[LETTERHEAD OF RATZKOVSKY FRIED]

                         REPORT OF INDEPENDENT AUDITORS

                             TO THE SHAREHOLDERS OF

                            VERDECO TECHNOLOGIES LTD.

We have audited the accompanying balance sheets of Verdeco Technologies Ltd.
("the Company") as of December 31, 1998 and 1997, and the related statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
in Israel, including those prescribed by the Israeli Auditors Regulations (Mode
of Performance) - 1973. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatements either originating within the financial
statements themselves, or due to any misleading statement included therein. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's Board
of Directors and Management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

The aforementioned financial statements have been prepared on the basis of the
historical cost convention adjusted to reflect the changes in the general
purchasing power of the Israeli currency - on the basis of the changes in the
exchange rate of the U.S. Dollar - in accordance with the opinions of the
Institute of Certified Public Accountants in Israel. Condensed nominal Israeli
currency data, on the basis of which the adjusted financial statement of the
Company were prepared, is presented in Note 16.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and 1997 and the results of its operations, changes in shareholders' equity
and cash flows for each of the two years ended in the period ended December 31,
1998, in conformity with generally accepted accounting principles, in Israel
which differ in certain respects from those followed in the United States - see
Note 15 to the financial statements.

Furthermore, in our opinion, the aforementioned financial statements comply with
the requirements of the Israeli Securities Regulations (Preparation of Annual
Financial Statements) -1993.

Without qualifying our opinion, we wish to draw attention to the following: The
Company's accumulated deficit as at December 31, 1998 and negative cash flows
from operating activities and losses for the year then ended amounts to
approximately NIS 4.324 thousands, NIS 2.123 thousands and NIS 2.498 thousands,
respectively, as discussed in note 1c. The Company's ability to continue to
operate is dependent upon additional financial support until profitability is
achieved.


                                       /s/ RATZKOVSKY FRIED MANDOLA & Co.

                                           RATZKOVSKY FRIED MANDOLA & Co.
                                           Certified Public Accountants (Israel)
Haifa, Israel
February 17, 1999