required by rule 13a-15(b),
 the Company, including the Chief Executive Officer and Chief Financial Officer (CFO), conducted an evaluation
 as of the end of the period covered by this report, of the effectiveness of the Companys disclosure
 controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief
 Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures
 were effective as of the end of the period covered by this report. As required by Rule 13a-15(d), the
 Companys management, including the Chief Executive Officer also conducted an evaluation of the Companys
 internal control over financial reporting to determine whether changes occurred during the period covered
 by this report that have materially affected, or are reasonably likely to materially affect, the Companys
 internal control over financial reporting. Based on that evaluation, there has been no such change during
 the period covered by this report.

It should be noted that
 any system of controls, however well designed and operated, can provide only reasonable, and not absolute,
 assurance that the objectives of the system will be met. In addition, the design of any control system
 is based in part upon certain assumptions about the likelihood of future events.

However, due to the limited
 size of the Companys staff, there is inherently a lack of segregation of duties related to the authorization,
 recording, processing and reporting of transactions. We periodically assess the cost versus benefit
 of adding the resources that would remedy this situation and currently, with the concurrence of the
 board of directors, do not consider the benefits to outweigh the costs of adding additional staff in
 light of the limited number of transactions related to the companys operations.

There were no significant
 changes in the Companys internal controls that occurred after the date we completed the evaluation
 that materially affected, or are reasonably likely to materially affect, the Companys internal controls
 over financial reporting.

Item 16.A -Audit Committee Financial
 Expert

Yossy Zaykovsky, a member of our Audit Committee,
 meets the criteria of an Audit Committee Financial Expert under the applicable rules and regulations
 of the SEC, and his designation as the Audit Committees Financial Expert has been ratified by the Board.

Item 16.B -Code of Ethics

We have adopted a code of business conduct and
 ethics that is applicable to all our directors, officers and employees including our principal executive,
 financial and accounting officers and persons performing similar functions. The code of ethics was approved
 by our Board and covers areas of professional and business conduct. It is intended to promote honest
 and ethical behavior, including fair dealing and the ethical handling of conflicts of interest.

The Company will provide a copy of the Code of
 Ethics to any person, without charge, addressed to the corporate secretary of the Company at our corporate
 headquarters in Tel Aviv, Israel.

- 59-

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Item 16.C Principal Accountant
 Fees and Services

Our 2001 and 2002 financial
  statements have been audited by Kost Forer & Gabbay and re-audited by Ziv
  Haft, Certified Public Accountants (Isr.), BDO Member Firm. Our 2003 financial
  statements have been audited by Ziv Haft. We paid our auditors the following
  fees for professional services in each of the last two fiscal years:

|                   | Year Ended December 31     
|------------------ | ---------------------------
|                   |                            
|                   | 2003                       
|                   |                            
|                   | (U.S. dollars in thousands)
|Audit Fees         | 35,000                     
|Audit-Related Fees |                            
|Tax Fees           | 19,953                     
|All Other Fees     | 12,183                     
|Total              | 37,136                     

Audit Fees are the aggregate fees billed for
 the audit of our annual financial statements. This category also includes services generally provided
 by the independent auditor, such as statutory audits required by the Office of the Chief Scientist and
 other Israeli government entities, consents and assistance with and review of documents filed with the
 SEC. Audit Related Fees are the aggregate fees billed for assurance and related services that are
 reasonably related to the performance of the audit and are not reported under Audit Fees. These fees
 include mainly accounting consultations regarding the accounting treatment of matters that occur in
 the regular course of business, implications of new accounting pronouncements and other accounting issues
 that occur from time to time. Tax Fees are the aggregate fees billed for professional services rendered
 for tax compliance and tax advice, other than in connection with the audit. Tax compliance involves
 preparation of original and amended tax returns, tax planning and tax advice. Other Fees relate to
 permissible services provided by the independent auditors that do not fall into the three above-mentioned
 categories.

Our Audit Committee has adopted a pre-approval
 policy for the engagement of our independent accountant to perform permitted audit and non-audit services.
 Under this policy, which is designed to assure that such engagements do not impair the independence
 of our auditors, the Audit Committee pre-approves annually a range of specific audit and non-audit services
 in the categories of Audit Service, Audit-Related Services, Tax Services and other services that may
 be performed by our independent accountants, and the maximum pre-approved fees that may be paid as compensation
 for each pre-approved service in those categories. Any proposed services exceeding the maximum pre-approved
 fees require specific approval by the Audit Committee.

Item 16.D Exemptions from the Listing
 Standards for Audit Committees

Not applicable to Registrant.

Item 16.E Purchases of Equity Securities
 by the Issuer and Affiliated Purchasers

Neither Technoprises nor any affiliated purchaser
 purchased any equity securities of Technoprises during 2003.

- 60 -

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Item 17. Financial Statements.

Not applicable.

Item 18. Financial Statements.

See Financial Statements attached.

Brightcom Technologies
  Ltd. was a significant equity investment of BVR for the years ended December
  31, 2002 and 2001. As such, under Rule 3-09 of Regulation S-X, we are required
  to provide separate audited financial statements of Brightcom Technologies Ltd.
  as of and for the years ended December 31, 2002 and 2001. The financial statements
  of Brightcom Technologies Ltd. included in this annual report on Form 20-F and
  in our annual report on Form 20-F for the year ended December 31, 2002 are unaudited.
  In 2003, Brightcom ceased its operations, it does not have active management
  in place and we could not get access to relevant materials, facts and details
  or get required explanations regarding certain issues that were unclear in order
  to complete an audit. Therefore, we could not obtain an audit of Brightcom's
  financial statements for the years ended December 31, 2002 and 2001. As a result,
  our annual reports on Form 20-F for the years ended December 31, 2003 and 2002
  are considered deficient.

Item 19. Exhibits.

(a)     Index to Financial
 Statements

|                                                                                          | Page 
|----------------------------------------------------------------------------------------- | -----
|                                                                                          |      
|Technoprises Ltd. Audited Consolidated
      Financial Statements                         |      
|Report of Registered Public Accounting Firm                                               | F-1  
|Consolidated Balance
      Sheets                                                         | F-2  
|Consolidated Statements
      of Operations                                               | F-4  
|Consolidated Statements
      of Changes in Shareholders Equity                          | F-5  
|Consolidated Statements
      of Cash Flows                                               | F-6  
|Notes to Financial
      Statements                                                       | F-9  
|                                                                                          |      
|Coresma Ltd. Unaudited Consolidated
      Financial Statements, as of December 31, 2003   |      
|Consolidated Balance
      Sheets                                                         | F-54 
|Consolidated Statements
      of Operations                                               | F-56 
|Consolidated Statements
      of Changes in Shareholders Equity                          | F-57 
|Consolidated Statements
      of Cash Flows                                               | F-58 
|Notes to Financial
      Statements                                                       | F-59 
|                                                                                          |      
|Coresma Ltd. Audited Consolidated
      Financial Statements, as of December 31, 2002     |      
|Report of Independent
      Auditors                                                      | F-75 
|Consolidated Balance
      Sheets                                                         | F-76 
|Consolidated Statements
      of Operations                                               | F-78 
|Consolidated Statements
      of Changes in Shareholders Deficiency                      | F-79 
|Consolidated Statements
      of Cash Flows                                               | F-80 
|Notes to Financial
      Statements                                                       | F-82 
|                                                                                          |      
|BrightCom Technologies Ltd. Unaudited Financial
      Statements, as of December 31, 2002 |      
|Consolidated Balance Sheets                                                               | F-99 
|Consolidated Statements of Operations                                                     | F-100
|Consolidated Statements of Changes
      in Shareholders Equity                          | F-101
|Consolidated Statements of Cash
      Flows                                               | F-102
|Notes to Financial Statements                                                             | F-103
|                                                                                          |      



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(b)     Exhibits

|Exhibit |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Number  | Description                                                                          
|        |                                                                                      
|1.1     | Articles of Association of the Company                                               
|4.1     | Letter Agreement Re: TV Gate Business, dated December 17, 2003, between              
|        | Comverse Ltd. and Prosper Abitbol on behalf of Apros & Chay Technoprises Ltd.        
|4.2     | Share Purchase Agreement, dated December 22, 2003, among BVR Technologies            
|        | Ltd., Technoprises Apros & Chay Ltd., Apros & Chay MB Ltd., Prosper Abitbol          
|        | and Avigdor Olshansky                                                                
|4.3     | Subscription Agreement, dated February 18, 2004, among the Company and the           
|        | subscribers listed therein                                                           
|4.4     | Form of C-2004-FEB A Warrant, dated February 18, 2004, issued by the Company         
|4.5     | Form of C-2004-FEB B Warrant, dated February 18, 2004, issued by the Company         
|4.6     | Form of C-2004-FEB C Warrant, dated February 18, 2004, issued by the Company         
|4.7     | Exclusive License Agreement, dated February 18, 2004, among Unicorp Ltd.,            
|        | Cat4view and Technoprises Apros & Chay Ltd.                                          
|4.8     | Letter Agreement, dated March 1, 2004, between Comverse Ltd. and Prosper             
|        | Abitbol                                                                              
|4.9     | Securities Purchase Agreement, dated April 16, 2004, among the Company and the       
|        | investors listed therein                                                             
|4.10    | Registration Rights Agreement, dated April 16, 2004, among the Company and the       
|        | investors listed therein                                                             
|4.11    | Letter Agreement, dated March 25, 2004, between the Company and Econor               
|        | Investments Corporation                                                              
|4.12    | Form of Class 2004-A Warrant, dated April 21, 2004, issued by the Company            
|4.13    | Term Sheet, dated April 22, 2004, among the Company, EVR and Araneo Ltd.             
|4.14    | Translation of Agreement dated May 20, 2004 between the Company and Bank Hapoalim    
|4.15    | Warrant to Purchase Ordinary Shares, dated May 20, 2004 issued to Bank               
|        | Hapoalim                                                                             
|4.16    | Joint Development and Technology Agreement, dated May 28, 2004, between              
|        | Lucent Technologies and the Company                                                  
|4.17    | Term Sheet, dated June 9, 2004, between the Company and Duncan Capital LLC           
|4.18    | Agreement dated February 17, 2004, among TCM, Dr. Levanon and Dr. Lossos             
|4.19    | Form of Convertible Note, dated July 23, 2004                                        
|8.1     | List of material subsidiaries and jurisdictions of incorporation                     
|10.1    | Consent of Zir Haft, Certified Public Accountants (Isr.), BDO Member Firm            
|10.2    | Consent of Barzily & Co.                                                             
|12.1    | Certification of Chief Executive Officer of the Registrant pursuant to Section 302   
|        | of the Sarbanes-Oxley Act of 2002.                                                   
|12.2    | Certification of Chief Financial Officer of the Registrant pursuant to Section 302 of
|        | the Sarbanes-Oxley Act of 2002.                                                      
|13.1    | Certification of Chief Executive Officer of the Registrant pursuant to Section 906   
|        | of the Sarbanes-Oxley Act of 2002.                                                   
|13.2    | Certification of Chief Financial Officer of the Registrant pursuant to Section 906 of
|        | the Sarbanes-Oxley Act of 2002.                                                      

- 62 -

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SIGNATURES

Pursuant to the requirements of Section 12 of the
 Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for
 filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned,
 thereunto duly authorized.

|Dated: August 15, 2004 |                   |                                             
|---------------------- | ----------------- | --------------------------------------------
|                       |                   |                                             
|                       | TECHNOPRISES LTD.
|                       |                   |                                             
|                       | By:               | /s/ Adam Ofek                               
|                       |                   |                                             
|                       |                   | Name: Adam Ofek                             
|                       |                   | Title: President and Chief Financial Officer

- 63 -

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|
|



TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)





2003 Annual Report











|
|
|
|
|



TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)





2003 CONSOLIDATED FINANCIAL STATEMENTS








TABLE OF CONTENTS





|                                              | Page
|--------------------------------------------- | ----
|                                              |     
|                                              |     
|REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM   | F-1 
|CONSOLIDATED FINANCIAL STATEMENTS:            |     
|Balance Sheets                                | F-2 
|Statements of Operations                      | F-4 
|Statements of Changes in Shareholders' Equity | F-5 
|Statements of Cash Flows                      | F-6 
|Notes to Financial Statements                 | F-9 







The amounts are stated in U.S. dollars ($).


______________________


_____________


______








|
|
|
|
|



REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and Board of Directors of


TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)





We have audited the accompanying consolidated balance sheet s of Technoprises Ltd. (formerly: B.V.R. Technologies Ltd.) (the Company) and its subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2003. 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 affiliate, the investment in which on the equity basis of accounting totaled $0 as of
December 31, 2003, and 2002, and the Companys share in the net loss of which totaled
  $1,060 thousand and $1,579 thousand for the years ended 2002 and 2001, respectively. These financial statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to amounts included for this certain affiliate, is based solely on the reports of the other auditors.





We conducted our audits in accordance with the standards of the Public Company Oversight Board (United States). 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 management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.





In our
opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and its subsidiary as of December 31, 2003 and 2002 and the related
consolidated results of operations, changes in shareholders' equity and cash flows each of the three years in the period ended December 31, 2003, in conformity with generally accepted accounting principles in Israel, which differ in certain respects from those followed in the United States, as described in Note 12 to the consolidated financial statements.








|Tel-Aviv, Israel | /s/ Ziv Haft                                 
|---------------- | ---------------------------------------------
|                 |                                              
|August 12, 2004  | Ziv Haft, Certified Public Accountants (Isr.)
|                 | BDO Member Firm                              




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TECHNOPRISES LTD.
 (Formerly: B.V.R. TECHNOLOGIES LTD.)
 (An Israeli Corporation)
 CONSOLIDATED BALANCE SHEETS





December 31,2003


2002ASSETS

(in thousands)CURRENT ASSETS:Cash and cash equivalents

$
485

$
2,435Accounts receivable and prepaid expenses (Note 3)


37


113Total current assets


522


2,548PROPERTY AND EQUIPMENT, NET (Note 5)


-


5Total assets

$
522

$
2,553


The accompanying notes are an integral part of the consolidated financial statements.





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December 31,2003

2002(in thousands)LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:Trade payables

$
136

$
10Other accounts payable and accrued expenses (Note 6)


374


659Total current liabilities


510


669ACCRUED SEVERANCE PAY, NET


-


4COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)SHAREHOLDERS EQUITY (Note 7):Share capital:Ordinary shares of NIS 0.5 par value:
Authorized: 30,000,000 shares at December 31, 2003 and 2002; Issued: 9,837,701 at              December 31, 2003 and 2002; Outstanding: 9,718,451at December 31, 2003 and 2002


1,838


1,838Additional paid-in capital


27,669


27,652Accumulated deficit


(29,193
)

(28,808
)Dividend declared


-


1,500Treasury stock (119,250 ordinary shares at December 31, 2003 and 2002)


(302
)

(302
)Total shareholders equity


12


1,880Total liabilities and shareholders equity

$
522

$
2,553








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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)






Year endedDecember 31,2003

2002

2001(in thousands, except per share amounts)Services to related parties

$
-

$
145

$
267Cost of services to related parties


-


125


206Gross profit


-


20


61General and administrative expenses


562


975


994Operating loss


(562
)

(955
)

(933
)Financial income (expenses), net (Note 10A)


(2
)

108


476Other income (expenses), net (Note 10B)


64


(1,792
)

(2,193
)Loss before taxes on income


(500
)

(2,639
)

(2,650
)Income tax benefits (expenses) (Note 9)


115


(11
)

(203
)Loss from continuing operations before equity inlosses of affiliates


(385
)

(2,650
)

(2,853
)Equity in losses of affiliates


-


2,407


2,576Loss from continuing operations


(385
)

(5,057
)

(5,429
)Loss from discontinued operations (Note 10C)


-


26


7,672Net loss

$
(385
)
$
(5,083
)
$
(13,101
)Basic and diluted net loss per share from:Continuing operations *

$
(0.04
)
$
(0.52
)
$
(0.56
)Discontinued operations

$
-

$
** -

$
(0.78
)Net loss

$
(0.04
)
$
(0.52
)
$
(1.34
)Weighted average number of shares outstanding (in thousands)


9,718


9,718


9,717





*
The loss per share is computed at NIS 0.5 par value of ordinary shares.**
Represents an amount lower than $ 0.01.


The accompanying notes are an integral part of the consolidated financial statements.





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TECHNOPRISES LTD.(Formerly: B.V.R. TECHNOLOGIES LTD.)(An Israeli Corporation)STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY





Number of    ordinary  
 shares

Sharecapital

Additionalpaid-incapital

Deferredstock compensation

Accumulateddeficit

Treasurystock

Dividenddeclared

Totalshareholders' equity(in thousands, except shares)Balance at  January 1, 2001

9,692,528

$
1,822

$
31,279

$
(149
)
$
(5,696
)
$
(302
)
$
-

$
26,954Spin-off of Nexus
Telocation Systems Ltd.

-


-


-


-


(4,928
)

-


-


(4,928
)Exercise of options

144,000


16


-


-


-


-


-


16Deferred stock compensationon repriced options

-


-


103


(103
)

-


-


-


-Amortization of deferred stockcompensationon repriced options

-


-


-


252


-


-


-


252Net loss

-


-


-


-


(13,101
)

-


-


(13,101
)Balance at December 31, 2001

9,836,528


1,838


31,382


-


(23,725
)

(302
)

-


9,193Dividend declared

-


-


(1,500
)

-


-


-


1,500


-Spin-off of Vi[z]Rt Ltd.

-


-


(2,230
)

-


-


-


-


(2,230
)Exercise of options

1,173


*-


-


-


-


-


-


-Net loss

-


-


-


-


(5,083
)

-


-


(5,083
)Balance at December 31, 2002

9,837,701


1,838


27,652


-


(28,808
)

(302
)

1,500


1,880Dividend paid

-


-


17


-


-


-


(1,500
)

(1,483
)Net loss

-


-


-


-


(385
)

-


-


(385
)Balance at December 31, 2003

9,837,701

$
1,838

$
27,669

$
-

$
(29,193
)
$
(302
)
$
-

$
12





*  Represents an amount lower than $1 thousand.





The accompanying notes are an integral part of the consolidated financial statements.





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TECHNOPRISES LTD.(Formerly: B.V.R. TECHNOLOGIES LTD.)(An Israeli Corporation)


CONSOLIDATED STATEMENTS OF CASH FLOWS








Year ended December 31,2003

2002

2001(in thousands)Cash flows from operating activities:Net loss

$
(385
)
$
(5,083
)
$
(13,101
)Adjustments required to reconcile net loss to net cash used in operating activities (A)


(132
)

4,289


12,978Net cash used in operating activities


(517
)

(794
)

(123
)Cash flows from investing activities:Purchase of property and equipment


-


(1
)

(5
)Proceeds from sale of affiliates


20


-


-Proceeds from sale of property and equipment


1


15


4Proceeds from sale of trade investments


29


-


-Investment in affiliates


-


(548
)

(2,000
)Investment in long term loans, convertible loans andconvertible debentures granted to affiliates


-


(15
)

(3,450
)Proceeds from short-term loan to BVR-S, net


-


-


634Net cash provided by (used in) investingactivities


50


(549
)

(4,817
)Cash flows from financing activities:Proceeds from exercise of options


-


*-


16Decrease in receivable related to sale of building


-


-


950Short-term bank loans, net


-


-


(1
)Dividend paid


(1,483
)

-


-Net cash provided by (used in) financingactivities


(1,483
)

-


965Decrease in cash and cash equivalents


(1,950
)

(1,343
)

(3,975
)Cash and cash equivalents at the beginning of the year


2,435


3,778


7,753Cash and cash equivalents at the end of the year

$
485

$
2,435

$
3,778





* Represents an amount lower than $ 1 thousand.








The accompanying notes are an integral part of the consolidated financial statements.


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TECHNOPRISES LTD.
(Formerly: B.V.R. TECHNOLOGIES LTD.)
(An Israeli Corporation)CONSOLIDATED STATEMENTS OF CASH FLOWS








A.  ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:





|                                                                  |  | Year ended December 31,
|----------------------------------------------------------------- |  | -----------------------
|                                                                  |  |                        
|                                                                  |  | 2003                   
|                                                                  |  |                        
|                                                                  |  | (in thousands)         
|                                                                  |  |                        
|Equity in losses of affiliates                                    |  | $                      
|Gain from sale of trade investments                               |  |                        
|Loss on sale of property and equipment                            |  |                        
|Gain from sale of affiliates                                      |  |                        
|Gain on issuance of shares to a third party by affiliates         |  |                        
|Depreciation and impairment of property andequipment              |  |                        
|Interest on long-term loans and convertible loans toaffiliates    |  |                        
|Accrued severance pay, net                                        |  |                        
|Amortization of deferred stock compensation onrepriced options    |  |                        
|Impairment of investment in affiliates                            |  |                        
|Decrease in accounts receivable and prepaid expenses              |  |                        
|Increase in trade payables                                        |  |                        
|Increase (decrease) in other accounts payable andaccrued expenses |  |                        
|                                                                  |  |                        
|                                                                  |  | $                      
|                                                                  |  |                        







B.  SUPPLEMENTAL DISCLOSURE OF CASH FLOWS ACTIVITIES:





|                                   |  | Year ended December 31,
|---------------------------------- |  | -----------------------
|                                   |  |                        
|                                   |  | 2003                   
|                                   |  |                        
|                                   |  | (in thousands)         
|                                   |  |                        
|Net cash paid during the year for: |  |                        
|Interest                           |  | $                      
|                                   |  |                        










The accompanying notes are an integral part of the consolidated financial statements.


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TECHNOPRISES LTD.
(Formerly: B.V.R. TECHNOLOGIES LTD.)
(An Israeli Corporation)CONSOLIDATED STATEMENTS OF CASH FLOWS








C.  NON-CASH ACTIVITIES:





|                                              |  | Year ended December 31,
|--------------------------------------------- |  | -----------------------
|                                              |  |                        
|                                              |  | 2003                   
|                                              |  |                        
|                                              |  | (in thousands)         
|                                              |  |                        
|1.Investments in an affiliate                 |  | $                      
|Spin-off of Nexus Telocation Systems Ltd.     |  |                        
|                                              |  |                        
|                                              |  | $                      
|                                              |  |                        
|2.Other accounts payable and accrued expenses |  | $                      
|Spin-off of Nexus Telocation Systems Ltd.     |  |                        
|                                              |  |                        
|                                              |  | $                      
|                                              |  |                        
|3.Investment in an affiliate                  |  | $                      
|Spin-off of Vi[z]Rt Ltd.                      |  |                        
|                                              |  |                        
|                                              |  | $                      
|                                              |  |                        
|4.Investments in affiliates                   |  | $                      
|Other accounts payable and accrued expenses   |  |                        
|                                              |  |                        
|                                              |  | $                      
|                                              |  |                        




The accompanying notes are an integral part of the consolidated financial statements.





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TECHNOPRISES LTD.(Formerly: B.V.R. TECHNOLOGIES LTD.)(An Israeli Corporation)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|NOTE 1 - GENERAL: | 
|----------------- | 
|                  | 
|A.                | 
|                  | 
|                  | 
|                  | 
|                  | 
|                  | 
|                  | 
|                  | 
|                  | 





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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1 - GENERAL (cont.):


|A. |  | (cont.):
|-- |  | --------
|   |  |         
|   |  | 3)      
|   |  |         
|   |  |         
|   |  | 4)      
|   |  |         
|   |  |         
|   |  |         
|   |  |         








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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 - GENERAL (cont.):





|A. |  | (cont.): |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | -------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | 4)       | (cont.):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  |          | The TVGate platform is based on the concept of "one management, one provisioning, one user profile database", while complying with all "Telco grade" requirements. TVGate offers a selection of modular interactive messaging services, including: TV E-mail (T-mail), TV Fax (T-Fax), TV-SMS, TV-Chat, TV-Instant Messaging, TV-Telephony, TV-Voicemail and TV Picture/Video mail.                                                                                                                                                                                                                                  
|   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | 5)       | On March 3, 2004, the Company completed the private placement of an aggregate of $750 thousand of shares and warrants (as part of the 88,539,309 shares that were issued on February 18, 2004) (see also Note 7G and 7M1).                                                                                                                                                                                                                                                                                                                                                                                           
|   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | 6)       | On April 21, 2004, the Company completed the private placement of an aggregate of $2,250 thousand of shares and warrants (see also Note 7H and 7M2).                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | 7)       | On April 26, 2004, the Company changed its name from B.V.R Technologies Ltd. to Technoprises Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | 8)       | On April 22, 2004, the Company entered into a term sheet with Araneo Ltd. (Araneo), pursuant to which the Company agreed to acquire 100% of the issued and outstanding share capital of Araneo, a manufacturer of IP-based television and Video On Demand (VOD) set-top boxes, using the Linux operating system. Araneo provides a high-performance user-friendly consumer IP TV box that maintains the television experience by transparently connecting TV to the Internet.                                                                                                                                      
|   |  |          | In consideration for all the outstanding shares of Areneo, the Company will issue to the current Araneo's shareholders ordinary shares of the Company with a market value of $2,000 thousand.                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |  |          | The number of ordinary shares issued will be determined by the average trading price of the Companys stock within the 30 days following the closing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |  |          | Since the shares of Technoprises are thinly traded  Technoprises
expects to value the transaction based on the price of shares recently sold in a private offering to outside investors at $0.09 per share.
The Company expects the investment in Araneo will be recorded for accounting purposes
at approximately  $750 thousand. Although the final purchase price as not
yet been determined, the Company expects to charge approximately $727 thousand to the purchased in-process research and development since Araneos technology did not reach technological feasibility and has no alternative future uses.
|   |  |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      






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TECHNOPRISES LTD.
(Formerly: B.V.R. TECHNOLOGIES LTD.)
(An Israeli Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 - GENERAL (cont.):





|A. |  | (cont.):
|-- |  | --------
|   |  |         
|   |  | 9)      
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  | 10)     
|   |  |         








F-12




TECHNOPRISES LTD.
(Formerly: B.V.R. TECHNOLOGIES LTD.)
(An Israeli Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - GENERAL (cont.):





|A. |  | (cont.):
|-- |  | --------
|   |  |         
|   |  | 10)     
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  |         
|   |  | 11)     









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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





| |  | 12) |  | On June 22, 2004 the Company signed an agreement to issue 7,000,000 ordinary
shares to several consultants in exchange for their services. The Company agreed
to file a registration statement within 90 days from the closing in order to
register the shares. The 7,000,000 shares were issued on July 27, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | 13) |  | On April 27, 2004 the Company established Technoprises U.S.A. Inc., a wholly
owned subsidiary, which was incorporated in the United States. Technoprises
U.S.A. will concentrate the Company's activity in the U.S. market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | 14) |  | On May 11, 2004, the Company signed a term sheet with Econor for the
purchase of up to $5,000 thousand worth ordinary shares from time to time over
the course of 24 months after an effective registration of the shares. The
Company is entitled to request an equity investment by Econor during the 24
month period, pursuant to which the Company will issue ordinary shares to Econor
with an aggregate purchase price equal to the equity investment, subject to the
market price and associated fees. Such issuance shall be subject to certain
restrictions. The market price shall be the lowest daily volume weighted average
price of the ordinary shares during the five consecutive trading days beginning
on the first trading day after the request. The purchase price shall be 98% of
the market price. Econor or its assignees shall receive 5% of the gross proceeds
of every issuance. Upon the closing of the transaction, the Company shall issue
Econor $250 thousand worth of ordinary shares.









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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








NOTE 1 - GENERAL (cont.):


|B.Definitions:     |   |                                                                                                                                                                                                                                                                        
|------------------ | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |   |                                                                                                                                                                                                                                                                        
|Subsidiary         | - | A company that is controlled by the Company, when more than 50% of the voting equity is owned by the Company (either directly or indirectly).                                                                                                                          
|                   |   |                                                                                                                                                                                                                                                                        
|Affiliated company | - | A company that is not a subsidiary, in which the Company has voting rights and rights to profits, given that the Company can exercise significant influence over the operating and financial policies of these companies.                                              
|                   |   |                                                                                                                                                                                                                                                                        
|Related parties    | - | As defined in Opinion 29 of the Institute of Certified Public Accountants in Israel. The Group companies transact with companies that are related parties, in the ordinary course of business. Balances and transactions with related parties are presented in Note 11.







NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:





The consolidated financial statements of the Company conform with generally accepted accounting principles in Israel (Israeli GAAP), which differ in certain aspects from those followed in the United States (U.S. GAAP), as described in Note 12.





As of 2004 onward, the Company will prepare its financial statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP).





|A. |  | Use of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | The preparation of the financial statements in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.                                                                                                                                                                                   
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|B. |  | Financial statements in U.S. dollars:                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |  | Since most of the Company's revenues are generated in U.S. dollars and its shares are traded and listed in the Over-the-Counter
Bulletin Board Market in the United States (under the symbol TNOLE.OB - formerly BVRTF.OB),
the Company elected to adjust its financial statements according to the changes in the exchange rate of the U.S. dollar,
in conformity with Section 29a and 29b, respectively, of Opinion 36 of the Institute of Certified Public Accountants in Israel.






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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.):





C.

Principles of consolidation:The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary - EVR. Intercompany balances and transactions have been eliminated upon consolidationD.

Changes in the basis of presentation:As a result of a probable plan of liquidation,
the Company adopted a liquidation basis of accounting in its financial
statements for the year ended December 31, 2002. Under this basis of accounting,
assets generally were stated at their estimated net realizable values and
liabilities generally were stated at their anticipated settlement amounts. As a
result of a series of transactions described in Note 1A, the Company has
re-adopted accounting principles applicable to going concern entities. The
differences between the abovementioned two methods is not material for the yeaqr
ended 2002.E.

Cash equivalents:Cash equivalents are unrestricted short-term highly liquid investments that are readily convertible to cash, with original maturities of three months or less.F.

Investments in affiliates:Investments in companies, in which the Company can exercise significant influence over operating and financial policy (generally affiliates, entities in which the Company holds 20% to 50% of ownership or voting rights), are presented according to Israeli Accounting Standard No. 68, using the equity method of accounting.Goodwill is amortized by the straight-line method over the estimated useful life, which is 10 years.
From time to time, the Company reviews its investments in order to identify if there has been a decrease in their value, which is not of a temporary nature. Such a review is performed when there is evidence that the value of investments has been impaired, including a decline in stock market prices, the investee company's sequential loss, the segment in which the investee company operates, the value of the goodwill aggregated in the investment and other parameters. The provision for impairment of the value of these investments amounted to $ 0, $1,701 and $2,153 thousand in the years ended December 31, 2003, 2002 and 2001, respectively, and were charged to the statement of operations as other expenses.The Company discontinues applying the equity method when its investment is reduced to zero and it has not guaranteed obligations of the affiliate or
otherwise comm itted to provide further financial support to the affiliate.









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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.): F.

Investments in affiliates (cont.):Investments in privately held companies, in which the Company does not have the ability to exercise significant influence over operating and financial policy, are recorded at the lower of cost or estimated fair value.G.

Property and equipment:Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates:%Computers and peripheral equipment33Leasehold improvements                Over the term of the leaseThe Company periodically assesses the recoverability of the carrying amount of property and equipment and provides for any possible impairment loss based upon the difference between the carrying amount and fair value of such assets. In 2002 and 2003, no impairment losses were identified. In 2001 an impairment loss of $43 thousand was recorded.H.

Deferred income taxes:The Company accounts for taxes on income by the liability method of accounting for taxes on income.1.
Deferred taxes are computed in respect of temporary differences between the amounts included in these financial statements and those to be considered for tax purposes.2.
The Company has not recorded deferred income taxes for the realization of investments in a subsidiary or in affiliates that management intends to retain, or if the realization is expected to result in a capital loss. Similarly, deferred income taxes have not been provided for future taxable dividend distributions from a subsidiary, since it is not expected to result in an additional tax liability (see also Note 9E).3.
The Company does not provide deferred income taxes when the utilization of the losses for tax purposes is uncertain, due to a history of losses.I.

Revenue recognition:The Company's revenues in 2002 and 2001 are derived from management services provided to affiliates.The revenues are recognized as services are provided.









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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.):


J.

Severance pay:The Company's liability for severance pay is calculated pursuant to the Israeli Severance Pay Law, based on the most recent salary of the employees multiplied by the number of years of employment as of balance sheet date. Employees are entitled to one month's salary for each year of employment, or a portion thereof. The Company's liability for all of its employees is fully provided by monthly deposits in severance pay and insurance policies and by an accrual. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli Severance Pay Law or labor agreements. The value of these policies is based on the cash surrender value of these deposits in severance pay fund policies, and includes immaterial profits.K.

Basic and diluted loss per share:Net loss per share is computed based on the weighted average number of ordinary shares outstanding during the year in accordance with Opinion No. 55 of the Israeli Institute.The loss per share is computed at NIS 0.5 par value of ordinary sharesAccording to the statement, the dilutive effect of options, warrants and other convertible debentures is included in the computation of basic net income per share only if their exercise is considered to be probable, based on the ratio between the market price of the shares issuable upon the exercise of the options, warrants and other convertible securities, and the discounted present value of the future proceeds derived from the exercise of such options, warrants and convertible securities.For the three years ended December 31, 2003, the options outstanding were not included in the basic nor diluted per share.L.

Stock-based compensation:The Company has elected to follow Accounting Principles Board Statement No. 25, Accounting for Stock Options Issued to Employees (APB No. 25) and FASB Interpretation No. 44 Accounting for Certain Transactions Involving Stock Compensation (FIN No. 44) in accounting for its employee stock option plans. Under APB No. 25, when the exercise price of an employee stock option is equivalent to or above the market price of the underlying stock on the date of grant, no compensation expense is recognized.




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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.):





|L. |  | Stock-based compensation (cont.):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | In December 2002, the FASB issued Statement of Financial Accounting Standard No. 148, Accounting for Stock Based Compensation Transmission and Disclosure - an amendment of FASB Statement No. 123 (SFAS No. 148). SFAS No. 148 permits two additional transition methods for entities that adopt the fair value based method of accounting for stock-based employee compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances.                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | Pro forma information regarding net income (loss) and net earnings (loss) per share is required (for grants issued after December 1994) by Statement No. 123, and has been determined assuming that the Company had accounted for its employee options under the fair value method prescribed by that statement. The fair value for these options was estimated at the date of grant using the Black & Scholes option pricing model, with the following weighted-average assumptions for 2001: risk-free interest rates of 3.5%, dividend yields of 0%, volatility factors of the expected market price of the Companys ordinary shares of 1.45, and a weighted average expected life of the options of 3.1 years.
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | Options granted to employees in 2001 have an exercise price equal to the fair market value of the stock at the grant date. The fair value of the options granted during 2001 was $ 930 thousand. No options were granted during 2002-2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         







|                                                                                                                         |  | Year ended December 31,                
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------
|                                                                                                                         |  |                                        
|                                                                                                                         |  | 2003                                   
|                                                                                                                         |  |                                        
|                                                                                                                         |  | (in thousands, exceptper share amounts)
|                                                                                                                         |  |                                        
|Net loss according to U.S. GAAP (see Note 12M)                                                                           |  | $                                      
|Deduct: Total stock-based employee compensation expense determined          under fair value based method for all awards |  |                                        
|                                                                                                                         |  |                                        
|Pro forma net loss                                                                                                       |  | $                                      
|                                                                                                                         |  |                                        
|Losses per share:                                                                                                        |  |                                        
|Basic - as reported                                                                                                      |  | $                                      
|                                                                                                                         |  |                                        
|Basic -pro forma                                                                                                         |  | $                                      
|                                                                                                                         |  |                                        
|Diluted -as reported                                                                                                     |  | $                                      
|                                                                                                                         |  |                                        
|Diluted -pro forma                                                                                                       |  | $                                      
|                                                                                                                         |  |                                        




F-19





TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.):





L.

Stock-based compensation (cont.):The Company applies SFAS No. 123 and Emerging Issues Task Force (EITF) No. 96-18 Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (EITF 96-18), with respect to options and warrants issued to non-employees. SFAS No. 123 requires the use of option valuation models to measure the fair value of the options and warrants at the date of grant.M.

Discontinuing investments in affiliates:Through December 31, 2001, discontinued operations related to investments in affiliates have been accounted for under Accounting Principles Board Opinion No. 30 Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB No. 30), which was the common practice under Israeli GAAP. As such, during 2002 and 2001 the Company accounted for its investments in Nexus and VIZ as discontinued operations.In 2002, discontinued operations related to investments in affiliates have been accounted for under Israeli Accounting Standard No. 8 Discontinued Operations (Standard No. 8), which is effective since January 1, 2002. The standard sets out rules for disclosure of information concerning a discontinued operation.According to Standard No. 8, investments in affiliates, which were accounted for by the equity method, are not qualified as discontinued operations. Therefore, the Company's investments in BrightCom and Unisfair were not accounted for as discontinued operations (see also Note 4E and 4F).N.

Concentrations of credit risk:Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents.Cash and cash equivalents are invested in U.S. dollars with major banks in Israel and the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions holding the Companys investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.The Company has no material off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.







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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.):


|O. |  | Fair value of financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |  | The carrying amounts of cash and cash equivalents and trade payables approximate their fair value, due to the short-term maturity of such instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  | The carrying amount of the Companys long-term loans and convertible loans to affiliates approximates their fair value. The fair value was estimated using discounted cash flow analyses, based on the Companys incremental borrowing rates for similar borrowing arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|P. |  | Initial implementation of accounting pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |  | Accounting Standard No. 15 of the Israeli Accounting Standards Board, Impairment of Assets, which was published in January 2003 and which is effective for financial statements for periods beginning January 1, 2003 and thereafter, was initially applied by the Company in these financial statements. Accounting Standard No. 15 deals with the manner of measurement and presentation of the impairment of assets, including investees and excluding assets outside the scope of the Standard. The Standard provides, inter alia, that the test for establishing and measuring impairment is a comparison of the carrying amount of the asset to its recoverable amount. The recoverable amount is the higher of the net selling price of the asset and its value in use. Furthermore, the Standard specifies the signs indicating impairment of an asset, and the disclosures required when impairment has occurred.
|   |  | The Company has implemented the Accounting Standard No. 15 prospectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 







NOTE 3 - ACCOUNTS RECEIVABLE AND PREPAID EXPENSES





|                                                                                                               |  | December 31,  
|-------------------------------------------------------------------------------------------------------------- |  | --------------
|                                                                                                               |  |               
|                                                                                                               |  | 2003          
|                                                                                                               |  |               
|                                                                                                               |  | (in thousands)
|                                                                                                               |  |               
|                                                                                                               |  |               
|Government authorities                                                                                         |  | $             
|Affiliates (net of allowance for doubtful accounts of $ 245 and $ 177 thousand in 2003 and 2002, respectively) |  |               
|Others                                                                                                         |  |               
|                                                                                                               |  |               
|Total                                                                                                          |  | $             
|                                                                                                               |  |               
|                                                                                                               |  |               
|                                                                                                               |  |               
|* Including $17 thousand in respect
of related parties (see also Note 11D and 11E)                             |  |               







F-21




TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








NOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES:





A.  Investments in affiliates and investments in affiliates to be disposed of are composed as follows:





|                                             |  | December 31,  
|-------------------------------------------- |  | --------------
|                                             |  |               
|                                             |  | 2003          
|                                             |  |               
|                                             |  | (in thousands)
|                                             |  |               
|                                             |  |               
|Long-term loans                              |  | $             
|Convertible loans and convertible debentures |  |               
|Impairment charges                           |  |               
|Equity                                       |  |               
|                                             |  |               
|                                             |  |               
|                                             |  |               
|Goodwill:                                    |  |               
|Original amount, net                         |  |               
|Amortization                                 |  |               
|Impairment charges                           |  |               
|                                             |  |               
|                                             |  |               
|                                             |  |               
|Total investments in affiliates              |  | $             
|                                             |  |               





|B. |  | Coresma Ltd.:
|-- |  | -------------
|   |  |              
|   |  | 1.           
|   |  | 2.           
|   |  |              
|   |  |              





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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS






NOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES:




|B. |  | Coresma Ltd. (cont.):
|-- |  | ---------------------
|   |  | 3.                   
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      
|   |  |                      





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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES:





|B. |  | Coresma Ltd. (cont.):        
|-- |  | -----------------------------
|   |  |                              
|   |  | 3.                           
|   |  |                              
|   |  |                              
|   |  |                              
|   |  |                              
|   |  |                              
|   |  |                              
|   |  |                              
|   |  | 4.                           
|   |  |                              
|C. |  | Nexus Telocation System Ltd.:
|   |  |                              
|   |  | 1.                           
|   |  |                              
|   |  |                              
|   |  |                              
|   |  |                              
|   |  |                              
|   |  |                              






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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES:
 
 C.

Nexus Telocation System Ltd.(cont.):1.
Changes in the share capital of Nexus Telocation System Ltd. (Nexus) (cont.):d)
In November 1999, Nexus entered into an agreement in principle with a consortium of investors led by Soros Fund Management LLC (Soros). The consortium invested $ 21,000 thousand in ordinary shares and convertible securities of Nexus. On January 10, 2000, the investment agreement was closed. The Companys share in the investment was $ 1,935 thousand.e)
During 2000, 272,251 options and warrants were exercised by the public and thereby resulted in a decrease in the Companys holdings.f)
On March 19, 2001, Nexus' shareholders approved a one-for-three reverse split of Nexus's ordinary shares. All ordinary share and per ordinary share data included in these financial statements for all periods presented have been adjusted to reflect the reverse split.g)
In April 2001, Nexus issued 1,487,593 ordinary shares for total consideration of $ 2,982 thousand, net. The Companys share in the investment was $ 2,000 thousand. In addition, in May 2001, Nexus issued 166,667 ordinary shares as a part of a purchase agreement. As a result of those transactions, the Company interest in Nexus increased to 38.32% and it recorded goodwill of $ 898 thousand.h)
In June 2001, Nexus issued 490,196 ordinary shares for total consideration of $ 1,000 thousand. As a result, the Company interest decreased to 36.59% and the Company recorded a gain of $ 156 thousand from the issuance to a third party. The Company took into consideration the realization of goodwill, which had been included in the gain calculation in prior years.2.

Spin-off of Nexus:On July 23, 2001, the Company completed the pro-rata distribution of the Company's shares in Nexus to its shareholders. The amount distributed was $ 4,928 thousand (including tax of $104 thousand) (see Note 2M).As to withholding tax, see Note 9E.


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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








NOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES (cont.):





D.

VIZrt Ltd.:1.

Changes in the share capital of VIZrt Ltd. (VIZ):a)
On November 8, 1999, VIZ concluded its initial public offering (IPO) on the Neuer Market. The IPO consisted of 40% of VIZ shares.In addition, as a part of the abovementioned IPO, the Company sold 597,616 ordinary shares of VIZ in consideration of $ 7,548 thousand, net.b)
In March 2000, VIZ acquired the assets of Evans & Sutherland Digital Video Division in consideration of 131,602 ordinary shares of VIZ and $ 1,000 thousand in cash.c)
On July 4, 2000, VIZ completed its acquisition of Peak Broadcast systems Ltd. (PEAK), a Norwegian corporation, in consideration of 3,544,014 ordinary shares of VIZ.d)
In December 2001, VIZ was assessed a tax liability of $ 4,922 thousand, which was part of an acquisition that took place in July 2000, and reduced the liability to $ 480 thousand. VIZ reclassified the tax liability against additional paid-in capital. As a result, the Company recorded a gain of $ 912 thousand from the issuance to a third party.2.

On December 28, 2001, EVR, a wholly-owned subsidiary of the Company, distributed all of the VIZ shares it held to the Company, as a dividend in kind. This distribution of a dividend in kind created a capital gain for tax purposes for EVR, taxable at the rate of 36%.As a result of this tax event, the investment in VIZ was increased by $ 548 thousand.3.

On April 23, 2002, the Company distributed all of its shares in VIZ, pro-rata, to its shareholders. The amount distributed was $ 2,230 thousand. The Company's share in VIZ at the distribution date was 20.53% (see Note 2M).E.

Investment in BrightCom Technologies Ltd.:







1.

Changes in the share capital of BrightCom Technologies Ltd. (BrightCom):a)
In June 2000, BrightCom, entered into an agreement with some investors, including the Company, according to which BrightCom issued 4,885,504 ordinary shares of NIS 0.01 par value, in consideration of $ 7,910 thousand, net. The Companys investment amounted to$ 15,000 thousand. As a result of the decrease in its holdings, and since BrightCom was a development stage company, the Company recorded a deferred capital gain of $ 1,308 thousand.







F-26





TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)
 (An Israeli Corporation)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES (cont.):





E.

Investment in BrightCom Technologies Ltd. (cont.):1.
Changes in the share capital of BrightCom Technologies Ltd. (BrightCom) (cont.):b)
In January 2001, BrightCom concluded a private placement by which approximately $ 15 million was invested. The Company did not invest in this round. As a result, the Companys interest in BrightCom decreased to 22.9% and it recorded a deferred gain of $ 3,332 thousand.The deferred gains in the years 2003, 2002 and 2001, amounted to $ 0, $ 1,212 and $ 2,457 thousand, respectively. The deferred capital gain was recognized at the highest of the Company's equity in BrightComs losses or over three years.c)
In June 2001, BrightCom's shareholders approved a one-for-eight split of BrightCom shares. All share and per share data included in these financial statements, for all periods, has been adjusted to reflect the split.Since December 31, 2002, the Company's share in BrightCom has decreased to 32.42%, as a result of options exercised by employees2.
Long-term loans:a)
Between August 1998 and December 1999, certain shareholders granted BrightCom a convertible shareholders' loan of $ 1,500 thousand. The Company's share in the loan was approximately $ 950 thousand. The loan was linked to the U.S. dollar and bears LIBOR interest on an annual basis, and is repayable at the earlier of five years or upon the occurrence of certain events as defined in the agreement. The loan may be converted into shares of BrightCom through August 2001, at a price of $ 0.375 per share.b)
During the first half of 2000, certain shareholders granted BrightCom an additional convertible shareholders' loan, in an aggregate amount of $ 1,599 thousand. The Company's share in the loan amounted to approximately $ 775 thousand. The loan is linked to the U.S. dollar and bears LIBOR interest on an annual basis, and is repayable upon the earlier of five years or the occurrence of certain events as defined in the agreement. The loan may be converted into shares of BrightCom, at a price of $ 0.5375 per share.







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TECHNOPRISES LTD.
(Formerly: B.V.R. TECHNOLOGIES LTD.)
(An Israeli Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES (cont.):

E.

Investment in BrightCom Technologies Ltd. (cont.)2.
Long-term loans (cont.):c)
In June 2001, approximately $ 359 thousand of the abovementioned loans was repaid to the shareholders and the remaining amount, $ 2,795 thousand, was converted into Ordinary shares of BrightCom. The Company converted all of its outstanding loans. As a result, the Companys interest in BrightCom increased to 32.48%.In addition, 559,616 warrants were exercised in June 2001 by Brightcom founders, in consideration of $ 210 thousand.d)
As a result of the loan conversion and the exercise of warrants, the Company recorded negative goodwill of $ 429 thousand.e)
Based on Company managements assessment of the facts and circumstances - that BrightCom has incurred losses and negative cash flows from operations since inception and that such losses and negative cash flows will continue in the foreseeable future, $ 669 thousand of the investment amount was written-off for the year ended December 31, 2002. The write-off was recorded in other expenses and reduced the investment balance to $ 0 at December 31, 2002.f)
On June 15, 2003, BrightCom entered into an agreement to sell substantially all of its assets. In consideration, the buyer assumed certain of BrightCom's liabilities, paid an initial payment of $ 50 thousand and will make future payments of between $ 50 thousand $15,000 thousand pursuant to an earn-out, based on sales of BrightCom's products over time. The Company will not receive consideration from this sale or any future payments by the purchaser of the assets to Forever Blue Technologies Ltd. (the successor to BrightCom). The payments that would be potentially distributable to the Company will instead be payable to the former shareholders of BVR at the time of the transaction.







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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES (cont.):








|F. |  | Investment in Unisfair Inc.:
|-- |  | ----------------------------
|   |  |                             
|   |  | 1.                          
|   |  |                             
|   |  |                             
|   |  |                             
|   |  |                             
|   |  |                             
|   |  |                             
|   |  |                             
|   |  |                             
|   |  | 2.                          
|   |  |                             
|   |  |                             
|   |  |                             
|   |  |                             






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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4 - LONG-TERM INVESTMENTS IN AFFILIATES (cont.):





|F. |  | Investment in Unisfair Inc. (cont.):
|-- |  | ------------------------------------
|   |  |                                     
|   |  | 2.                                  
|   |  |                                     
|   |  |                                     
|   |  |                                     
|   |  |                                     
|   |  | 3.                                  
|   |  |                                     
|   |  | 4.                                  
|   |  |                                     
|   |  | 5.                                  



NOTE 5 - PROPERTY AND EQUIPMENT:




December 31,2003

2002(in thousands)Cost:Computers and peripheral equipment

$
-

$
37Leasehold improvements


-


1-


38Accumulated depreciation:Computers and peripheral equipment


-


32Leasehold improvements


-


1-


33Depreciated cost

$
-

$
5








F-30




TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 6 - OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES





|                             |  | December 31,  
|---------------------------- |  | --------------
|                             |  | 2003          
|                             |  |               
|                             |  | (in thousands)
|                             |  |               
|Payroll and related accruals |  | $             
|Government authorities       |  |               
|Other accrued expenses       |  |               
|                             |  |               
|                             |  | $             
|                             |  |               




NOTE 7 - SHAREHOLDERS EQUITY:





A.

In April 1999, the Company granted warrants to shareholders to purchase up to an aggregate of 200,000 ordinary shares of the Company, NIS 0.5 par value each, at an exercise price of $ 4 per share. The warrants vest immediately and will expire on December 31, 2001. In January 2000, the aforementioned warrants were exercised into ordinary shares of the Company.B.

In June 1999, the Company issued $ 3,000 thousand in convertible debentures to two of its shareholders. The debentures are linked to the U.S. dollar, bear annual interest of 7% to be paid semi- annually, and will mature on June 15, 2003. The debentures are convertible at a conversion rate of $6.5 per share at the option of the holders.On February 8, 2000, the debentures were converted into 461,540 ordinary shares.C.

In December 2000, the Company purchased its own 119,250 ordinary shares in consideration of $ 302 thousand. Treasury shares are stated at cost and are deducted from shareholders' equity.In January and in March 2004, the Company sold all of the abovementioned treasury shares in the amount of $42 thousand.D.

On February 18, 2004 all of the Companys issued and un-issued ordinary shares, NIS 0.50 par value, were split into 50 ordinary shares, nominal value NIS 0.01 each (the Split).After the Split, the Company cancel 49 out of each 50 ordinary shares, NIS 0.01 par value each, so that after the cancellation, the authorized share capital of the Company is NIS 300,000, divided into 30,000,000 ordinary shares, NIS 0.01 par value each, and the issued share capital of the Company is 9,837,701 ordinary shares, NIS 0.01 par value each.The consideration paid for the issued shares prior to their cancellation is treated as premium paid on the shares that remain in the additional paid in capital of the Company after the said cancellation.




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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 7 - SHAREHOLDERS EQUITY (cont.):





|E. |  | On February 18, 2004, the Companys authorized additional share capital of NIS 1,700,000, divided into 170,000,000 ordinary shares, NIS 0.01 par value each, such that the Companys authorized share capital would be NIS 2,000,000, divided into 200,000,000 Ordinary Shares, NIS 0.01 par value each.                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | On May 31, 2004, the Company approved the following changes in the share capital: conversion of shares from NIS 0.01 par value each into non par value shares; increase of the authorized share capital by an additional 300,000,000 ordinary shares. Consequently, as of May 31, 2004, the authorized shares capital is comprised of 500,000,000 non par value ordinary shares.                                                                                                                                                                          
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|F. |  | On February 18, 2004, the Companys shareholders approved issuance of 88,539,309 ordinary shares, NIS 0.01 par value each (see also Note 1A3).                                                                                                                                                                                                                                                                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|G. |  | On March 3, 2004, the Company issued 7,500,000 ordinary shares NIS 0.01 par value each (as part of the 88,539,309 ordinary shares that were issued on February 18, 2004) (see also Note 7M1).                                                                                                                                                                                                                                                                                                                                                             
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|H. |  | On April 21, 2004, the Company issued 22,500,000 ordinary shares nominal value NIS 0.01 each (see also Note 7M2).                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|I. |  | As to the issuance of shares to a bank in the amount of $1,300 thousand-see Note 1A10.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|J. |  | As to the term sheet signed with Araneo see Note 1A8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|K. |  | Dividends:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |  | On January 2, 2003, the Company declared $1,500 thousand cash dividend on its ordinary shares. 1,483 thousand were paid on the same date since the Company holds treasury shares.                                                                                                                                                                                                                                                                                                                                                                         
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|L. |  | Stock option plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |  | The Company adopted an Employee Share Option Plan (ESOP-1998), according to which 400,000 options will be issued to officers, management and other key employees. The options have an average vesting period of approximately 2 years and expire 5 years subsequent to the date of grant. Each option is exercisable into one ordinary share of the Company, at an exercise price of not less than the fair market value of the ordinary shares on the grant date. Any options cancelled or forfeited before expiration are available for future grants.








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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 7 - SHAREHOLDERS EQUITY (cont.):








|L.                                                                                                                                                                                                                                                                                                                           |  | Stock option plan (cont.):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  | Options to directors:     
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  | 1.                        
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  | 2.                        
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                             |  |                           
|Repricing and acceleration:                                                                                                                                                                                                                                                                                                 
|In all of the aforementioned grants, the exercise price is equal to the fair value of the shares at the date of grant and, therefore, compensation expenses were not recorded.                                                                                                                                              
|In December 2000, 90,000 previously granted options, with an exercise price of $ 8.25, were repriced to NIS 0.5 (which is the par value of the shares), resulting in a new measurement date and total compensation expenses of $ 186 thousand, of which $ 37 thousand was recognized in 2000 for the portion already vested.






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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







NOTE 7 - SHAREHOLDERS EQUITY (cont.):








|L. |  | Stock option plan (cont.):                                                                                                                                                                                                                                                                                                                                               
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                          
|   |  | On June 28, 2001, the Company approved the accelerated vesting of 54,000 unvested options out of the abovementioned repriced options, to be vested immediately. On the same date, an additional 54,000 previously granted options with an exercise price of $3 were repriced to NIS 0.5 (which is the par value of the shares), and accelerated to be vested immediately.
|   |  |                                                                                                                                                                                                                                                                                                                                                                          
|   |  | A summary of the Company's stock option activity, and related information for the years ended December 31, 2003, 2002 and 2001, is as follows:                                                                                                                                                                                                                           



|                                        |  | 2003 | 2002                    | 2001
|--------------------------------------- |  | ---- | ----------------------- | ----
|                                        |  |      |                         |     
|                                        |  |      | WeightedNumberofoptions |     
|                                        |  |      |                         |     
|                                        |  |      |                         |     
|                                        |  |      |                         |     
|Options:                                |  |      |                         |     
|Outstanding at thebeginning of the year |  |      | 950,000                 |     
|Granted                                 |  |      | -                       |     
|Exercised                               |  |      | -                       |     
|Forfeited                               |  |      | -                       |     
|Outstanding at the end
of the year      |  |      | 950,000                 |     
|                                        |  |      |                         |     
|Exercisable at December 31,             |  |      | 950,000                 |     
|                                        |  |      |                         |     




The options outstanding as of December 31, 2003, have been separated into exercise price categories as follows:





Number
outstanding at
Exercise
price


December 31,2003


Weighted average ofremainingcontractual
life (years)


Numberexercisable atDecember 31,2003


WeightedAverageExercise
Price$










$8.25


490,000


2


490,000


8.252.06


460,000


2.16


460,000


2.06* 950,000


2.08


* 950,000




|* | In February 2004, a total of 880,000 options (of which 850,000 options were granted in 2001 and 2000 to the Board of Directors) were cancelled by the Company as part of the shares issuance(see Note 1A3).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 7 - SHAREHOLDERS EQUITY (cont.):





|M. |  | Warrants:
|-- |  | ---------
|   |  | 1.       
|   |  |          
|   |  | 2.       
|   |  |          
|   |  |          
|   |  | 3.       
|   |  |          
|   |  | 4.       






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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES:





|A. |  | Put Options:           
|-- |  | -----------------------
|   |  |                        
|   |  | 1.                     
|   |  |                        
|   |  |                        
|   |  | 2.                     
|   |  |                        
|B. |  | Contingent Liabilities:
|   |  |                        
|   |  | 1)                     
|   |  |                        
|   |  |                        
|   |  | 2)                     









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TECHNOPRISES LTD.
(Formerly: B.V.R. TECHNOLOGIES LTD.)
(An Israeli Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (cont.):





|C. |  | Commitments:
|-- |  | ------------
|   |  |             
|   |  | 1)          
|   |  |             
|   |  |             
|   |  |             
|   |  |             
|   |  |             
|   |  | 2)          
|   |  |             



.


F-37


TECHNOPRISES LTD.
 (Formerly: B.V.R. TECHNOLOGIES LTD.)
 (An Israeli Corporation)
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (cont.):





|C.                                       |  | Commitments (cont.):                                                                                                                                                                                                                                                                                               
|---------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                         |  | 2)                                                                                                                                                                                                                                                                                                                 
|                                         |  |                                                                                                                                                                                                                                                                                                                    
|                                         |  |                                                                                                                                                                                                                                                                                                                    
|                                         |  |                                                                                                                                                                                                                                                                                                                    
|                                         |  |                                                                                                                                                                                                                                                                                                                    
|NOTE 9 - INCOME TAX BENEFITS (EXPENSES):
|                                         |  |                                                                                                                                                                                                                                                                                                                    
|A.                                       |  | Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985:                                                                                                                                                                                                                           
|                                         |  | Under this law, taxable income is measured in real terms, in accordance with the changes in the Israeli CPI or in the exchange rate of the U.S. dollar, for a foreign investment company. The Company and its Israeli subsidiary elected to measure their results on the basis of the changes in the Israeli CPI.
|                                         |  |                                                                                                                                                                                                                                                                                                                    
|B.                                       |  | A reconciliation between the theoretical tax expenses, assuming all income is taxable at the statutory rates (36%) applicable in Israel and the actual tax expenses, is as follows:                                                                                                                                
|                                         |  |                                                                                                                                                                                                                                                                                                                    









|                                                                                                     |  | Year ended December 31,
|---------------------------------------------------------------------------------------------------- |  | -----------------------
|                                                                                                     |  |                        
|                                                                                                     |  | 2003                   
|                                                                                                     |  |                        
|                                                                                                     |  | (in thousands)         
|                                                                                                     |  |                        
|Loss before taxes on income                                                                          |  | $                      
|                                                                                                     |  |                        
|Theoretical tax benefits                                                                             |  |                        
|Carryforward losses and other temporary differences, for
which deferred taxes were not provided, net |  |                        
|Changes in prior years accrual for income taxes                                                     |  |                        
|Others                                                                                               |  |                        
|                                                                                                     |  |                        
|Taxes on income in statements of operations *                                                        |  | $                      
|                                                                                                     |  |                        

*  All income taxes are domestic.





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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 9 - INCOME TAX BENEFITS (EXPENSES) (cont.):





|C. |  | Income tax assessments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | As to the tax assessment of the Company - see Note 9E.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |  | EVR received final tax assessments up to and including the tax year 1999. There are no carryforward operating losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|D. |  | Tax reform:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |  | On January 1, 2003, a comprehensive tax reform took effect in Israel. Pursuant to the reform, resident companies are subject to Israeli tax on income accrued or derived in Israel or abroad. In addition, the concept of controlled foreign corporation was introduced, according to which an Israeli company may become subject to Israeli taxes on certain income of a non-Israeli subsidiary, if the subsidiary's primary source of income is passive income (such as interest, dividends, royalties, rental income or capital gains). The tax reform also substantially changed the system of taxation of capital gains. The Companys management cannot estimate at present whether the reform will have an effect on the Companys future results of operations.
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|E. |  | Tax ruling:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |  | In January 2002, the Company received a final tax ruling from the Israeli Income Tax Authority. The tax ruling deals with the distribution of Nexus and VIZ shares, which took place in July 2001 and April 2002, respectively, and any future distributions of cash or securities as a liquidation for tax purposes only.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | The maximum liquidation period prescribed in the tax ruling is 24 months commencing July 22, 2001, unless extended by the tax authorities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | The tax ruling permits the Company, with some conditions and limitations, to offset gains or losses from the distribution of securities of publicly traded companies against gains or losses from the distribution of securities of privately held companies and against gains or losses from the future sale of shares in privately held companies.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | According to the tax ruling, the Company is required to withhold Israeli income tax at the rate of 5% from the total distributed shares value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |  | In respect of the Nexus shares distribution, the Company withheld 5% from the total distributed shares. As a result of the changes in the share price of the withheld shares, the Company recorded a net liability of $ 235 thousand, which represent the difference between the market value of the withheld shares as of December 31, 2002, and the value for tax purposes, which was determined in the tax ruling.                                                                                                                                                                                                                                                                                                                                                    








F-39





TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




NOTE 9 - INCOME TAX BENEFITS (EXPENSES) (cont.):


|E. |  | Tax ruling (cont.):                                                                                                                                                                                                                                
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                    
|   |  | According to Nexus tax ruling, the Company was required to pay the Israeli Income Tax Authority $192 thousand in February 2004. The Company recorded a net liability in prior years, which was updated during the reported period to $192 thousand.
|   |  |                                                                                                                                                                                                                                                    
|   |  | According to a tax ruling in January 2004, the Company is no longer entitled to utilize tax loss carry forwards for years ending on or before December 31, 2003.                                                                                   



NOTE 10 - SUPPLEMENTARY INFORMATION TO STATEMENTS OF OPERATIONS:





|                                                               |  |  |  | Year ended December 31,
|-------------------------------------------------------------- |  |  |  | -----------------------
|                                                               |  |  |  |                        
|                                                               |  |  |  | 2003                   
|                                                               |  |  |  |                        
|                                                               |  |  |  | (in thousands)         
|                                                               |  |  |  |                        
|A.  Financial income (expenses), net:                          |  |  |  |                        
|Income:                                                        |  |  |  |                        
|Interest on long-term loans and convertibleloans to affiliates |  |  |  | $                      
|Other interest                                                 |  |  |  |                        
|                                                               |  |  |  |                        
|                                                               |  |  |  |                        
|                                                               |  |  |  |                        
|Expenses:                                                      |  |  |  |                        
|Bank charges and interest on short-term credit                 |  |  |  |                        
|Functional currency translation adjustments                    |  |  |  |                        
|                                                               |  |  |  |                        
|                                                               |  |  |  |                        
|                                                               |  |  |  |                        
|                                                               |  |  |  | $                      
|                                                               |  |  |  |                        




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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 10 - SUPPLEMENTARY INFORMATION TO STATEMENTS OF OPERATIONS (cont.):





|                                           |  |  |  |  | Year ended December 31,
|------------------------------------------ |  |  |  |  | -----------------------
|                                           |  |  |  |  |                        
|                                           |  |  |  |  | 2003                   
|                                           |  |  |  |  |                        
|                                           |  |  |  |  | (in thousands)         
|B.  Other income (expenses), net:          |  |  |  |  |                        
|Impairment of investment in affiliates (1) |  |  |  |  | $                      
|Loss on sale of property and equipment     |  |  |  |  |                        
|Gain from sale of affiliates (2)           |  |  |  |  |                        
|Other (3)                                  |  |  |  |  |                        
|                                           |  |  |  |  |                        
|                                           |  |  |  |  | $                      
|                                           |  |  |  |  |                        





|(1) |  | In 2000, the Company invested $319 thousand in two companies. The investments were presented using the cost method of accounting.                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | As a result of assessing the recoverability of the carrying amount of the aforementioned investments in 2001, the Companys management decided to write-off all of the investment amounts. The impairment has been recorded in other expenses.
|(2) |  | Relates to the sale of Unisfair to several parties (see Note 4F).                                                                                                                                                                             
|(3) |  | In 2003, includes sale of IP Technology to BVR System Ltd. in the amount of $12 thousand.                                                                                                                                                     





|C. |  | Loss from discontinued operations:                                                                                                                                                                                                                        
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | As a result of the spin-off of Nexus and VIZ, the results of operations of Nexus and VIZ were reported separately as discontinued operations in the statements of operations for the years ended December 31, 2002 and 2001 and are summarized as follows:
|   |  |                                                                                                                                                                                                                                                           








|                                        |  | Year ended December 31,
|--------------------------------------- |  | -----------------------
|                                        |  |                        
|                                        |  | 2003                   
|                                        |  |                        
|                                        |  | (in thousands)         
|                                        |  |                        
|Services                                |  | $                      
|Cost of services                        |  |                        
|Financial income                        |  |                        
|Other income                            |  |                        
|Equity in losses of Nexus and VIZ       |  |                        
|                                        |  |                        
|Total loss from discontinued operations |  | $                      
|                                        |  |                        




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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 11- RELATED PARTIES:





|                                        |  |  |  |  | December 31,  
|--------------------------------------- |  |  |  |  | --------------
|                                        |  |  |  |  |               
|                                        |  |  |  |  | 2003          
|                                        |  |  |  |  |               
|                                        |  |  |  |  | (in thousands)
|                                        |  |  |  |  |               
|A.       Balances with related parties: |  |  |  |  |               
|Other current assets (see Note 3)       |  |  |  |  | $             
|                                        |  |  |  |  |               
|Trade payable                           |  |  |  |  | $             
|                                        |  |  |  |  |               





|                                            |  |  |  |  | Year ended December 31,
|------------------------------------------- |  |  |  |  | -----------------------
|                                            |  |  |  |  |                        
|                                            |  |  |  |  | 2003                   
|                                            |  |  |  |  |                        
|                                            |  |  |  |  | (in thousands)         
|                                            |  |  |  |  |                        
|B.       Transactions with related parties: |  |  |  |  |                        
|Financial income (1) (2)                    |  |  |  |  | $                      
|Management fees (2)-(6)                     |  |  |  |  | $                      
|Management services (7)                     |  |  |  |  | $                      
|Directors fees                              |  |  |  |  | $                      




(1)

From Coresma.(2)

From Nexus.(3)

From VIZ(4)

From Nexus Data (1993) Ltd.(5)

From BrightCom.(6)

From Unisfair.(7)

Luna Hi-Tech Management (1999) Ltd. (owned by BVR's CEO and chairman of the board of directors).C.

As to the agreement with Unicorp and Cat4view - see Note 8C2.D.

On January 9, 2003, the Company sold its Unisfairs shares to several parties including Luna Hi-Tech Management (1999) Ltd. (see also Note 11B7) in the amount of $25 thousand.E.

During the reported period, the Company sold an IP technology in the amount of $12 thousand to B.V.R. System Ltd. Which is a company under the interest of BVR's CEO and chairman of the board of directors.







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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS








|NOTE 12 -EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP:                                                                                                                                                                        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                   
|The consolidated financial statements of the Company conform with generally accepted accounting principles in Israel (Israeli GAAP), which differ in certain respects from those followed in the United States (U.S. GAAP), as described below:
|                                                                                                                                                                                                                                                   
|A.                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                   






F-43





TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 -EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
 AND U.S. GAAP (cont.):








|A. |  | Financial statements in U.S. dollars (cont.):                                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | According to Israeli GAAP, the Company adjusts its financial statements according to the changes in the exchange rate of the U.S. dollars, in conformity with Section 29(a) and 29(b) to Opinion No. 36 of the Institute of Certified Public Accountants in Israel.      
|   |  | There was no material effect of the differences between Israeli and U.S. GAAP.                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                                          
|B. |  | Gain on sale of shares by affiliates:                                                                                                                                                                                                                                    
|   |  | Under Israeli GAAP, a gain from the decrease in the interest in an affiliate as a result of an issuance to a third party by a start-up or a development stage enterprise will be recognized at the higher of three years or the holder's part in losses of the affiliate.
|   |  |                                                                                                                                                                                                                                                                          
|   |  | Under U.S. GAAP, the change in the parent company's equity interest in an affiliate resulting from the additional equity raised by the affiliate should be accounted for as an equity transaction and no gain will be recorded.                                          
|   |  |                                                                                                                                                                                                                                                                          
|C. |  | Excess of loss over investments in affiliates:                                                                                                                                                                                                                           
|   |  | Under Israeli GAAP, when the investment amount is reduced to zero due to previous equity losses, the Company should recognize additional equity losses only if it has an additional obligation to support the affiliate.                                                 
|   |  |                                                                                                                                                                                                                                                                          
|   |  | The additional equity losses should be based on the percentage of the affiliate shares held by the Company.                                                                                                                                                              
|   |  |                                                                                                                                                                                                                                                                          
|   |  | Under U.S. GAAP, the additional equity losses should be based on the percentage of the affiliates convertible securities and outstanding loans held by the Company.                                                                                                     
|   |  |                                                                                                                                                                                                                                                                          
|D. |  | Treatment of deferred income taxes:                                                                                                                                                                                                                                      
|   |  | Under Israeli GAAP, companies reporting in or linked to the U.S. dollar provide deferred income taxes on differences between the financial reporting and tax bases of assets and liabilities.                                                                            






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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12 - EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (cont.):





D.

Treatment of deferred income taxes (cont.):Under U.S. GAAP, however, paragraph 9(f) of SFAS No. 109, Accounting for Income Taxes, creates an exception which prohibits the recognition of deferred tax liabilities or assets that arise from differences between the financial reporting and tax bases of assets and liabilities that are remeasured from the local currency into U.S. dollars using historical exchange rates and that result from (i) changes in exchange rates or (ii) indexing for tax purpose.Under Israeli GAAP, deferred income taxes are not provided on the undistributed tax exempt profits of an approved enterprise, where such profits have been reinvested and will not be distributed to the Company's shareholders.The Company has not provided deferred income taxes in respect of undistributed tax exempt profits attributed to the approved enterprise of affiliates under the alternative system of benefits (Tax Holiday), which may be distributed, since it is the Company's policy to not initiate the distribution of a dividend that involves an additional tax liability to the Company.Under U.S. GAAP, deferred taxes are provided on the undistributed tax exempt profits of domestic affiliates in Israel that arose subsequent to December 15, 1992.Under Israeli GAAP, deferred income taxes should not be provided for a gain resulting from the issuance of shares in an affiliate to a third party.Under U.S. GAAP, deferred income taxes should be provided for a gain resulting from the issuance of shares in an affiliate to a third party. Such deferred income taxes are debited to equity when the related gain is recorded in equity, after utilizing net operating losses for tax purposes.Under Israeli GAAP deferred income taxes should not be provided for the realization of investments in a subsidiary or in affiliates that management intends to retain.Under U.S. GAAP deferred income taxes should be provided for the realization of investments in subsidiaries or in affiliates that management intends to retain.The gain on sale of shares by affiliates, as described in Note 12B, is credited to equity. A tax liability that gives rise to tax benefits from the utilization of a current period loss and prior years carryforward losses, is allocated to the net income (loss) for the year. The remaining tax liability is debited to equity.The aforementioned differences have no effect on the consolidated financial statements of the Company.










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TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12 - EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (cont.):





D.  Treatment of deferred income taxes (cont.): A valuation allowance has been recorded against the deferred tax assets as follows:





|                                                               |  | December 31,  
|-------------------------------------------------------------- |  | --------------
|                                                               |  |               
|                                                               |  | 2003          
|                                                               |  |               
|                                                               |  | (in thousands)
|                                                               |  |               
|Deferred tax liability from decrease in interest in affiliates |  | $             
|Temporary differences                                          |  |               
|Tax losses and deductions                                      |  |               
|                                                               |  |               
|Liabilities before valuation allowance                         |  |               
|Valuation allowance                                            |  |               
|                                                               |  |               
|Net deferred tax liability                                     |  | $             
|                                                               |  |               
|Deferred tax liability allocated to equity                     |  | $             
|Deferred tax assets allocated to income taxes                  |  |               
|                                                               |  |               
|                                                               |  | $             
|                                                               |  |               




A reconciliation of the theoretical tax expenses, assuming all income is taxable at the statutory rate (36%) applicable in Israel, and the actual tax expenses, is as follows:





|                                                                                                  |  | Year ended December 31,
|------------------------------------------------------------------------------------------------- |  | -----------------------
|                                                                                                  |  |                        
|                                                                                                  |  | 2003                   
|                                                                                                  |  |                        
|                                                                                                  |  | (in thousands)         
|                                                                                                  |  |                        
|                                                                                                  |  |                        
|Loss before taxes on income                                                                       |  | $                      
|                                                                                                  |  |                        
|Theoretical tax benefits                                                                          |  |                        
|Carryforward losses and other temporary differences, for
which a valuation allowance was provided |  |                        
|Deferred taxes in respect of prior years losses                                                  |  |                        
|Others                                                                                            |  |                        
|                                                                                                  |  |                        
|Taxes on income in statements of operations                                                       |  | $                      
|                                                                                                  |  |                        





|E. |  | Loss per share:
|-- |  | ---------------
|   |  | 1.             
|   |  |                






F-46





TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




NOTE 12 - EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (cont.):




|E. |  | Loss per share (cont.):                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | 2.                                                                                                                                                                                                                                                                                                                                                                                      
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|F. |  | Convertible securities of subsidiaries and affiliates:                                                                                                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | Under Israeli GAAP, when the exercise of convertible securities of subsidiaries or affiliates is deemed probable and a loss in respect of this dilution will result in the parent company, a provision for this loss is recorded.                                                                                                                                                       
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | Under U.S. GAAP, such a loss in the parent company is recorded when the conversion of the debenture or the exercise of a warrant actually occurs in the subsidiary                                                                                                                                                                                                                      
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|G. |  | Accrued severance pay:                                                                                                                                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | According to Israeli GAAP, accrued severance pay is included in the balance sheet net, and income earned on funded amounts is deducted from the severance pay .                                                                                                                                                                                                                         
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | According to U.S. GAAP, accrued severance pay is included in the balance sheets at the total liability amount and at total amounts funded through provident fund and insurance policies. Income earned on the funded provision is added to funded severance pay.                                                                                                                        
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | The difference between the two methods described above is immaterial with respect to the consolidated financial statements of the Company.                                                                                                                                                                                                                                              
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|H. |  | Goodwill amortization:                                                                                                                                                                                                                                                                                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | Under Israeli GAAP, goodwill is amortized over the estimated period of benefit, but usually not longer than 10 years.                                                                                                                                                                                                                                                                   
|   |  |                                                                                                                                                                                                                                                                                                                                                                                         
|   |  | Under U.S. GAAP, goodwill arising from acquisitions prior to July 1, 2001 was amortized until December 31, 2001, on a straight-line basis over the estimated period of benefit. Under Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, goodwill acquired in a business combination occurring on or after July 1, 2001 shall not be amortized.
|   |  | The difference between the two methods
described above was immaterial in respect to the consolidated financial
statements of the Company.                                                                                                                                                                                                                                               






|
|
|
|
|




TECHNOPRISES LTD.






NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (cont.):





|I. |  | Dividend declared:                                                                                                                                                                                                                                            
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | Under Israeli GAAP, dividends declared subsequent to balance sheet date are presented as a separate component in shareholders' equity.                                                                                                                        
|   |  | Under U.S. GAAP, the dividends are not recorded as a separate component in shareholders' equity.                                                                                                                                                              
|   |  | On January 2, 2003, the Company declared $1,500 thousand cash dividend on its ordinary shares.                                                                                                                                                                
|   |  | 1,483 thousand were paid on the same date since the Company holds treasury shares.                                                                                                                                                                            
|   |  |                                                                                                                                                                                                                                                               
|J. |  | Negative goodwill:                                                                                                                                                                                                                                            
|   |  | Under Israeli GAAP, negative goodwill is amortized over the estimated period of benefit, but not longer than 10 years.                                                                                                                                        
|   |  | Under U.S. GAAP, negative goodwill arising from acquisitions prior to July 1, 2001 should be written off and recognized as the cumulative effect of a change in accounting principle when SFAS No. 142 is adopted.                                            
|   |  | The difference between the two methods described above was immaterial in respect to the consolidated financial statements of the Company                                                                                                                      
|   |  |                                                                                                                                                                                                                                                               
|K. |  | Summarized financial information of 50% or less owned subsidiaries:                                                                                                                                                                                           
|   |  |                                                                                                                                                                                                                                                               
|   |  | The following information summarizes supplemental information for the Companys significant affiliates:  Coresma and BrightCom in 2002, and Coresma, BrightCom and VIZ in 2001. As of March 1, 2004, Coresma ceased its operation and dismissed its employees.
|   |  |                                                                                                                                                                                                                                                               









|                        |  | December 31,  
|----------------------- |  | --------------
|                        |  |               
|                        |  | 2003          
|                        |  |               
|                        |  | (in thousands)
|                        |  |               
|                        |  |               
|Current assets          |  | $             
|Non-current assets      |  | $             
|Current liabilities     |  | $             
|Non-current liabilities |  | $             




|
|
|
|
|




TECHNOPRISES LTD.
(Formerly: B.V.R. TECHNOLOGIES LTD.)
(An Israeli Corporation)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12 -  EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (cont.):





K.  Summarized financial information of 50% or less owned subsidiaries (cont.):





|                                |  | Year ended December 31,
|------------------------------- |  | -----------------------
|                                |  |                        
|                                |  | 2003                   
|                                |  |                        
|                                |  | (in thousands)         
|                                |  |                        
|Revenues                        |  | $                      
|Gross profit                    |  | $                      
|Loss from continuing operations |  | $                      
|Net loss                        |  | $                      






|L. |  | Recently issued accounting pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |  | In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, and amended the Interpretation in December 2003. FIN 46 requires an investor with the majority of the variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling financial interest or the equity investment at risk is insufficient to finance the entity's activities without receiving additional subordinated financial support from the other parties. Development-stage entities that have sufficient equity invested to finance the activities in which they are currently engaged and entities that are businesses, as defined in the Interpretation, are not considered VIEs. The
provisions of FIN 46 were effective immediately for all arrangements entered into with new VIEs created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. As of December 31, 2003, the Company does not expect the adoption of FIN 46 to have a material impact on its consolidated financial statements.






|
|
|
|
|




TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 -  EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (cont.):





L.

Recently issued accounting pronouncements (cont.):In May 2003, the FASB issued SFAS 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires an issuer to classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in other than the fair value of the issuers equity shares or variations inversely related to changes in the fair value of the issuers equity shares. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise, is effective at the beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have a material impact on the Companys financial position or result of operationsM.

The effect of the material differences between Israeli and U.S. GAAP of the aforementioned items on the financial statements is as follows:On the consolidated statements of operations:







|                                                                                                       |  | Year ended December 31,
|------------------------------------------------------------------------------------------------------ |  | -----------------------
|                                                                                                       |  |                        
|                                                                                                       |  | 2003                   
|                                                                                                       |  |                        
|                                                                                                       |  | (in thousands)         
|                                                                                                       |  |                        
|                                                                                                       |  |                        
|Net loss as reported, according to Israeli GAAP                                                        |  | $                      
|Gain from decrease in interest in affiliates                                                           |  |                        
|Excess loss over investments in affiliates                                                             |  |                        
|                                                                                                       |  |                        
|Net loss according to U.S. GAAP                                                                        |  | $                      
|                                                                                                       |  |                        
|In the consolidated balance sheets:                                                                    |  |                        
|                                                                                                       |  |                        
|According to U.S. GAAP the investments in affiliates amount as of December 31, 2003 and  2002 was $ 0. |  |                        







|
|
|
|
|




TECHNOPRISES LTD.


(Formerly: B.V.R. TECHNOLOGIES LTD.)


(An Israeli Corporation)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS





NOTE 12 -EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (cont.):





N.  Basic and diluted net loss per share:





|                                      |  | Year ended December 31,
|------------------------------------- |  | -----------------------
|                                      |  |                        
|                                      |  | 2003                   
|                                      |  |                        
|As reported according to Israeli GAAP |  |                        
|From continuing operations            |  | $                      
|                                      |  |                        
|From discontinued operations          |  | $                      
|                                      |  |                        
|Net loss                              |  | $                      
|                                      |  |                        
|Per U.S. GAAP                         |  |                        
|From continuing operations            |  | $                      
|                                      |  |                        
|From discontinued operations          |  | $                      
|                                      |  |                        
|Net loss                              |  | $                      
|                                      |  |                        




*  Represents an amount lower than $0.01





NOTE 13 - SUBSEQUENT EVENTS:





|A. |  | As to the shares issuance of up to 90% of the issued share capital of the Company to the shareholders of Technocross and other parties in February 2004 - see Note 1A3.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                        
|B. |  | As to the change of the Company name in February 2004 - see Note 1A7.                                                                                                  
|   |  |                                                                                                                                                                        
|C. |  | As to the split and the changes in the Companys authorized share capital - see Note 7D.                                                                             
|   |  |                                                                                                                                                                        
|D. |  | As to the private placement of shares and warrants in March 2004 - see Notes 1A5.                                                                                      
|   |  |                                                                                                                                                                        
|E. |  | As to the private placement of shares and warrants in April 2004 - see Notes 1A6.                                                                                      
|   |  |                                                                                                                                                                        
|F. |  | As to the purchase of Araneo - see Note 1A8.                                                                                                                           
|   |  |                                                                                                                                                                        
|G. |  | As to the purchase of the CMTS, HMG and CMR technologies from Lucent - see Note 1A9.                                                                                   
|   |  |                                                                                                                                                                        
|H. |  | As to the agreement with a bank regarding Coresmas debt - see Note 1A10.                                                                                              
|   |  |                                                                                                                                                                        
|I. |  | As to the selling of the Companys treasury shares - see Note 7C.                                                                                                      
|   |  |                                                                                                                                                                        
|J. |  | As to the issuance of a convertible note in June 2004 - see Note 1A11.                                                                                                 
|   |  |                                                                                                                                                                        
|K. |  | As to the term sheet signed with several consultants - see Note 1A12.                                                                                                  
|   |  |                                                                                                                                                                        
|L. |  | As to the establishment of Technoprises U.S.A. Inc. - see Note 1A13.                                                                                                   
|   |  |                                                                                                                                                                        
|M. |  | As to the term sheet signed with Econor - see Note 1A14.                                                                                                               
|   |  |                                                                                                                                                                        
|N. |  | As to the agreement between the Company, Unicorp and Cat4view - see Note 8C2.                                                                                          





|
|
|

---











CORESMA LTD.








CONSOLIDATED FINANCIAL STATEMENTS





AS OF DECEMBER 31, 2003





IN U.S. DOLLARS










F-52








CORESMA LTD.








CONSOLIDATED FINANCIAL STATEMENTS





AS OF DECEMBER 31, 2003





IN U.S. DOLLARS











INDEX











PageConsolidated Balance Sheets
F-54 - F-55Consolidated Statements of Operations
F-56Statements of Changes in Shareholders' Deficiency
F-57Consolidated Statements of Cash Flows
F-58Notes to Consolidated Financial Statements
F-59 - F-73







F-53  CORESMA LTD. CONSOLIDATED BALANCE SHEETSU.S. dollars in thousands


December 31,2002


2003ASSETSCURRENT ASSETS:Cash and cash equivalents


213


29Trade receivables (net of allowance for doubtfulaccounts of $ 674 as of December 31, 2003)


1,307


121Other accounts receivable (Note 3)
Work in progress(Note 4)


417
403


53
-Inventories (Note 5)


681


20Total current assets


3,021


223LONG-TERM INVESTMENTS:Severance pay fund (Note 8)


298


258PROPERTY AND EQUIPMENT, NET (Note 6)


658


1203,977


601





The accompanying notes are an integral part of the consolidated financial statements.




F-54CORESMA LTD.




CONSOLIDATED BALANCE SHEETS


U.S. dollars in thousands (except share data)


December 31,2002


2003LIABILITIES ANDSHAREHOLDERS' DEFICIENCYCURRENT LIABILITIES:Short-term bank credit


2,825


4,467Trade payables


2,618


2,303Other accounts payable and accrued expenses (Note 7)


1,008


872Total current liabilities


6,451


7,642LONG-TERM LIABILITIES:Accrued severance pay (Note 8)


394


333Long-term loans from a shareholder (Note 9)


2,631


2,748Convertible loans from shareholders (Note 10)


5,908


6,334Total long-term liabilities


8,933


9,415COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)SHAREHOLDERS' DEFICIENCY:Preferred A shares of NIS 0.01 par value
Authorized, issued and outstanding - 348,150 shares as of December 31 2002 and 2003 (Note 14):


1


1Preferred B shares of NIS 0.01 par valueAuthorized, issued and outstanding - 781,479 shares as of December 31 2002 and 2003 (Note 14):


2


2Aggregate liquidation preference of $ 11,000 at December 31, 2002 and 2003


-


-Ordinary shares of NIS 0.01 par value:Authorized 48,870,371 shares as of December 31, 2002 and2003Issued and outstanding - 8, 547,605 shares as ofDecember 31, 2002 and 2003


22


22Additional paid-in capital


16,344


16,344Deferred stock compensation


-


-Accumulated deficit


(27,776
)

(32,825
)Total shareholders' deficiency


(11,407
)

(16,456
)3,977


601





The accompanying notes are an integral part of the consolidated financial statements.





June 28, 2004Date





F-55CORESMA LTD.





CONSOLIDATED STATEMENTS OF OPERATIONS


U.S. dollars in thousands


Year endedDecember
 31,2002


2003Sales (Note 15)



8,464


3,308Cost of sales



5,169


1,902Gross profit



3,295


1,406Operating expenses:Research and development, net



2,408


1,897Selling and marketing



2,183


1,159General and administrative



1,684


1,534Total operating expenses



6,275


4,590Operating loss



(2,980
)

(3,184
)Financial expenses, net (Note 16b)



(745
)

(1,242
)(expanses)



(3,725
)

(4,426
)Other income (expenses), net (note 16a)



633


(623
)Loss for the year



(3,092
)

(5,049
)





The accompanying notes are an integral part of the consolidated financial statements.


F-56CORESMA LTD.








STATEMENTS OF CHANGES IN SHAREHOLDERSDEFICIENCY


U.S. dollars in thousands (except shares data)


Ordinary shares
Preferred  shares
Additionalpaid-incapital
Deferred Stockcompensation
Accumulateddeficit
Totalshareholders'deficiencyShares

Amount
Shares
AmountBalance as of January 1, 2002


8,547,605


22


1,129,629


3


16,344


(58
)

(24,684
)

(8,373
)Amortization of deferredstock ompensation


-.-


-.-


-.-


-.-


-.-


58


-.-


58Loss for the year


-.-


-.-


-.-


-.-


-.-


-.-


(3,092
)

(3,092
)Balance as of December 31, 2002


8,547,605


22


1,129,629


3


16,344


-.-


(27,776
)

(11,407
)Loss for the year


-.-


-.-


-.-


-.-


-.-


-.-


(5,049
)

(5,049
)Balance as of December 31, 2003


8,547,605


22


1,129,629


3


16,344


-.-


(32,825
)

(16,456
)








The accompanying notes are an integral part of the consolidated financial statements.





F-57CORESMA LTD.








CONSOLIDATED STATEMENTS OF CASH FLOWS


U.S. dollars in thousands


Year endedDecember 31,2002


2003Cash flows from operating activities:Loss for the year


(3,092
)

(5,049
)Adjustments required to reconcileloss to net cash used in operating activities:Accrued interest and erosion of long-term loansand convertible loans


381


353Depreciation and impairment


639


561Accrued severance pay, net


(8
)

(21
)Amortization of deferred compensation


58


-Decrease in trade receivables


1,982


1,186Discount of convertible loanissued with warrants


189


190Decrease (increase) in other accountsreceivable


(82
)

364Decrease (increase) in work in progress


(403
)

403Decrease in inventories


187


661Decrease in trade payables


(1,191
)

(315
)Decrease in other accounts payable andaccrued expenses


(200
)

(136
)Net cash used in operating activities


(1,540
)

(1,803
)Cash flows from investing activities:Proceeds from sale of property andequipment


58


-Purchase of property and equipment


(150
)

(23
)Net cash used in investing activities


(92
)

(23
)
 Cash flows from financing activities:Short-term bank credit, net


(245
)

1,642Convertible loans from shareholders


155


-Net cash provided by (used in)financing activities


(90
)

1,642Decrease in cash and cash equivalents


(1,722
)

(184
)Cash and cash equivalents at thebeginning of the year


1,935


213Cash and cash equivalents at theend of the year


213


29Supplemental disclosure of non -cash financing activities:Cash paid during the year for Interest


218


308


F-58CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





NOTE 1:- GENERAL





a.Coresma Ltd. (the "Company") was incorporated under the laws of Israel in 1994 under the name NetGame Ltd. On May 22, 2000 the name was changed to Coresma Ltd.. The Company, which operates in one reportable segment, designs, develops and markets software-based products which enable data over cable service providers to offer high speed data traffic connectivity to private and business end-users. The Company's products operate on existing coaxial cable television networks worldwide.


On March 1, 2004 the Company ceased its operation and dismissed all of its employees.





In September 1999 the Company established a wholly-owned subsidiary in North America, Coresma Inc, which markets and distributes its products in the U.S.A..





The Company is dependent upon sole source suppliers for certain key components used in its products, including certain digital signal processing chips. Although there is a limited number of manufacturers of these particular components, management believes that other suppliers could provide similar components at comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which could adversely affect the operating results of the Company.





b.Going Concern 


The Company has experienced operating losses over the past years, resulting in a deficit equity position. Subsequent to the year end, the Company stopped all operations, dismissed all its employees and ceased to be a going concern.





The consolidated financial statements do not include all the adjustments that may be required to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the Company ceasing to be a going concern.





The Company has not fulfilled some of its commitments to suppliers, financial and government institutions, and others. No provisions were recorded for potential claims that may result.





Non-monetary assets were reduced to realization value according to information provided by former management.





c.The consolidated financial statements were, as of December 31, 2003 and for the year then ended, not audited nor reviewed by the Companys auditors.





F-59CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





NOTE 2: -SIGNIFICANT ACCOUNTING POLICIES





a. Use of estimates:





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.





b. Financial statements in U.S. dollars:





The majority of the Company's sales are made outside Israel in U.S. dollars. In addition, a substantial portion of the Company's cost are incurred in U.S. dollars. Accordingly, the Company has determined the U.S. dollar as the currency of its primary economic environment and thus, its functional and reporting currency. Non-dollar transactions and balances have been remeasured into U.S. dollars in accordance with Statement No. 52 "Foreign Currency Translation" of the Financial Accounting Standard Board ("FASB") All transaction gains and losses from the remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the consolidated statement of operations as financial income or expenses, as appropriate.





c. Principles of consolidation:





The consolidated financial statements include the accounts of the Company and its subsidiary. Intercompany transactions and balances, including profits from intercompany sales not yet realized outside the group, have been eliminated in consolidation.





d. Cash equivalents:





The Company considers all highly liquid investments originally purchased with maturities of three months or less to be cash equivalents.





e. Inventories:





Inventories are stated at the lower of cost or market value. Cost is determined as follows:





Raw materials and components - using the "first-in, first-out" method.


Finished goods - on the basis of direct manufacturing costs.


F-60CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands








f. Property and equipment:





Property and equipment are stated at cost, less accumulated depreciation and impairment. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:








%Computers and peripheral equipment
20  33Office furniture and equipment
6  20Motor vehicles
15Testing equipment
50Leasehold improvements
Over the term of the lease





g. Revenue recognition:








Revenues from product sales are recognized, according to SOP 97-2, "Software Revenue Recognition" (as amended) when delivery has occurred, persuasive evidence of an arrangement exists, the vendor's fee is fixed or determinable and collectibility is probable. The Company does not generally grant a right of return to its customers. When a right of return exists, the Company defers revenue until the right of return expires.





Revenue on development contracts is recognized according to the percentage of completion method, provided that milestones agreed upon are achieved, and where contract results can reasonably be estimated. Provisions for losses, if any, on uncompleted contracts are made in the period when such losses are apparent.





h. Research and development costs:





Research and development expenditures are charged to operations as incurred. FASB statement No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company's product development process, technological feasibility is established upon the completion of a working model. The Company does not incur material costs between the completion of the working model and the point at which the product is ready for general release. Therefore, the Company has charged all costs to research and development expenses in the consolidated statement of operations during the period incurre





F-61CORESMA LTD.





U.S. dollars in thousands








i.Debt issued with stock purchase warrants:





Debt issued with detachable stock purchase warrants is accounted for in accordance with the provisions of Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants (APB No. 14). Under APB No. 14, the portion of the proceeds of debt securities issued with detachable stock purchase warrants which is allocable to the warrants is accounted for as additional paid  in capital. The allocation is based on the relative fair values of the two securities at the time of issue. Any resulting discount or premium on the debt securities is accounted for as such and amortized over the term of the debt securities.





j. Convertible Debt:





Convertible debt is accounted for in accordance with the provisions of EITF 98  5 Accounting for Convertible Securities with Beneficial Conversion Features (EITF 98  5). Under EITF 98  5 an embedded beneficial conversion feature in convertible debt is accounted for as additional paid  in capital.





k. Advertising expenses:





Advertising expenses are charged to the consolidated statement of operations as incurred.





l. Income taxes:





The Company accounts for income taxes in accordance with FASB statement No. 109, "Accounting for Income Taxes". This Statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.





m. Warranty costs:





The Company provides warranty up to 12 months, at no extra charge. A provision is recorded for probable costs, based on the Company's and managements experience.





n. Concentrations of credit risk:





Financial instruments that potentially subject the Company and its subsidiary to concentrations of credit risk consist primarily of cash and cash equivalents and trade receivables. The majority of the Company's cash and cash equivalents are invested in dollar and dollar linked instruments with major


Israeli banks. Management believes that the financial institutions that hold the Company's investments are financially sound, and accordingly, minimal credit risk exists with respect to these investments.





F-62CORESMA LTD.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





Trade receivables of the Company and its subsidiary are derived from sales to customers located primarily in Europe and North America. The Company performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is provided with respect to those amounts that the Company has determined to be doubtful of collection.





The Company has no significant off-balance sheet concentration of credit risk, such as foreign exchange contracts or other foreign hedging arrangements.





o. Stock-based compensation:





The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB-25") and Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, in accounting for its employee stock based compensation. Under APB-25, when the exercise price of the Company's employee stock options is less than the market price of the underlying stock on the date of grant, compensation expense is recognized.





The Company applies FASB No. 123, "Accounting for Stock-Based Compensation" 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 with respect to options and warrants issued to non-employees. Statement No. 123 requires the use of option valuation models to measure the fair value of the warrants at the grant date.





p. Severance pay:





The Company's liability for severance pay is calculated pursuant to Israeli severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of balance sheet date. Employees are entitled to one month's salary for each year of employment, or a portion thereof. The Company's liability is fully provided by monthly deposits with insurance policies and by an accrual. The value of these policies is recorded as an asset in the Companys balance sheet.





The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements. The value of the deposited funds are based on the cash surrendered value of these policies, and include immaterial profits.





q. Fair value of financial instruments:





The following method and assumption were used by the Company and its subsidiary in estimating its fair value disclosures for financial instruments:





Cash and cash equivalents, short-term bank credits, trade receivables, tradepayables and short-term loan - The carrying amounts of these items approximate their fair value due to the short-term maturity of such instruments.


F-63CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





Long-term loans - The carrying amounts of the Company's borrowing arrangements approximate their fair value. Fair values were estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements.





NOTE 3: -OTHER ACCOUNTS RECEIVABLE


December 31,2002


2003Government authorities


31


28Shareholders *)


74


80Other


312


25417


133Write off of shareholders


-


(80
)417


53





*) Linked to the Israeli Consumer Price Index (CPI) and bearing interest at the rate of 4% per annum.








NOTE 4: - WORK IN PROGRESS





Cost of development contracts with customers capitalized until milestones are achieved and relative income accumulated (see also Note 2 g). During 2003 all costs were charged to operations.





NOTE 5:- INVENTORIES


December 31,2002


2003Raw materials and components


343


282Finished goods


338


138681


420Less: impairment of inventory


-


400681


20





F-64CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





NOTE 6: - PROPERTY AND EQUIPMENT, NET


December 31,2002


2003Cost:Computers and peripheral equipment


1,672


1,700Office furniture and equipment


283


278Testing equipment


107


107Leasehold improvements


68


682,130


2,153Accumulated depreciation:Computers and peripheral equipment


1,279


1,565Office furniture and equipment


77


90Testing equipment


78


101Motor vehicles


-


-Leasehold improvements


38


431,472


1,799Depreciated cost


658


354Less: impairment of the equipment


-


234658


120


As for charges, see Note 11f.


NOTE 7:-OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES





December 31,2002


2003Employees payroll accruals


661


603Accrued expenses and other


181


70Related parties


166


1991,008


872





F-65CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands








NOTE 8:- SEVERANCE PAY





The Company's liability for severance pay pursuant to Israeli law is fully provided by an accrual. Part of the liability is funded through insurance policies which are designated only for severance payments. The value of these policies is recorded as an asset in the Company's balance sheets.








NOTE 9:- LONG-TERM LOANS FROM A SHAREHOLDER





The loans are linked to the higher of the Israel Consumer Price Index (CPI) or the U.S. dollar plus LIBOR. Repayments will be at the rate of 25% of the Company's net income. In the event of an IPO or a private placement, in which the Company raises an amount exceeding $ 8,000, the unpaid balance of the loans will become due.








NOTE 10:- CONVERTIBLE LOANS FROM SHAREHOLDERS





a. In December 1998, the Company entered into an agreement with its shareholders pursuant to which certain of its shareholders provided a convertible loan to the Company in an aggregate amount of $ 2,500, in two installments in January and May 1999.





Commencing March 31, 2001, the loan shall bear interest at the rate of LIBOR+2%.





The loan will automatically be converted into an aggregate of 1,455,180 Ordinary Shares, representing a conversion price of $ 1.72 per share, at a decision of the company board.





b. In November 2001 the company entered into an agreement with its. Shareholders and others (hereinafter shareholders) pursuant the shareholders provided a convertible loan to the company in an aggregate amount of $ 3,155.





The loan bears interest at the rate of LIBOR + 2%.





The loan will automatically be converted into such number of shares of the Determining Class as defined in the agreement and at such conversion price as shall result in an aggregate ownership percentage of 75% of the outstanding share capital of the company on a fully diluted basis, upon occurrence of the following events (hereinafter  the conversion events):





F-66CORESMA LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





- Equity investment of $ 2 m in Preferred shares of the Company.
- Aquisition of the Company or its business as defined in the agreement.
- Issuance of shares or other securities of the Company resulting in the shareholders of the Company prior to the event own less than 50% of the voting power subsequent to the event.
- IPO event.

Upon occurrence of any of the events, except Event D, the shares issued will be given senior liquidation preference to all other classes, including preferred A and B shares.





In the event of occurrence of Event D, the Company will issue Ordinary shares.





Upon occurrence of a conversion event, the Company shall allot 419,790 Preferred A shares to Preferred A shareholders and 942,186 Preferred B shares to Preferred B shareholders as a final and conclusive allotment, which will exhaust any and all prior anti-dilution rights to which the abovementioned shareholders were entitled.





Warrants:





The Company shall grant, with no additional consideration, to each lender a warrant to purchase shares of the Determining Class at the following terms:





a. The Warrant aggregate purchase price of Warrant shares for each lender shall equal 25% of the loan amount provided by such lender.





b. The warrant may be exercised from day of grant until the earlier of a Conversion Event or three years from grant date at an exercise price per share equal to the conversion price per share of the loans provided.








NOTE 11: -COMMITMENTS AND CONTINGENT LIABILITIES





a.The Company has not fulfilled some of its commitments and has not paid liabilities due. The Company did not record a provision for possible future claims and lawsuits that may arise as a result.





b.The Company participated in a program sponsored by the Israeli Government for the support of research and development activities. The Company had obtained grants from the Office of The Chief Scientist in the Israeli Ministry of Industry and Trade (the OCS) aggregating to $ 519 for the Companys research and development project. The Company is obligated to pay royalties to the OCS amounting to 3%-5% of the sales of the products and other related revenues generated from such project, up to the amount of the grants received, linked to theU.S. Dollar.





The Company paid all royalties due to The Chief Scientist up to the amount of $ 519. As yet, the Company has not received a final invoice from The Chief Scientist.


F-67CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





c. In March 2002, the Company signed an agreement with Lucent to license a cable modem termination system (CMTS). The Lucent CMTS allows the Company to meet the needs of existing customers and target new prospects with a CMTS based on the industry standard, DOCSIS (Data Over Cable Systems Interface Specification). The Company intended to bring this product through standards qualification tests.





During the 4th quarter of 2003 Lucent informed some of the Companys customers that they are not supporting the product, since the Company did not fulfill its obligations.





Furthermore, Lucent informed the company that its license would be cancelled.





The Companys overdue liability to Lucent as of December 31, 2003 is in the the amount of approximately $ 1 million.





d. BrightCom:





In the year 2000 the company signed an agreement with BrightCom Technologies Ltd. (an affiliate) whereby it would purchase from Brightcom certain rights in an architecture patent for cable on a chip for consideration of $ 5 million. The company is not using and has no intention to use the aforementioned patent rights since the company reached a settlement with BrightCom as follows:





The company will be obliged only for a one lump-sum payment of $ 1 million, payable by way of cash or stock (at Coresmas discretion), only upon a major liquidity event (i.e., IPO or merger/acquisition at pre-money evaluation of at least US $ 80M). Coresma agrees to make no future use of the BrightCom IP as part of this agreement.





Accordingly, no asset or liability has been recorded in the financial statements in regard to this agreement. In the year 2002 this commitment was canceled.





In the year 2000 the company entered into a development contract with Brightcom in the amount of $ 1.8 million. During the year 2001 the parties agreed on a payment of $ 704 thousand to terminate this agreement. This amount was not paid and during the year 2002 was waivered by BrightCom.





e. Litigation:





1)The Company is aware of the fact that entities have started legal proceedings against it after it ceased its operations.





The Company did not record a provision for possible future lawsuites.





2)On March 21, 2004 a financial claim of $291 thousand was filed by Castlenet Technology Inc. in the Magistrates Court of Tel-Aviv against the Company. Castlenet claims that the Company owes Castlenet $ 291 thousand for products that it provided to the Company and for which Castlenet claims that the Company has not paid. Castlenet claims that the court should pierce the corporate veil of the Company and thus responsible for the claimed amount.





No provision has been recorded for this claim.





f. Charges:





The Company placed a floating charge in favor of a bank on all Company assets.


F-68CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





NOTE 12: - INCOME TAXES





a. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the law"):





In accordance with the law, during 1996 the Company's production facilities were granted "Approved Enterprise" status.





Pursuant to the aforementioned law, the Company has chosen the "alternative benefits" - waiver of Government grants in return for tax exemption. Income derived from the "Approved Enterprise" will be tax-exempt for a period of four years, commencing the first year taxable income is earned, and subject to a corporate tax at the reduced rate of 10%- 25%, for an additional period of three to six years (depending on the level of foreign investment in the Company). As the Company currently has no taxable income, these benefits have not yet commence





The tax-exempt income attributable to the "Approved Enterprise" can be distributed to shareholders without subjecting the Company to taxes only upon the complete liquidation of the Company. If these retained tax-exempt profits are distributed in a manner other than in the complete liquidation of the Company, they would be taxed at the corporate tax rate applicable to such profits, as if the Company had not elected the alternative system of benefits (currently, 25% for an "Approved Enterprise"). The Company's Board of Directors has determined that such tax-exempt income will not be distributed as dividends.





The period of tax benefits detailed above is subject to limits of the earlier of 12 years from commencement of production or 14 years from receiving the approval.





Should the Company derive income from sources other than the "Approved Enterprise" during the relevant period of benefits, such income will be taxable at the regular corporate tax rate of 36%.





b. Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:





The Company is an "industrial company" under the above law and, as such, is entitled to certain tax benefits, mainly accelerated depreciation of machinery and equipment.





c. Measurement of results for tax purposes under the Income Tax Law (Inflationary Adjustments), 1985:





Results for tax purposes are measured in terms of earnings in NIS, after certain adjustments for increases in the CPI. As explained in Note 2b, the financial statements are presented in U.S. dollars. The differences between the annual change in the CPI and in the NIS/dollar exchange rate causes a difference between taxable income and the income before taxes shown in the financial statements. In accordance with paragraph 9(f) of FASB statement No. 109, the Company has not provided deferred income taxes on this difference between the financial reporting currency and the tax bases of assets and liabilities.


F-69CORESMA LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands








d.Net operating losses carryforwards:





As of December 31, 2002, the Company had approximately $16 millionof Israeli net operating loss carryforwards. The Israeli loss carryforwards have no expiration date. The Company expects that during the period in which these tax losses are utilized, its income would be substantially tax exempt. Accordingly, there will be no tax benefit available from such losses, and no deferred income taxes have been included in these financial statements.





As of December 31, 2002 the U.S. subsidiary had U.S. federal net operating loss carryforwards for income tax purposes in the amount of approximately $ 5.5 million. Expiration of the carryforward losses are between the years 2,019 and 2,022.





The Company and its subsidiary have not recorded deferred tax assets reaching from tax loss carryforwards because its Management currently believes that since the Company has a history of losses, it is more likely than not that the deferred tax regarding the loss carryforwards and other temporary differences will not be realized in the foreseeable future.





NOTE 13: - RELATED PARTIES





a. The following transactions, are included in the financial statements as follows:


Year endedDecember 31,2002


2003General and administrative


70


80Financial expenses


379


353Other income (*)


(831
)

-.-





(*) See also Note 11d.





F-70CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands








b. Balances with related parties:


December 31,2002


2003Due from:Other accounts receivable shareholders


74


(*)-Due to:Trade payables - affiliates


50


50BVR Technologies Ltd


125


136BVR Systems (1998) Ltd


38


64Long-term loans from a shareholder


2,631


2,748Convertible loans


5,908


6,334





(*) Accounts receivable from shareholders in the amount of 80 thousand were written off during the year.








NOTE 14:- SHARE CAPITAL





a.The Preferred A Shares and preferred B Shares entitle their holders to certain rights not granted to other shareholders holding Ordinary Shares, including certain Preemptive Rights to purchase new securities issued by the Company, rights of First Refusal and Co-Sale rights in relation to sale of securities by shareholders, certain anti-dilution rights in the event that the Company shall issue shares at a price per share lower than that paid by the Preferred shareholders, the right to veto certain resolutions and actions of the Company and liquidation preference.





All such rights expire and the Preferred Shares are reconverted into Ordinary Shares on the election of the majority of Preferred shareholders or upon the Companys consummation of a Qualified IPO as defined in the investment agreement.





b. Stock option plan:





According to a boardof directors resolution during 2002 the Employee Stock OptionPlan was canceled.





As of December 31. 2003, the companys outstanding options are as follows:





Option Outstanding

Exercise Price262,460

0.35485,130

1.72236,709

8.62791

10.24985,090





F-71CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





NOTE 15:-GEOGRAPHIC OPERATING INFORMATION





a. Summary information about geographic areas:





The Company manages its business on a basis of one reportable segment. See Note 1 for a brief description of the Company's businesses. Revenues are attributed to geographic areas based on the location of the customers. Long-lived assets are not presented in the table below, since all long-lived assets are located in Israel.





Total revenuesYear ended
December 31,2002


2003Israel


99


68Export:Scandinavia


5,205


625North America


2,064


1,905Eastern Europe


395


272Far East


648


210Western Europe - (excluding (Scandinavia) and other


53


2288,464


3,308





b.Major customers data as a percentage of total revenues:





2001


2002


2003Customer A


56
%

38
%

21
%Customer B


16
%

22
%

11
%Customer C


7
%

7
%

7
%







F-72CORESMA LTD.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


U.S. dollars in thousands





NOTE 16:- SELECTED STATEMENTS OF OPERATING DATA





a. Other income (expenses):


Year ended
December 31,2002


2003Waiver of a debt
(also see note 11 d)


831


-Impairment of equipment


(67
)

(237
)Impairment of inventory


-.-


(400
)Decrease of costs of unexecuted public offering


17


-.-Loss from disposition of assets


(57
)

-.-Others, net


(91
)

14633


(623
)





b. Financial expenses, net:


Year endedDecember 31,2002


2003Amortization of the discount of a convertible loan issued with warrants


189


190Interest on long-termand convertible loans


381


353Interest to the banks, net


308


380Government Authorities


28


5Others


(161
)

314745


1,242
 F-73 CORESMA LTD. CONSOLIDATED FINANCIAL
STATEMENTS AS OF DECEMBER 31, 2002 
IN U.S. DOLLARS  INDEX PageReport of Independent Auditors
     F-75Consolidated Balance Sheets
     F-76Consolidated Statements of Operations
     F-78Statements of Changes in Shareholders' Deficiency
     F-79Consolidated Statements of Cash Flows
     F-80Notes to Consolidated Financial Statements
     F-82    F-74    REPORT OF INDEPENDENT AUDITORS To the Shareholders ofCORESMA LTD. We
have audited the accompanying consolidated balance sheets of Coresma Ltd. (the
Company) and its subsidiary as of December 31, 2001 and 2002 and the related
consolidated statements of operations, changes in shareholders deficiency and cash
flows for each of the two years in the period ended December 31, 2002. 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 audits. We
did not audit the financial statements of Coresma Inc., a U.S. subsidiary, which
statements reflect total assets constituting 6% and 14% of the total consolidated assets
as of December 31, 2001 and 2002, respectively, and total revenues constituting 6% and 15%
of the total consolidated revenues for each of the two years in the period ended December
31, 2002. Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it related to data included for Coresma, Inc. is based
solely on the reports of other auditors. We
conducted our audits in accordance with auditing standards generally accepted in the United States and Israel, including those prescribed by the Israeli Auditors' Regulations (Auditors 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
statement presentation. We believe that our audits and the reports of the other auditors
provide a reasonable basis for our opinion. In
our opinion, based on our audits and the reports of other auditors, the consolidated
financial 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 their operations and cash flows for each of the two years in the
period ended December 31, 2002, in conformity with generally accepted accounting
principles in Israel and in the United States. As
discussed in Note 1 to the consolidated financial statements, the Company has experienced
operating losses over the past few years, resulting in a deficit equity position. The
Companys financial position and operating results raise substantial doubts about its
ability to continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that may result
from the outcome of this uncertainty. Kost Forer & Gabbay 
in partnership with 
Michael Barzily &Co. 
A Member of Ernst & Young International Jerusalem, Israel
April 15, 2003 F-75 CORESMA LTD. CONSOLIDATED
BALANCE SHEETSU.S. dollars in thousands December 31,2001
  
  2002ASSETSCURRENT ASSETS:Cash and cash equivalents
  
  $
  1,935
  
  
  
  213Trade receivables (net of
  allowance for doubtful
  accounts of $ 205 as of December 31, 2002)
  
  
  3,289
  
  
  
  1,307Other accounts receivable
  (Note 3)
  
  
  335
  
  
  
  417Work in progress (Note 4)
  
  
  -
  
  
  
  403Inventories (Note 5)
  
  
  868
  
  
  
  681Total current assets
  
  
  6,427
  
  
  
  3,021LONG-TERM INVESTMENTS:Severance pay fund (Note
  8)
  
  
  363
  
  
  
  298PROPERTY AND EQUIPMENT,
  NET (Note 6)
  
  
  1,205
  
  
  
  6587,995
  
  
  
  3,977 The
accompanying notes are an integral part of the consolidated financial
statements. F-76 CORESMA LTD.
CONSOLIDATED
BALANCE SHEETSU.S. dollars in thousands (except share data)
December 31,2001
  
  2002LIABILITIES
  AND
    SHAREHOLDERS DEFICIENCYCURRENT LIABILITIES:Short-term bank credit
  
  $
  3,070
  
  
  
  2,825Trade payables
  
  
  3,809
  
  
  
  2,618Other accounts payable and
  accrued expenses (Note 7)
  
  
  1,208
  
  
  
  1,008Total current liabilities
  
  
  8,087
  
  
  
  6,451LONG-TERM LIABILITIES:Accrued severance pay
  (Note 8)
  
  
  467
  
  
  
  394Long-term loans from a
  shareholder (Note 9)
  
  
  2,514
  
  
  
  2,631Convertible loans from
  shareholders (Note 10)
  
  
  5,300
  *
  
  
  5,908Total long-term
  liabilities
  
  
  8,281
  
  
  
  8,933COMMITMENTS AND CONTINGENT
  LIABILITIES (Note 13)SHAREHOLDERS DEFICIENCY:Preferred A shares of NIS
  0.01 par valueAuthorized, issued and
  outstanding - 348,150 shares as of
  December 31 2001 and 2002 (Note 14):
  
  
  1
  
  
  
  1Preferred B shares of NIS
  0.01 par valueAuthorized, issued and
  outstanding - 781,479 shares as of
  December 31 2001 and 2002 (Note 14):
  
  
  2
  
  
  
  2Aggregate liquidation preference
  of $ 11,000 at December 31, 2001
  and 2002
  
  
  -
  
  
  
  -Ordinary shares of NIS
  0.01 par value:Authorized 48,870,371 shares as of December 31, 2001 and
  2002Issued and outstanding -
  8, 547,605 shares as of
  December 31, 2001 and 2002
  
  
  22
  
  
  
  22Additional paid-in capital
  
  
  16,344
  *
  
  
  16,344Deferred stock
  compensation
  
  
  (58
  )
  
  
  -Accumulated deficit
  
  
  (24,684
  )
  
  
  (27,776
  )Total shareholders
  deficiency
  
  
  (8,373
  )
  
  
  (11,407
  )7,995
  
  
  
  3,977* ReclassifiedThe accompanying notes are an integral part of the consolidated
financial statements.

Moshe Eli
  General Manager
  
  Yaron Shienman
  ChairmanDate

F-77CORESMA LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands
Year ended
  December 31,2001
  
  2002Sales (Note 16a)
  
  $
  12,899
  
  
  
  8,464Cost of sales
  
  
  8,439
  
  
  
  5,169Gross profit
  
  
  4,460
  
  
  
  3,295Operating expenses:Research and development,
  net (Note 16a)
  
  
  4,273
  
  
  
  2,408Selling and marketing
  
  
  2,760
  
  
  
  2,183General and administrative
  
  
  1,836
  
  
  
  1,684Total operating expenses
  
  
  8,869
  
  
  
  6,275Operating loss
  
  
  (4,409
  )
  
  
  (2,980
  )Financial expenses, net
  (Note 16b)
  
  
  (203
  )
  
  
  (745
  )(4,612
  )
  
  
  (3,725
  )Other income net
  
  
  257
  
  
  
  633Loss for the year
  
  $
  (4,355
  )
  
  
  (3,092
  )The accompanying notes are an
integral part of the consolidated financial statements.
F-78CORESMA LTD.
STATEMENTS OF
CHANGES IN SHAREHOLDERSDEFICIENCYU.S. dollars in thousands (except shares data)
Ordinary
  shares
  
  Other
  shares
  
  Additional
  paid-in
  capital
  
  Deferred stock
  compensation
  
  Accumulated
  deficit
  
  Total
  shareholders
  deficiencyShares
  
  Amount
  
  Shares
  
  AmountBalance as of January 1, 2001
  
  
  8,547,605
  
  
  
  22
  
  
  
  1,129,629
  
  
  
  3
  
  
  
  15,965
  
  
  
  (174
  )
  
  
  (20,329
  )
  
  
  (4,513
  )Amortization of deferred
  stock compensation
  
  
  
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  116
  
  
  
  -.-
  
  
  
  116Beneficial conversion
  feature on issuance of
  convertible loan with
  detachable warrants
  
  
  
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  379
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  379Loss for the year
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  (4,355
  )
  
  
  (4,355
  )Balance as
  of December 31, 2001
  
  
  8,547,605
  
  
  
  22
  
  
  
  1,129,629
  
  
  
  3
  
  
  
  16,344
  
  
  
  (58
  )
  
  
  (24,684
  )
  
  
  (8,373
  )Amortization of deferred
  stock compensation
  
  
  
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  58
  
  
  
  -.-
  
  
  
  58Loss for the year
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  -.-
  
  
  
  (3,092
  )
  
  
  (3,092
  )Balance as
  of December 31, 2002
  
  
  8,547,605
  
  
  
  22
  
  
  
  1,129,629
  
  
  
  3
  
  
  
  16,344
  
  
  
  -
  
  
  
  (27,776
  )
  
  
  (11,407
  )The
accompanying notes are an integral part of the consolidated financial
statements.
F-79CORESMA
LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended
  December 31,2001
  
  2002Cash flows from operating
  activities:Loss for the year
  
  $
  (4,355
  )
  
  
  (3,092
  )Adjustments required to
  reconcile
  loss to net cash used in operating activities:Capital loss
  
  
  1
  
  
  
  -Accrued interest on and
  erosion of long-term loans  and convertible loans
  
  
  215
  
  
  
  381Depreciation
  
  
  469
  
  
  
  639Accrued severance pay, net
  
  
  20
  
  
  
  (8
  )Amortization of deferred
  compensation
  
  
  116
  
  
  
  58Decrease in trade
  receivables
  
  
  404
  
  
  
  1,982Discount of convertible
  loan  issued with warrants
  
  
  -
  
  
  
  189Decrease (increase) in
  other accounts  receivable
  
  
  154
  
  
  
  (82
  )Increase in work in
  progress
  
  
  -
  
  
  
  (403
  )Decrease in inventories
  
  
  358
  
  
  
  187Decrease in trade payables
  
  
  (141
  )
  
  
  (1,191
  )Decrease in other accounts
  payable and  accrued expenses
  
  
  (136
  )
  
  
  (200
  )Net cash used in operating
  activities
  
  
  (2,895
  )
  
  
  (1,540
  )Cash flows from investing
  activities:Proceeds from sale of
  property and  equipment
  
  
  14
  
  
  
  58Purchase of property and
  equipment
  
  
  (707
  )
  
  
  (150
  )Net cash used in investing
  activities
  
  
  (693
  )
  
  
  (92
  )The
accompanying notes are an integral part of the consolidated financial
statements.
F-80CORESMA LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWSU.S. dollars in thousands
Year ended
  December 31,2001
  
  2002Cash flows from financing
  activities:Short-term bank credit,
  net
  
  
  2,087
  
  
  
  (245
  )Convertible loans from
  shareholders
  
  
  3,000
  
  
  
  155Net cash provided by (used in) financing activities
  
  
  5,087
  
  
  
  (90
  )Increase (decrease) in
  cash and cash equivalents
  
  
  1,499
  
  
  
  (1,722
  )Cash and cash equivalents
  at the
    beginning of the year
  
  
  436
  
  
  
  1,935Cash and cash equivalents
  at the
    end of the year
  
  $
  1,935
  
  
  $
  213Supplemental disclosure of
  non -cash financing
  activities:Cash paid during the year
  for:Interest
  
  $
  218
  
  
  $
  308The
accompanying notes are an integral part of the consolidated financial
statements.
F-81CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands

NOTE 1:-
  GENERALCoresma Ltd. (the Company) was incorporated under the laws of
  Israel in 1994 under the name NetGame Ltd. On May 22, 2000 the name was
  changed to Coresma Ltd.. The Company, which operates in one reportable
  segment, designs, develops and markets software-based products which enable
  data over cable service providers to offer high speed data traffic
  connectivity to private and business end-users. The Companys products
  operate on existing coaxial cable television networks worldwide.In September 1999 the Company established a wholly-owned subsidiary
  in North America, Coresma Inc, which markets and distributes its products in
  the U.S.A..A majority of the Companys sales are to Europe.For the year ended December 31, 2002 approximately 38% of the
  Companys total revenues derived from sales to one  customer in Sweden.
  The Company is dependent upon sole source suppliers for certain key
  components used in its products, including certain digital signal processing
  chips. Although there is a limited number of manufacturers of these
  particular components, management believes that other suppliers could provide
  similar components at comparable terms. A change in suppliers, however, could
  cause a delay in manufacturing and a possible loss of sales, which could
  adversely affect the operating results of the Company.Going Concern 
  The company has experienced operating losses over the past years, resulting
  in a deficit equity position. The companys activity has also decreased
  substantially during the year 2003.The
  Companys financial position and operating results raise substantial doubts
  about the Companys ability to continue as a going concern. The
  consolidated financial statements do not include any adjustments to reflect
  the possible future effects on the recoverability and classification of
  assets or the amounts and classification of liabilities that may result from
  the outcome of this uncertainty.F-82CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 2:-
  SIGNIFICANT ACCOUNTING POLICIESa.
  Use of estimates:The preparation of financial statements in conformity with generally
  accepted accounting principles requires management to make estimates and
  assumptions that affect the amounts reported in the financial statements and
  accompanying notes. Actual results could differ from those estimates.b.
  Financial statements in U.S. dollars:The majority of the Companys sales are made outside Israel in U.S.
  dollars. In addition, a substantial portion of the Companys cost are
  incurred in U.S. dollars. Accordingly, the Company has determined the U.S.
  dollar as the currency of its primary economic environment and thus, its
  functional and reporting currency. Non-dollar transactions and balances have
  been remeasured into U.S. dollars in accordance with Statement No. 52
  Foreign Currency Translation of the Financial Accounting Standard Board (FASB)
  All transaction gains and losses from the remeasurement of monetary balance
  sheet items denominated in non-dollar currencies are reflected in the
  consolidated statement of operations as financial income or expenses, as
  appropriate.c.
  Principles of consolidation:The consolidated financial statements include the accounts of the
  Company and its subsidiary. Intercompany transactions and balances, including
  profits from intercompany sales not yet realized outside the group, have been
  eliminated in consolidation.d.
  Cash equivalents:The Company considers all highly liquid investments originally
  purchased with maturities of three months or less to be cash equivalents.e.
  Inventories:Inventories are stated at the lower of cost or market value. Cost is
  determined as follows:Raw materials and components - using the first-in, first-out
  method.
  Finished goods - on the basis of direct manufacturing costs.f.
  Property and equipment:Property and equipment are stated at cost, less accumulated
  depreciation. Depreciation is calculated using the straight-line method over
  the estimated useful lives of the assets, at the following annual rates:F-83CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands


%Computers and peripheral equipment
  
  
  20  33Office furniture and equipment
  
  
  6  20Motor vehicles
  
  
  15Testing equipment
  
  
  50Leasehold improvements
  
  
  Over the term of the leaseg.
  Revenue recognition:Revenues from product sales are recognized, according to SOP 97-2,
  Software Revenue Recognition (as amended) when delivery has occurred,
  persuasive evidence of an arrangement exists, the vendors fee is fixed or
  determinable and collectibility is probable.The Company does not generally grant a right of return to its
  customers. When a right of return exists, the Company defers revenue until
  the right of return expires.Revenue on development contracts is recognized according to the
  percentage of completion method, provided that milestones agreed upon are
  achieved, and where contract results can reasonably be estimated. Provisions
  for losses, if any, on uncompleted contracts are made in the period when such
  losses are apparent.h.
  Research and
  development costs:Research and
  development expenditures are charged to operations as incurred. FASB
  statement No. 86, Accounting for the Costs of Computer Software to be Sold,
  Leased or Otherwise Marketed, requires capitalization of certain software
  development costs subsequent to the establishment of technological
  feasibility. Based on the Companys product development process,
  technological feasibility is established upon the completion of a working
  model. The Company does not incur material costs between the completion of
  the working model and the point at which the product is ready for general
  release. Therefore, the Company has charged all costs to research and
  development expenses in the consolidated statement of operations during the
  period incurred.F-84CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

i.
  Debt issued with stock purchase warrants:Debt issued with detachable stock purchase warrants is accounted for
  in accordance with the provisions of Accounting Principles Board Opinion  No. 14, Accounting for Convertible Debt
  and Debt Issued with Stock Purchase Warrants (APB No. 14). Under APB No.
  14, the portion of the proceeds of debt securities issued with detachable
  stock purchase warrants which is allocable to the warrants is accounted for
  as additional paid  in capital. The allocation is based on the relative fair
  values of the two securities at the time of issue. Any resulting discount or
  premium on the debt securities is accounted for as such and amortized over
  the term of the debt securities.j.
  Convertible Debt:Convertible debt is accounted for in accordance with the provisions
  of EITF 98  5 Accounting for Convertible Securities with Beneficial Conversion
  Features (EITF 98  5). Under EITF 98  5 an embedded beneficial
  conversion feature in convertible debt is accounted for as additional       paid  in capital.k.
  Advertising expenses:Advertising expenses are charged to the consolidated statement of
  operations as incurred.l.
  Income taxes:The Company accounts for income taxes in accordance with FASB
  statement No. 109, Accounting for Income Taxes. This Statement prescribes
  the use of the liability method whereby deferred tax assets and liability
  account balances are determined based on differences between financial
  reporting and tax bases of assets and liabilities and are measured using the
  enacted tax rates and laws that will be in effect when the differences are
  expected to reverse. The Company provides a valuation allowance, if
  necessary, to reduce deferred tax assets to their estimated realizable value.m.
  Warranty costs:The Company provides warranty up to 12 months, at no extra charge. A
  provision is recorded for probable costs, based on the Companys and
  managements experience.F-85CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

n.
  Concentrations of credit risk:Financial instruments that potentially subject the Company and its
  subsidiary to concentrations of credit risk consist primarily of cash and
  cash equivalents and trade receivables. The majority of the Companys cash
  and cash equivalents are invested in dollar and dollar linked instruments
  with major Israeli banks. Management believes that the financial institutions
  that hold the Companys investments are financially sound, and accordingly,
  minimal credit risk exists with respect to these investments.Trade
  receivables of the Company and its subsidiary are derived from sales to
  customers located primarily in Europe and North America. As of December 31,
  2002, the Companys trade receivables include the amount of $ 498 derived
  from one customer in Finland. The Company performs ongoing credit evaluations
  of its customers. An allowance for doubtful accounts is provided with respect
  to those amounts that the Company has determined to be doubtful of
  collection.The Company
  has no significant off-balance sheet concentration of credit risk, such as
  foreign exchange contracts or other foreign hedging arrangements.o.
  Stock-based compensation:The Company has elected to follow Accounting Principles Board Opinion
  No. 25, Accounting for Stock Issued to Employees (APB-25) and
  Interpretation No. 44, Accounting for Certain Transactions Involving Stock
  Compensation, in accounting for its employee stock based compensation. Under
  APB-25, when the exercise price of the Companys employee stock options is
  less than the market price of the underlying stock on the date of grant,
  compensation expense is recognized.The Company applies FASB No. 123, Accounting for Stock-Based
  Compensation 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 with respect to options and warrants issued to
  non-employees. Statement No. 123 requires the use of option valuation models
  to measure the fair value of the warrants at the grant date.p.
  Severance pay:The Companys liability for severance pay is calculated pursuant to
  Israeli severance pay law based on the most recent salary of the employees
  multiplied by the number of years of employment as of balance sheet date.
  Employees are entitled to one months salary for each year of employment, or
  a portion thereof. The Companys liability is fully provided by monthly
  deposits with insurance policies and by an accrual. The value of these
  policies is recorded as an asset in the Companys balance sheet.F-86CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

The deposited funds include profits accumulated up to the balance
  sheet date. The deposited funds may be withdrawn only upon the fulfillment of
  the obligation pursuant to Israeli severance pay law or labor agreements. The
  value of the deposited funds are based on the cash surrendered value of these
  policies, and include immaterial profits.q.
  Fair value of financial instruments:The following method and assumption were used by the Company and its
  subsidiary in estimating its fair value disclosures for financial
  instruments:Cash and cash equivalents, short-term bank credits, trade
  receivables, trade payables and short-term loan - The carrying amounts
  of these items approximate their fair value due to the short-term maturity of
  such instruments.Long-term loans - The carrying amounts of the Companys borrowing
  arrangements approximate their fair value. Fair values were estimated using
  discounted cash flow analyses, based on the Companys incremental borrowing
  rates for similar types of borrowing arrangements.NOTE 3:-
  OTHER ACCOUNTS RECEIVABLEDecember 31,2001
  
  2002Government
  authorities
  
  $
  141
  
  
  31Shareholders
  *)
  
  
  72
  
  
  74Other
  
  
  122
  
  
  312$
  335
  
  
  417*) Linked to the Israeli Consumer Price Index (CPI) and bearing
  interest at the rate of 4% per annum.NOTE 4:-
  WORK IN PROGRESSCost of development contracts with customers capitalized until
  milestones are achieved and relative income accumulated (see also Note 2 g).F-87CORESMA LTD.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 5:-
  INVENTORIESDecember 31,2001
  
  2002Raw
  materials and components
  
  $
  611
  
  
  
  343Finished
  goods
  
  
  257
  
  
  
  338$
  868
  
  
  $
  681NOTE 6:-
  PROPERTY AND EQUIPMENT, NETDecember 31,2001
  
  2002Cost:Computers
  and peripheral equipment
  
  $
  1,694
  
  
  
  1,672Office
  furniture and equipment
  
  
  324
  
  
  
  283Testing
  equipment
  
  
  104
  
  
  
  107Motor
  vehicles
  
  
  18
  
  
  
  -Leasehold
  improvements
  
  
  91
  
  
  
  682,231
  
  
  
  2,130Accumulated
  depreciation:Computers
  and peripheral equipment
  
  
  857
  
  
  
  1,279Office
  furniture and equipment
  
  
  69
  
  
  
  77Testing
  equipment
  
  
  55
  
  
  
  78Motor
  vehicles
  
  
  5
  
  
  
  -Leasehold
  improvements
  
  
  40
  
  
  
  381,026
  
  
  
  1,472Depreciated
  cost
  
  $
  1,205
  
  
  $
  658As for charges, see Note 11 g.NOTE 7:-
  OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSESDecember 31,2001
  
  2002Employees
  payroll accruals
  
  $
  733
  
  
  
  661Accrued
  expenses
  
  
  344
  
  
  
  181B.V.R.
  Technologies Ltd. (shareholder)
  
  
  69
  
  
  
  125Other
  
  
  62
  
  
  
  41$
  1,208
  
  
  $
  1008F-88CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 8:-
  SEVERANCE PAYThe Companys liability for severance pay pursuant to Israeli law is
  fully provided by an accrual. Part of the liability is funded through
  insurance policies which are designated only for severance payments. The
  value of these policies is recorded as an asset in the Companys balance
  sheets.NOTE 9:-
  LONG-TERM LOANS FROM A SHAREHOLDERThe loans are linked to the higher of the Israel Consumer Price Index
  (CPI) or the U.S. dollar plus LIBOR. Repayments will be at the rate of 25% of
  the Companys net income. In the event of an IPO or a private placement, in
  which the Company raises an amount exceeding $ 8,000, the unpaid balance of
  the loans will become due.NOTE 10:-
  CONVERTIBLE LOANS FROM SHAREHOLDERSa.
  In December 1998, the Company entered into an agreement with its
  shareholders, pursuant to which certain of its shareholders provided a
  convertible loan to the Company in an aggregate amount of $ 2,500, in
  two installments in January and May 1999.
  Commencing March 31, 2001, the loan shall bear interest at the rate of
  LIBOR+2%. The loan will automatically be converted into an aggregate of
  1,455,180 Ordinary Shares, representing a conversion price of $ 1.72 per
  share, at a decision of the company board.b.
  In November 2001 the company entered into an agreement with its.
  Shareholders and others (hereinafter shareholders) pursuant the
  shareholders provided a convertible loan to the  company in an aggregate amount of $ 3,155.
  The loan bears interest at the rate of LIBOR + 2%.
  The loan will automatically be converted into such number of shares of the
  Determining Class as defined in the agreement and at such conversion price
  as shall result in an aggregate ownership percentage of 75% of the
  outstanding share capital of the company on a fully diluted basis, upon
  occurrence of the following events (hereinafter  the conversion events):F-89CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

A.
  Equity investment of $ 2 m in Preferred shares of the Company.B.
  Aquisition of the Company or its business as defined in the
  agreement.C.
  Issuance of shares or other securities of the Company resulting in
  the shareholders of the Company prior to the event own less than 50% of the
  voting power subsequent to the event.D.
  IPO event.Upon occurrence of any of the events, except Event D, the shares
  issued will be given senior liquidation preference to all other classes,
  including preferred A and B shares.In the event of occurrence of Event D, the Company will issue
  Ordinary shares.Upon occurrence of a conversion event, the Company shall allot
  419,790 Preferred A shares to Preferred A shareholders and 942,186 Preferred
  B shares to Preferred B shareholders as a final and conclusive allotment,
  which will exhaust any and all prior anti-dilution rights to which the
  abovementioned shareholders were entitled.Warrants:The Company shall grant, with no additional consideration, to each
  lender a warrant to purchase shares of the Determining Class at the
  following terms:a.
  The Warrant aggregate purchase price of Warrant shares for each
  lender shall equal 25% of the loan amount provided by such lender.b.
  The warrant may be exercised from day of grant until the earlier of a
  Conversion Event or three years from grant date at an exercise price per
  share equal to the conversion price per share of the loans provided.NOTE 11:-
  COMMITMENTS AND CONTINGENT LIABILITIESa.
  Lease commitments:Future minimum lease commitments under the operating lease for the
  years ended December 31, are as follows:2003
  
  
  1372004
  
  
  137$
  274F-90CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

b.
  The Company participated in a program sponsored by the Israeli
  Government for the support of research and development activities. The
  Company had obtained grants from the Office of the Chief  Scientist in the Israeli Ministry of
  Industry and Trade ( the OCS) aggregating to $ 519 for the Companys
  research and development project. The Company is obligated to pay royalties
  to the OCS amounting to 3%-5% of the sales of  the products and other related revenues generated from such
  project, up to the amount of the grants received, linked to the U.S.
  Dollar.The Company paid all royalties due to The Chief Scientist up to the
  amount of $ 519. As yet, the Company has not received a final invoice from
  The Chief Scientist.c.
  In late
  March of 2002, the Company signed an agreement with Lucent to license a cable modem termination system (CMTS).
  Coresmas name for this product is the CC8000. The Lucent CMTS allows the
  Company to meet the needs of existing customers and target new prospects with
  a CMTS based on the industry standard, DOCSIS (Data Over Cable Systems
  Interface Specification). The Company intends to bring this product through
  standards qualification tests over the next 12-18 months; however, there is a
  market today for non-qualified CMTS technology that offers the benefits of
  interoperability and low costs.Coresma has
  paid $350,000 to Lucent and owes another $450,000 of defined milestone
  payments net of any product, components or inventory we are buying from them
  In addition to milestone payments, the company owes Lucent royalties for each
  unitin the amount of $ 375  1,000 depending on the kind of units.  Management believes that the CC8000 should
  help the company to broaden the range of customers it can target for selling
  CMTS technology, thereby resulting in additional sales opportunitiesd.
  BrightCom:In the year 2000 the company signed an agreement with BrightCom
  Technologies Ltd. (an affiliate) whereby it would purchase from Brightcom
  certain rights in an architecture patent for cable on a chip for
  consideration of $ 5 million. The company is not using and has no intention
  to use the aforementioned patent rights since the company reached a
  settlement with BrightCom as follows:The company will be obliged only for a one lump-sum payment of $ 1
  million, payable by way of cash or stock (at Coresmas discretion), only upon
  a major liquidity event (i.e., IPO or merger/acquisition at pre-money
  evaluation of at least US $ 80M). Coresma agrees to make no future use of the
  BrightCom IP as part of this agreement.F-91CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

Accordingly, no asset or liability has been recorded in the financial
  statements in regard to this agreement. In the year 2002 this commitment was
  canceled.In the year 2000 the company entered into a development contract with
  Brightcom in the amount of $ 1.8 million. During the year 2001 the parties
  agreed on a payment of $ 704 thousand to terminate this agreement. This
  amount was not paid and during the year 2002 was waivered by BrightCom.e.
  Litigation:1.
  In February, 1999 the Company received a letter from Hybrid  Networks, Inc.claiming that
  certain of the companys products may infringe patents held by Hybrid. In
  managements opinion, even if some basis exists for the Hybrids companys
  claim,  royalties payments may be
  sought.  However, the Company believes
  such claim  will not have a material
  effect on its operations and financial condition.2.
  Against the company their are lawsuits in immaterial amounts in which
  there is no accruals in the financials.f.
  Guarantees:A bank has issued suppliers of the Company guarantees in the amount
  of approximately $ 860 to assure payments by the Company.g.
  Charges:The Company placed a floating charge in favor of a bank on all
  Company assets.NOTE 12:-
  INCOME TAXESa.
  Tax benefits under the Law for the Encouragement of Capital
  Investments, 1959 (the law):In accordance with the law, during 1996 the Companys production
  facilities were granted Approved Enterprise status.Pursuant to the aforementioned law, the Company has chosen the
  alternative benefits - waiver of Government grants in return for tax
  exemption. Income derived from the Approved Enterprise will be tax-exempt
  for a period of four years, commencing the first year taxable income is
  earned, and subject to a corporate tax at the reduced rate of 10%- 25%, for
  an additional period of three to six years (depending on the level of foreign
  investment in the Company). As the Company currently has no taxable income,
  these benefits have not yet commenced.F-92CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

The tax-exempt income attributable to the Approved Enterprise can
  be distributed to shareholders without subjecting the Company to taxes only
  upon the complete liquidation of the Company. If these retained tax-exempt
  profits are distributed in a manner other than in the complete liquidation of
  the Company, they would be taxed at the corporate tax rate applicable to such
  profits, as if the Company had not elected the alternative system of benefits
  (currently, 25% for an Approved Enterprise). The Companys Board of
  Directors has determined that such tax-exempt income will not be distributed
  as dividends.The period of tax benefits detailed above is subject to limits of the
  earlier of 12 years from commencement of production or 14 years from
  receiving the approval.Should the Company derive income from sources other than the
  Approved Enterprise during the relevant period of benefits, such income
  will be taxable at the regular corporate tax rate of 36%.b.
  Tax benefits under the Law for the Encouragement of Industry
  (Taxation),  1969:The Company is an industrial company under the above law and, as
  such, is entitled to certain tax benefits, mainly accelerated depreciation of
  machinery and equipment.c.
  Measurement of results for tax purposes under the Income Tax Law  (Inflationary Adjustments), 1985:Results for tax purposes are measured in terms of earnings in NIS,
  after certain adjustments for increases in the CPI. As explained in Note 2b,
  the financial statements are presented in U.S. dollars. The differences
  between the annual change in the CPI and in the NIS/dollar exchange rate
  causes a difference between taxable income and the income before taxes shown
  in the financial statements. In accordance with paragraph 9(f) of FASB
  statement No. 109, the Company has not provided deferred income taxes on this
  difference between the financial reporting currency and the tax bases of
  assets and liabilities.d.
  Net operating losses carryforwards:As of December 31, 2002, the Company had approximately $16 million of Israeli net operating loss carryforwards. The Israeli
  loss carryforwards have no expiration date. The Company expects that during
  the period in which these tax losses are utilized, its income would be
  substantially tax exempt. Accordingly, there will be no tax benefit available
  from such losses, and no deferred income taxes have been included in these
  financial statements.As of December 31, 2002 the U.S. subsidiary had U.S. federal net
  operating loss carryforwards for income tax purposes in the amount of
  approximately  $ 5.5 million.
  Expiration of the carryforward losses are between the years 2,019 and 2,022.The Company and its subsidiary have not recorded deferred tax assets
  reaching from tax loss carryforwards because its Management currently
  believes that since the Company has a history of losses, it is more likely than
  not that the deferred tax regarding the loss carryforwards and other
  temporary differences will not be realized in the foreseeable future.F-93CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 13:-
  RELATED PARTIESa.
  The following transactions, are included in the financial statements
  as follows:Year ended
  December 31,2001
  
  2002Research and
  development cost (1)(2)
  
  $
  190
  
  
  
  -.-General and
  administrative (1)
  
  $
  120
  
  
  $
  70Financial
  expenses (1)
  
  $
  215
  
  
  $
  379Other income
  (2)
  
  
  -.-
  
  
  $
  (831
  )(1)   To shareholders.(2)   Waivered by BrightCom Technologies Ltd.,
  an affiliate (see also Note 11 d).b.
  Balances with related parties:December 31,2001
  
  2002Due from:Other
  accounts receivable shareholders
  
  $
  72
  
  
  $
  74Due to:Trade
  payables - affiliates
  
  $
  976
  
  
  $
  50BVR
  Technologies Ltd
  
  $
  69
  
  
  $
  125BVR
  Systems (1998) Ltd
  
  $
  48
  
  
  $
  38Long-term
  loans from a shareholder
  
  $
  2,514
  
  
  $
  2,631Convertible
  loans
  
  $
  5,679
  
  
  $
  5,908NOTE 14:-
  SHARE CAPITALa.
  The Preferred A Shares and preferred B Shares entitle their holders
  to certain rights not granted to other shareholders holding Ordinary Shares,
  including certain Preemptive Rights to purchase new securities issued by the
  Company, rights of First Refusal and Co-Sale rights in relation to sale of
  securities by shareholders, certain anti-dilution rights in the event that
  the Company shall issue shares at a price per share lower than that paid by
  the Preferred shareholders, the right to veto certain resolutions and actions
  of the Company and liquidation preference.All such
  rights expire and the Preferred Shares are reconverted into Ordinary Shares
  on the election of the majority of Preferred shareholders or upon the
  Companys consummation of a Qualified IPO as defined in the investment
  agreement.F-94CORESMA LTD.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
b.
  Stock option plan:According to a board of directors resolution during 2002 the
  Employee Stock Option Plan was canceled.As of
  December 31. 2002, the companys outstanding options are as follows:Option Outstanding
  
  Exercise Price262,460
  
  
  0.35485,130
  
  
  1.72236,709
  
  
  8.62791
  
  
  10.24985,090NOTE 15:-
  GEOGRAPHIC OPERATING INFORMATIONa.
  Summary information about geographic areas:The Company manages its business on a basis of one reportable
  segment. See Note 1 for a brief description of the Companys businesses.
  Revenues are attributed to geographic areas based on the location of the
  customers. Long-lived assets are not presented in the table below, since all
  long-lived assets are located in Israel.Total revenuesYear ended
  December 31,2001
  
  2002Israel
  
  $
  215
  
  
  $
  99Export:Scandinavia
  
  
  9,300
  
  
  
  5,205North
  America
  
  
  1,905
  
  
  
  2,064Eastern
  Europe
  
  
  651
  
  
  
  395Far East
  
  
  615
  
  
  
  648Western
  Europe - (excluding Scandinavia) and other
  
  
  213
  
  
  
  53$
  12,899
  
  
  $
  8,464F-95CORESMA LTD.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

b.
  Major
  customers data as a percentage of total revenues:2000
  
  2001
  
  2002Customer A
  
  
  39
  %
  
  
  56
  %
  
  
  38
  %Customer B
  
  
  12
  %
  
  
  16
  %
  
  
  22
  %Customer C
  
  
  -
  %
  
  
  7
  %
  
  
  7
  %NOTE 16:-
  SELECTED STATEMENTS OF OPERATING DATAa.
  Other income
  (expenses):Year endedDecember 31,2001
  
  2002Waiver of a
  debt (also see note 11 d)
  
  
  -
  
  
  
  831Depreciation
  of an asset
  
  
  -
  
  
  
  (67
  )Decrease of
  costs of unexecuted public offering
  
  
  253
  
  
  
  17Loss from
  disposition of assets
  
  
  -.-
  
  
  
  (57
  )Others, net
  
  
  4
  
  
  
  (91
  )$
  257
  
  
  $
  633b.
  Financial expenses, net:Year endedDecember 31,2001
  
  2002Amortization
  of the discount of a
  convertible loan issued with
  warrants
  
  $
  -
  
  
  
  189Interest on
  long-term
  and convertible loans
  
  
  215
  
  
  
  381Interest to
  the banks net
  
  
  218
  
  
  
  308Government  Authorities
  
  
  18
  
  
  
  28Others
  
  
  (248
  )
  
  
  (161
  )$
  203
  
  
  $
  745F-96


BRIGHTCOM TECHNOLOGIES LTD.
 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 2002 ANNUAL REPORT
 
 
 
 
 
 
 
 F-97   BRIGHTCOM TECHNOLOGIES LTD.
 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 2002 ANNUAL REPORT
 
  TABLE OF CONTENTS
 
 PageUNAUDITED CONSOLIDATED
            FINANCIAL STATEMENTS - IN U.S.DOLLARS
            ($) IN THOUSANDS:Unaudited Balance
            sheets
        F-99Unaudited Statements
            of operations
        F-100Unaudited Statements
            of changes in shareholders equity
        F-101Unaudited Statements
            of cash flows
        F-102Notes
            to unaudited financial statements

      F-103 - F-114 
 
 
 
 
 F-98    BRIGHTCOM TECHNOLOGIES LTD.
 UNAUDITED CONSOLIDATED BALANCE SHEETS
 (In thousands)
  **December
      31**Note
    
    
    2002
    
    
    2001AssetsCURRENT
        ASSETS:Cash
        and cash equivalents
    
    
    
    
    $
    1,623
    
    $
    4,378Short-term
        deposits
    
    
    
    
    
    -
    
    
    4,217Prepaid
        and other current assets
    
    
    4a
    
    
    179
    
    
    553Inventories
    
    
    4b
    
    
    650
    
    
    375Total
        current assets
    
    
    
    
    
    2,452
    
    
    9,523LONG-TERM
        ASSETS:Long-term
        lease deposits
    
    
    
    
    
    41
    
    
    76Property
        and equipment, net
    
    
    3
    
    
    1,466
    
    
    1,941Total
        long-term assets
    
    
    
    
    
    1,507
    
    
    2,017Total
        assets
    
    
    
    
    $
    3,959
    
    $
    11,540Liabilities
        and shareholders equityCURRENT
        LIABILITIES:Short-term
        bank credit
    
    
    
    
    $
    141
    
    $
    22Trade
        payables
    
    
    
    
    
    327
    
    
    563Other
        accounts payable and accruals
    
    
    4c
    
    
    704
    
    
    736Total
        current liabilities
    
    
    
    
    
    1,172
    
    
    1,321LONG-TERM
        LIABILITY-Long-term
        bank credit
    
    
    
    
    
    
    
    
    94COMMITMENTS
        AND CONTINGENT LIABILITIES
    
    
    10Total
        liabilities
    
    
    
    
    
    1,172
    
    
    1,415SHAREHOLDERS
        EQUITY:
    
    
    7Ordinary
        shares of NIS 0.01 par value; 50,000,000 shares authorized atDecember
        31, 2002 and 2001; 19,866,165 and 19,817,765 sharesissued
        and outstanding at December 31, 2002 and 2001,respectively.
    
    
    
    
    
    49
    
    
    49Series
        A convertible preferred shares of NIS 0.01 par value;10,000,000
        shares authorized, 5,043,616 shares issued andoutstanding
        at December 31, 2002 and 2001
    
    
    
    
    
    13
    
    
    13Additional
        paid-in capital
    
    
    
    
    
    26,743
    
    
    26,693Deferred
        stock-based compensation
    
    
    
    
    
    (260
    )
    
    (347
    )Accumulated
        deficit
    
    
    
    
    
    (23,758
    )
    
    (16,283
    )Total
        liabilities and shareholders equity
    
    
    
    
    
    2,787
    
    
    10,125$
    3,959
    
    $
    11,540
 
 )) 
 Date of approval of the consolidated financial statements February 11, 2003.
 
 The accompanying notes are an integral part of the unaudited consolidated financial statements.
 F-99 BRIGHTCOM TECHNOLOGIES LTD.
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)
 
 2002


2001REVENUES

$
206COST OF REVENUE


116GROSS MARGIN


90OPERATING EXPENSES:RESEARCH AND DEVELOPMENT EXPENSES:Research and development, other, net


4,589

$
5,940Amortization of non-cash stock-based compensation


9


142Total research and development


4,598


6,082MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES:Marketing, general and administrative, other


2,854


3,692Amortization of non-cash stock-based compensation


78


180Total marketing, general and administrative


2,932


3,872OPERATING LOSS


7,440


9,954FINANCIAL EXPENSES (INCOME) ,net:Financial income, other, net


(5
)

(557
)Amortization of non-cash warrants


39


52Total financial expenses (income)


34


(505
)OTHER EXPENSES


1


98NET LOSS

$
7,475

$
9,547  The accompanying notes are an integral part of the unaudited consolidated financial statements.
  F-100  
 BRIGHTCOM TECHNOLOGIES LTD.
 UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (In thousands, except share data)
 
  Ordinary
        shares
    
    
    Preferred
        sharesNumber
        of shares
    
    
    Amount
    
    
    Number
        of shares
    
    
    Amount
    
    
    Additional
          paid-in
        capital
    
    
    Deferred
          stock-based
        compensation
    
    
    Accumulated
        deficit
    
    
    Total
          shareholders'
        equityBALANCE
        AT JANUARY 1, 2001
    
    12,885,504
    
    
    32
    
    
    -
    
    
    -
    
    
    8,600
    
    
    (617
    )
    
    (6,736
    )
    
    1,279CHANGES
        DURING 2001:Issuance
        of series A preferred shares, net
    
    -
    
    
    -
    
    
    5,043,616
    
    
    13
    
    
    14,978
    
    
    -
    
    
    -
    
    
    14,991Exercise
        of warrants
    
    559,616
    
    
    1
    
    
    -
    
    
    -
    
    
    209
    
    
    -
    
    
    -
    
    
    210Exercise
        of options
    
    18,000
    
    
    *
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    *Conversion
        of convertible loans into ordinary shares
    
    6,354,645
    
    
    16
    
    
    -
    
    
    -
    
    
    2,749
    
    
    -
    
    
    -
    
    
    2,765Deferred
        compensation related to employee stock options grants
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    52
    
    
    (52
    )
    
    -
    
    
    -Compensation
        related to grant of warrants
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    52
    
    
    -
    
    
    -
    
    
    52Amortization
        of deferred stock-based compensation
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    322
    
    
    -
    
    
    322Amounts
        assigned to options granted to none-employees
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    53
    
    
    -
    
    
    -
    
    
    53Net
        loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (9,547
    )
    
    (9,547
    )BALANCE
        AT DECEMBER 31, 2001
    
    19,817,765
    
    $
    49
    
    
    5,043,616
    
    
    13
    
    $
    26,693
    
    $
    (347
    )
    $
    (16,283
    )
    $
    10,125CHANGES
        DURING 2002:Amortization
        of warrant granted in connection with line of credit
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    39
    
    
    -
    
    
    -
    
    
    39Exercise
        of options
    
    48,400
    
    
    *
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    *Amortization
        of deferred stock-based compensation
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    87
    
    
    -
    
    
    87Amounts
        assigned to options granted to non-employees
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    11
    
    
    -
    
    
    -
    
    
    11Net
        loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (7,475
    )
    
    (7,475
    )BALANCE
        AT DECEMBER 31, 2002
    
    19,866,165
    
    $
    49
    
    
    5,043,616
    
    $
    13
    
    $
    26,743
    
    
    (260
    )
    
    (23,758
    )
    
    2,787
 
 
 *
  Representing an amount less than $1,000.
 The accompanying notes are an integral part of the unaudited consolidated financial statements.
 
 F-101   BRIGHTCOM TECHNOLOGIES LTD.
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 
 2002


2001CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(7,475
)
$
(9,547
)Adjustments to reconcile net loss to net cash used inoperating activities:Depreciation and amortization


715


539Accrued severance pay, net of amount founded


-


(78
)Compensation related to grant of warrants


39


52Amortization of deferred compensation related toemployee stock option grants


87


322Amounts assigned to options granted to non-employees


11


28Gain on sale of property and equipment


-


100Interest on principle of long term Bank loans


6Changes in operating assets and liabilities:Prepaid and other current assets


409


44Inventories


(275
)

(177
)Deferred revenue


-


(142
)Accounts payable and accruals


(268
)

88Net cash used in operating activities


(6,751
)

(8,771
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment


(240
)

(1,556
)Amounts carried to long-term lease deposit





(17
)Proceeds from (acquisition of) short-term deposits, net


4,217


(721
)Proceeds from sale of property and equipment


-


49Net cash provided by (used in) investing activities


3,977


(2,245
)CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of shares, net


-


15,016Exercise of warrants


-


210Proceeds from shareholders' convertible loans


-Discharged of shareholders' convertible loans


-


(333
)Long-term loans received





94Short-term bank credit, net and current maturities of long-term loans


19


22Net cash provided by financing activities


19


15,009INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


(2,755
)

3,993CASH AND CASH EQUIVALENTS AT THE BEGINNINGOF THE YEAR


4,378


385CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

$
1,623

$
4,378  The accompanying notes are an integral part of the unaudited consolidated financial statements.
 F-102   BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1 - THE COMPANY
 
 BrightCom Technologies Ltd. (the Company) is a fabless wireless communication semiconductor company, founded on August 17, 1998. The Company develops and markets silicon and software solutions for Personal Area Networking over the Bluetooth Wireless Standard.
 
 The accompanying financial statements have been prepared assuming that BrightCom Technologies Ltd. will continue as a going concern. the Company has incurred losses and negative cash flows from operations since inception. For the period ended December 31, 2002, the Company incurred a loss from operations of approximately $ 23,758,000 and negative cash flows from operations of $ 6,751,000. Management expects operating losses and negative cash flows to continue for the foreseeable future for the year ended December 31,2002. Management is seeking additional debt and equity financing to fund operations, however, there is no assurance that management will obtain additional financing. Failure to successfully develop and market the product, to generate sufficient revenues could have a material adverse effect on the Companys ability to continue as a going concern. The financial statemen














ts do not include any adjustments that may result from the outcome of these uncertainties.
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 The significant accounting policies, applied on a consistent basis, are as follows:
 
 a. Principles of consolidation
 
 The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany balances and transactions have been eliminated.
 
 b. Financial statements in U.S. dollars
 
 The accompanying financial statements have been prepared in U.S. dollars (dollars, $).
 The dollar is the currency of the primary economic environment in which the operations of the Company and its subsidiary are conducted. The majority of purchases of materials and components is invoiced and paid in dollars and the majority of sales are expected to be in dollars, accordingly the Companys management believes that the dollar is the primary currency of the economic environment in which the Company and its subsidiary operate. Thus, the functional and reporting currency of the Company is the dollar.
 
 Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are remeasured into dollars in accordance with the principles set forth in Statement No. 52 of the Financial Accounting Standards Board of the United States (FASB).
 
 Amounts in the financial statements presented in the dollar should not be construed to represent amounts receivable or payable in dollars or convertible into dollars, unless otherwise indicated in these financial statements.
 F-103 BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 
 c. Use of estimates
 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reported periods. Actual results could differ from those estimates.
 
 d.  Cash and cash equivalents and short-term deposits
 
 The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
 
 e.  Inventories
 
 Inventories are valued at the lower of cost or market. Cost is determined on the "first-in, first-out basis".
 
 f.  Research and development costs
 
 Costs incurred in the research and development of the Companys products are expensed as incurred.
 
 g.  Fair value of financial instruments
 
 The carrying amounts of the Companys financial instruments, including cash, cash equivalents short-term deposits, prepaid and other current assets, short-term bank credit, accounts payable and accrued liabilities approximate fair value, due to their short maturities.
 
 h.  Property and equipment
 
 Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the assets.
 
 Annual rates of depreciation are as follows:
 
  %Computers and peripheral equipment
33Electronic equipment
15Office furniture and equipment
7-15
 
 Leasehold improvements are amortized on a straight line basis over the lesser of their estimated useful life or the lease term.
 
 i.  Stock-based compensation
 
 The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting for stock Issued to Employees.
 F-104 BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 
 j.  Revenue recognition
 
 The Company recognizes revenue from sale of products to end users and resellers upon shipment, provided that a signed documentation of the arrangement has been received, the fee is fixed and determinable and collectibility is reasonably assured. The Company does not in normal course of business provide a right of return to its customers. If uncertainties exit, such as the granting to the customer of right of cancellation if the product is not technically acceptable, revenue is recognized when the uncertainties are resolved.
 
 k.  Income taxes
 
 Income taxes are accounted for using an asset and liability approach. The asset and liability approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Companys financial statements or tax returns.
 
 The measurement of current and deferred tax liabilities and assets is based on provisions of the relevant tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
 
 l.  Government grants
 
 Research and development expenses are charged to income as incurred. Participation from Government of Israel for funding the R&D costs under the Magnet program is recognized as a reduction of expense.
 
 m.  Concentration of credit risk
 Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents and short-term deposits. Cash, cash equivalents and short-term deposits are maintained by major financial institutions in Israel. Management believes that the financial institutions that hold the Company's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.
 
 n.  Comprehensive income
 
 The Company adopted Statement of Financial Accounting Standards No.130,
 Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. There was no difference between the Companys net loss and its total comprehensive loss for the year ended December 31, 2002, and the Company has no accumulated other comprehensive income or loss as of December 31, 2002.
 F-105 BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 
 o.  Recent accounting pronouncements in the United States:
 
 1) FAS 143
 
 In July 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations.(FAS 143) . 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 expect the adoption of FAS 143 to have material effect on its consolidated financial statements.
 
 2)  FAS 145
 
 In April  2002, the FASB issued FAS No. 145, "Revision of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Connections". Among other amendments and rescissions, FAS 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect, unless such gains and losses meet the criteria in paragraph 20 of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operation - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". FAS 145 is partially effective for transactions occurring after May 15, 2002 and partially effective for fiscal years beginning after May 15, 2002. The Company does not expect the adoption of th














is standard to have a material effect on its consolidated financial statements.
 
 3)  FAS 146
 
 In June 2002, the FASB issued FAS No. 146, "Accounting for Costs Associated with Exit or Disposal activities". FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emergency Issue Task Force ("EITF") No. 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 requires 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 this standard to have a material effect on its consolidated financial statements.
 F-106 
 BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 3 - PROPERTY AND EQUIPMENT:
 
 December 312002


2001In thousandsCost:Computers and peripheral equipment

$
2,137

$
1,969Electronic equipment


183


119Office furniture and equipment


261


277Leasehold improvements


553


5293,134


2,894Less-accumulated depreciation and amortization


1,668


953$
1,466

$
1,941 
 NOTE 4 - SUPPLEMENTARY BALANCE SHEET INFORMATION:
 December 312002


2001In thousandsa.Prepaid and other current assets:Institutions

$
19

$
91Prepaid expenses


17


329Employees


34


29Others


109


104$
179

$
553b.Inventories:Finished products

$
650

$
375$
650

$
375c.Other accounts payable and accruals:Employees and payroll accruals

$
473

$
715Accrued expenses


231


21$
704

$
736  F-107
  BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 5 - LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
 
 Israeli law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The Company's pension and severance pay liability to their employees is covered mainly by purchase of insurance policies.
 
 Severance pay for the Companys employees - under labor agreements, these external insurance policies provide severance pay liability. The severance pay liabilities covered by these insurance policies are not reflected in the financial statements as the severance pay risks have been irrevocably transferred to the insurance funds.
 
 NOTE 6 - SHAREHOLDERS CONVERTIBLE LOANS
 
 Under the Founders Agreement, the Company received convertible loans in the amount of  approximately $ 1,500,000. The loan was linked to the U.S. dollar and bear interest at a rate of LIBOR per annum, and was due for repayment within five years from the date of grant. The loan may be converted into Ordinary shares of the Company at any time until August 2001, at a price of $ 0.375 per share.
 
 In 2000, the Company received a convertible loan in the amount of  $1,599,250. The loan was linked to the higher of the U.S. dollar exchange rate or the Israeli Consumer Price Index, bear interest at a rate of LIBOR per annum and was due for repayment within five years from the date of grant. The loan may be converted at any time into Ordinary shares of the Company at a price of $ 0.5375 per share.
 
 In June 2001, approximately $359,000 of the loans including the accrued interest of approximately $ 26,000 was paid back to the shareholders. The remaining amount of $ 2,765,000, including interest, has been converted into 6,354,645 shares.
 
 NOTE 7 - SHARE CAPITAL
 
 In June 2001, the Company effected a 1:7 stock split through a stock dividend of ordinary and preferred shares. All references to preferred and ordinary shares amounts and prices have been retroactively restated to reflect the stock split.
 
 a.  Ordinary shares
 
 The Ordinary shares confer upon the holders the right to receive notice to participate and vote in general meetings of the Company and the right to receive dividends, if declared.
 
 b.  Redeemable convertible preferred shares
 
 Redeemable convertible preferred Shares at December 31, 2002 consists of the following:
 Number of sharesProceeds,net ofAuthorized


Issued andoutstanding


issuancecostsIn thousandsSeries A, NIS 0.01 par value


10,000,000


5,043,616


14,991 F-108 BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 7 - SHARE CAPITAL (continued)
 
 The holders of redeemable convertible preferred Shares have the rights attached to the ordinary Shares and in addition various rights and preferences such as:
 
 Voting
 
 Each preferred Shareholder is entitled to the number of votes equal to the number of shares of Ordinary Shares into which each preferred Share is convertible at the time of such vote.
 
 Liquidation and redemption rights
 
 In the event of any liquidation, dissolution or winding up of the Company, including a consolidation, merger, or reorganization of the Company with or into another entity in which the Company shall not be the surviving entity and in which the shareholders of the Company shall not have control (control means having 50% or more of the voting rights or having the right to appoint 50% or more of directors of the Company or a sale of all or substantially all of the Companys assets, or a sale of substantially all of the Companys issued and outstanding share to capital, to any other company, entity, or person).
 
 The holders of preferred shares shall be entitled to receive for each preferred share the higher of: (1) a return of the amount paid for such share or (2) the amount that would have been received for such share on an as-converted basis (as if such preferred share had been converted into Ordinary share).
 
 Conversion
 
 The A preferred share shall be converted into Ordinary Shares on ratio 1:1 basis upon the earlier of a decision of the holders of majority of the A preferred shares and an initial public offering.
 
 NOTE 8- STOCK OPTION PLANS:
 
 a.  Employee options
 
 The Company has adopted 2 share option Plans (the "Plans") under which 5,200,000 shares of the Company's common stock were reserved for issuance to employees, directors and consultants.
 
 Each option can be exercised to purchase one ordinary share of NIS 0.01 par value of the Company. The options issued under the plans vest over a period of 4 years in equal annual installments commencing immediately following the grant date. The options expire within 7  years from the date of grant.
 
 In the year 2001, the Company recorded $652,000, of deferred stock compensation for the excess of the fair value of ordinary share over the exercise price at the date of grant related to certain options granted to employees and directors. The deferred stock compensation is amortized over the period using the accelerated amortization method outlined by FIN 28. The compensation costs that have been charged to the income statements in the year 2001 and 2002, are $322,000 and $87,000, respectively.
 
 F-109 BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE 8- STOCK OPTION PLANS (continued)
 
 The Company is in the process of adopting a new employee share option plan (the New ESOP) under the new provisions of Section 102 of the Israeli Income Tax Ordinance (New Version), 1961 (Section 102).
 During the year 2003 all the options granted to employees were cancelled.
 
 b.  Non-employee options:
 
 The Company has adopted the 3 (i) option plan for non-employees.
 The Company accounts for the options and the warrant granted to non-employees in exchange for services received using the fair value based method of accounting, as prescribed by FAS 123, based on the fair value of the equity instruments issued, which is more reliably measurable than the value of the services received.
 
 The fair value of equity instruments issued in exchange for services received is charged against income as follows: exercisable and fully vested equity instruments - at date of grant: non-vested equity instruments - over the vesting period, based on the fair values of the options at each interim financial reporting dates during the vesting period.
 
 1) On July 2001, the Company granted 160,000 options to a board advisory. The options will vest as follows: 40,000 immediately, 57,600 quarterly, and the remaining 62,000 will vest subject to performance. In accordance with the requirements of FAS 123, the Company recorded a charge of approximately $ 28,000 reflecting the estimated fair value of these options utilizing the Black Scholes option-pricing model with the following weighted average assumptions : weighted average dividend yield of 0% for all grants; expected volatility of 60% for all grants; risk-free interest rate 3.5% and expected life of 2 years.
 
 2) On July 2001, the Company granted 100,872 options to preferred shares, to the receiving agent regarding the private placement agreement. In accordance with the requirements of FAS 123, the Company recorded approximately $ 25,000 reflecting the estimated fair value of these options utilizing the Black Scholes option-pricing model and the following assumptions: risk free interest of 3.5%, volatility of 60% and expected life of 2 years. The fair value of the options granted was deducted from the issuance proceeds.
 
 3)  The company granted 160,000 options to the founders at the foundation of the Company.
 
 c.  The number of stock options for non-employees and employees vested for the 31, December 2002, is 295,400 options.
 
 d.  Warrants issued to founders
 
 Upon incorporation, the Company issued 737,936 warrants for an exercise price of $ 0.375 per share. The warrants in amount of 559,616 were exercised on June, 18, 2001 and the remaining were expired.
 
 In March 1999, the Company issued to the founders additional 737,936 warrants at an exercise price of $ 0.375 per share. The warrants could be exercised by the earlier of 30 month from March 30, 1999; and completion of an IPO of the Companys securities, a merger or consolidation in which the valuation of the Company is at least $ 20 million or an acquisition of the Company by another entity. On September 30, 2001 the warrants were expired.
 
 F-110
  BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 8 - STOCK OPTION PLANS (continued):
 
 e.  Warrants issued to a bank
 
 In connection with a credit line from Bank Hapoalim, the Company issued in February 2000 to an affiliate of Bank Hapoalim, a warrant to purchase 272,112 Ordinary shares of the Company, at an exercise price of $ 1.225 per Ordinary share with an aggregate exercise price of $ 333,333. The warrant is exercisable at the earlier of February 2003 or an IPO.
 
 NOTE 9 - INCOME TAXES :
 
 a.  Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (hereinafter - the law)
 
 Under the law, by virtue of the "approved enterprise" status granted to certain production facilities, the company is entitled to various tax benefits, as follows:
 
 1)  Reduced tax rates
 
 During the period of benefits - 7 years or 10 years in the event of a foreign investors company as defined by the law - commencing in the first year in which the company 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:
 
 
 a)  Corporate tax of 25%, instead of the regular tax rate (see e. hereafter).
 
 b)  Tax exemption on income from approved enterprise in respect of which the company have elected the "alternative benefits" (involving waiver of investment grants); the length of the exemption period is 2 years, after which the income from these enterprise is  taxable at the rate of 25% for 5 years.
 
 In the event of distribution of cash dividends out of income which was tax exempt as above, the companies would have to pay the 25% tax in respect of the amount distributed, as stated in (a).
 
 The period of benefits has not yet commenced.
 
 2)  Accelerated depreciation
 
 The company 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.
 
 3)  Conditions for entitlement to the benefits
 
 The entitlement to the above benefits is conditional upon the company's fulfilling the conditions stipulated by the law, regulations published thereunder and the instruments of approval for the specific investments in approved enterprise. In the event of failure to comply with these conditions, the benefits may be cancelled and the company may be required to refund the amount of the benefits, in whole or in part, with the addition of interest.
 
 F-111
  BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 9 - INCOME TAXES (continued):
 
 b.  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 CPI. The company is taxed under this law.
 
 c.  Carryforward tax losses
 
 The Company has carryforward tax losses in the amount of approximately $15,000,000 at December 31, 2002.
 Under the inflationary adjustments law, carryforward tax losses are linked to the Israeli consumer price index.
 
 NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES:
 
 a.  Leases:
 
 1)  The facilities of the Company are leased under a non-cancelable operating lease, for periods ending in 2003.
 
 Future minimum lease commitments for the years ending December 31, 2003 are $ 42,000 dollars.
 
 2)  The Companys vehicles are leased under the operating lease agreements for various periods ending in 2004.
 
 Future minimum lease commitments for the years ended December 31, under operating lease agreements, are as follows:
 
 In thousands2003

$
1042004


41$
145
 
 b.  Charges and guaranties:
 
 1)  The Company has a floating charge on all of its assets in favor of a bank.
 
 2)  The Companys leasors received a guaranty from the bank in the amount of $ 524,000 in respect of facilities leased by the Company.
  
 c.  The Company is obligated to pay under a license agreement executed on July 1999, between the Company and Arc Cores Ltd, royalty fee per each chip sold or otherwise disposed of which contains Are Cores Ltd.s technology according to an agreed schedule.
 
 d.  Contingent liability
 
 As of December 2001, the Company notified one of its vendors that a purchase order of software in a total amount of approximately $1.2 million is cancelled. The Company is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable resolution of this matter.
 F-112 BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 11 - RELATED PARTIES:
 
 a.  Pursuant to the agreement from July, 2000, B.V.R. Technologies Ltd (a shareholder of the Company) undertook to provide consulting and management services to the Company in consideration for a monthly fee of $7,500. The agreement is for two years and may be extended for additional one year.
 
 b.  On July 2000 the Company signed an agreement with Coresma Ltd. (a Company under common ownership), whereby Coresma would purchase from Brightcom certain rights in a patent for a consideration of $ 5,000,000. The consideration should have been paid by way of installments of amounts equal to 25% of payments received by Coresma under equity fund raising, debt issuance or a positive cash flow of $ 2,000,000 or more.
 
 On November 2001, pursuant to a special settlement, it has been agreed between the parties that Coresma would be obliged to pay an amount of $1,000,000 payable by way of cash or stock at Coresma description, only upon a major liquidity event defined as IPO or merger/acquisition at pre-money valuation of at least $ 20 million. No income related to the abovementioned agreement was recorded.
 
 As part of this agreement, Coresma agreed to make no future use of the Company intellectual property.
 
 c.  During 2000 the Company also signed a development contract with Coresma for a total consideration $ 1,800,000. No income related to the abovementioned agreement was recorded.
 
 On November 2001, pursuant to a settlement, it has been agreed between the parties to realize $160,000 bank guarantee and to defer the $544,000 payment to 2002, which shall be paid in 4 quarterly installments.
 
 d. On September 2002, pursuant to a new settlement, it has agreed between the parties that Coresma will pay an amount of $ 100,000 to cover the Companys orders. It is also agreed that Coresma will not make any future use of the Companys IP. Subject to the payment of the new settlement, the Company will waive all Coresmas debt to the Company, as well as any other claims the Company may have with respect to its relationship with Coresma..
 
 Through December 31, 2002, Coresma paid $ 50,000 and the remaining amount included in the accounts receivable balance.
  F-113 BRIGHTCOM TECHNOLOGIES LTD.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 NOTE 12 - SUBSEQUENT EVENTS:
 
 a.  On January 2003, the Company terminated the employment of all its employees and rehired some of them after signing on new employment agreements.
 
 b.  On February 2003, the Company signed a letter of intent (LOI) that set forth the proposed terms for a possible acquisition of the Company by Flextronics International Ltd.
 
 According to the LOI, Flextronics will purchase the business, operations, all the assets and assume certain liabilities of the Company.
 
 In consideration, the Company will receive $500,000 at the closing of the definitive acquisition agreement, an amount considered as pre payment of royalty.
 
 In addition, the Company will be entitled to royalty payments of up to $15 million in the aggregate for all sales during the thirty - six month period following Closing as stipulated by the LOI.
 
 
 F-114


EXHIBIT INDEX

|Exhibit |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Number  | Description                                                                          
|        |                                                                                      
|1.1     | Articles of Association of the Company                                               
|4.1     | Letter Agreement Re: TV Gate Business, dated December 17, 2003, between              
|        | Comverse Ltd. and Prosper Abitbol on behalf of Apros & Chay Technoprises Ltd.        
|4.2     | Share Purchase Agreement, dated December 22, 2003, among BVR Technologies            
|        | Ltd., Technoprises Apros & Chay Ltd., Apros & Chay MB Ltd., Prosper Abitbol          
|        | and Avigdor Olshansky                                                                
|4.3     | Subscription Agreement, dated February 18, 2004, among the Company and the           
|        | subscribers listed therein                                                           
|4.4     | Form of C-2004-FEB A Warrant, dated February 18, 2004, issued by the Company         
|4.5     | Form of C-2004-FEB B Warrant, dated February 18, 2004, issued by the Company         
|4.6     | Form of C-2004-FEB C Warrant, dated February 18, 2004, issued by the Company         
|4.7     | Exclusive License Agreement, dated February 18, 2004, among Unicorp Ltd.,            
|        | Cat4view and Technoprises Apros & Chay Ltd.                                          
|4.8     | Letter Agreement, dated March 1, 2004, between Comverse Ltd. and Prosper             
|        | Abitbol                                                                              
|4.9     | Securities Purchase Agreement, dated April 16, 2004, among the Company and the       
|        | investors listed therein                                                             
|4.10    | Registration Rights Agreement, dated April 16, 2004, among the Company and the       
|        | investors listed therein                                                             
|4.11    | Letter Agreement, dated March 25, 2004, between the Company and Econor               
|        | Investments Corporation                                                              
|4.12    | Form of Class 2004-A Warrant, dated April 21, 2004, issued by the Company            
|4.13    | Term Sheet, dated April 22, 2004, among the Company, EVR and Araneo Ltd.             
|4.14    | Translation of Agreement dated May 20, 2004 between the Company and Bank Hapoalim    
|4.15    | Warrant to Purchase Ordinary Shares, dated May 20, 2004 issued to Bank               
|        | Hapoalim                                                                             
|4.16    | Joint Development and Technology Agreement, dated May 28, 2004, between              
|        | Lucent Technologies and the Company                                                  
|4.17    | Term Sheet, dated June 9, 2004, between the Company and Duncan Capital LLC           
|4.18    | Agreement dated February 17, 2004, among TCM, Dr. Levanon and Dr. Lossos             
|4.19    | Form of Convertible Note, dated July 23, 2004                                        
|8.1     | List of material subsidiaries and jurisdictions of incorporation                     
|10.1    | Consent of Zir Haft, Certified Public Accountants (Isr.), BDO Member Firm            
|10.2    | Consent of Barzily & Co.                                                             
|12.1    | Certification of Chief Executive Officer of the Registrant pursuant to Section 302   
|        | of the Sarbanes-Oxley Act of 2002.                                                   
|12.2    | Certification of Chief Financial Officer of the Registrant pursuant to Section 302 of
|        | the Sarbanes-Oxley Act of 2002.                                                      
|13.1    | Certification of Chief Executive Officer of the Registrant pursuant to Section 906   
|        | of the Sarbanes-Oxley Act of 2002.                                                   
|13.2    | Certification of Chief Financial Officer of the Registrant pursuant to Section 906 of
|        | the Sarbanes-Oxley Act of 2002.                                                      

---