To the Shareholders of RoboGroup T.E.K LTD.
INDEPENDENT AUDITORS’ REPORT

We have audited the accompanying balance sheets of RoboGroup T.E.K LTD. (hereinafter - the Company) as of December 31, 2004 and 2003, and the consolidated balance sheets as of the same dates and the related statements of operations, statements of changes in shareholders’ equity and statements of cash flows - for each of the three years ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements, based on our audit.

We have not audited the financial statements of the consolidated companies whose joint assets represent approximately 18% of the total consolidated assets as of December 31, 2004 and 2003 respectively and whose joint revenues represent approximately 44% 43%, and 28% of the total consolidated revenues for the years ended December 31, 2004, 2003 and 2002 respectively. The financial statements of those companies were audited by other independent public accountants whose reports have been furnished to us and our opinion, insofar as it relates to amounts included for those companies, is based solely on the reports of those other public accountants.

We conducted our audit in accordance with generally accepted auditing standards, including those prescribed by the Auditors (Mode of Performance) Regulations, 1973 and 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 that 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 audit provides a reasonable basis for our opinion.

In our opinion, based on our examination and on the reports of the other public accountants referred to above, the above mentioned financial statements present fairly, in all material respects, the financial position - of the Company and consolidated - as of December 31, 2004 and 2003 and the results of operations, changes in shareholders’ equity, and cash flows - of the Company and consolidated - for each of the three years ended December 31, 2004, in conformity with accounting principles generally accepted in Israel and in the United States (as applicable to the financial statements of the Company, such accounting principles are practically identical in the said countries, save for the measurement in terms of a constant purchasing power, which became an accepted accounting practice in Israel during a period of hyperinflation and save for certain matters summarized in note 26). It is also our opinion that the above mentioned financial statements have been prepared in conformity with the Securities Regulations (Preparation of Annual Financial Statements), 1993.

As described in Note 2, the financial statements as of the dates and for the reported periods subsequent to December 31, 2003, are presented in reported amounts, in conformity with Accounting Standards of the Israel Accounting Standards Board. The financial statements as of the dates and for the reported periods until the aforementioned date are presented in values that were adjusted until that date according to the changes in the general purchasing power of the Israeli currency, in accordance with pronouncements of the Institute of Certified Pubic Accountants in Israel.

Tel-Aviv, March 28, 2005

F-2

MOCK & PARTNERS INTERNATIONAL

registeraccountants

AUDITORS’ REPORT

Introduction
We have audited the financial statements of Eshed Robotec B.V., Amsterdam, for the period 1 January – 31 December 2004 (as set out on pages 2 to 8). These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope
We conducted our audit in accordance with auditing standards generally accepted in the Netherlands. 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 presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion
In our opinion, the financial statements give a true and fair view of the financial position of the company as at 31 December 2004 and of the result for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in Part 9 of Book 2 of the Netherlands Civil Code.

Amsterdam, 12 January 2005

Mock & Partners International

Drs. H.J.S. Mock RA

Rapenburgerstraat 109, 1011 VL Amsterdam. Tel: 020 6381881, Fax: 020 6272624

F - 2a

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BERRY.DUNN.MCNEIL & PARKER

CERTIFIED PUBLIC ACCOUNTANTS
MANAGEMENT CONSULTANTS

INDEPENDENT AUDITORS’ REPORT

The Board of Directors
intelitek, Inc.

We have audited the balance sheets of intelitek, Inc. (the Company), a wholly owned subsidiary of Robo Group T.E.K. Ltd. as of December 31, 2004 and 2003, and the related statements of operations, stockholder’s equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing standards. 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 provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of intelitek, Inc., as of 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

 
Manchester, New Hampshire
January 31, 2005
(Except for Note 6, as to which the date is February 28, 2005.)

 

PORTLAND, ME - BANGOR, ME - LEBANON, NH - MANCHESTER, NH
WWW.BDMP.COM

F - 2b

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RoboGroup T.E.K. Ltd.

Balance Sheets

(NIS in Thousands)

				Consolidated									Company
	Note			December, 31 2004 U.S.$ (K) (1) Reportedamounts (*)			December, 31 2004 NIS (K) Reported amounts (*)			December, 31 2003 NIS (K) Adjusted amount (*)			December, 31 2004 NIS (K) Reported amounts (*)			December, 31 2003 NIS (K) Adjusted amount (*)
ASSETS
Current assets
Cash and cash equivalents					1,615			6,957			14,878			3,351			9,460
Short-term investments					23			99			-			99			-
Trade receivables		3			3,547			15,282			13,217			5,726			2,764
Other receivables and debit   balances		4			486			2,093			2,292			1,086			1,487
Inventories		5			2,175			9,372			13,603			3,261			4,979
					7,846			33,803			43,990			13,523			18,690
Long-term investments
Investments in investee and    other companies		6			-			-			15			14,239			20,009
Funds in respect of employee    rights upon retirement, net		14			131			563			81			563			81
					131			563			96			14,802			20,090
Fixed assets, net		8			8,484			36,548			38,233			33,294			34,587
Other assets and deferred   expenses		9			240			1,036			1,525			667			742
					16,701			71,950			83,844			62,286			74,109

(1)	Convenience translation into U.S. Dollars.
(*)	Discontinuance of the adjustment for the effects of inflation according to the Israeli CPI as of December 2003
	(see note 2).
(*)	Adjusted amounts for the Israeli CPI as of December 2003.

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

F-3

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RoboGroup T.E.K. Ltd.

Balance Sheets

(NIS in Thousands)

				Consolidated									Company
	Note			December, 31 2004 U.S.$ (K) (1) Reported amounts (*)			December, 31 2004 NIS (K) Reported amounts (*)			December, 31 2003 NIS (K) Adjusted amount (*)			December, 31 2004 NIS (K) Reported amounts (*)			December, 31 2003 NIS (K) Adjusted amount (*)
LIABILITIES
Current liabilities
Credit from banks		10			3,535			15,228			15,941			12,952			13,606
Trade payables		11			1,359			5,853			5,394			2,629			2,348
Other payables and credit    balances		12			2,398			10,333			14,345			6,308			10,191
				7,292			31,414			35,680			21,889			26,145
Long-term liabilities
Loans from banks		13			3,969			17,100			17,516			17,100			17,516
Provision for deferred taxes		24			38			163			-			163			-
Liability for termination of    employee/employer    relationship, net		14			32			139			200			-			-
				4,039			17,402			17,716			17,263			17,516
Commitments, contingent    liabilities and pledges		15
Shareholders’ equity
Share capital		16			2,646			11,400			11,399			11,400			11,399
Authorized capital as at    December 31, 2004 and 2003    was 25,000,000 shares of NIS    0.5 par value of which    11,239,952 and 11,238,352    shares were issued and    outstanding on December 31,    2004 and 2003 respectively Premium on shares					9,854			42,452			42,214			42,452			42,214
Capital reserves					401			1,727			1,807			1,727			1,807
Accumulated deficit					(7,348	)		(31,656	)		(23,969	)		(31,656	)		(23,969	)
Treasury stock					(183	)		(789	)		(1,003	)		(789	)		(1,003	)
				5,370			23,134			30,448			23,134			30,448
				16,701			71,950			83,844			62,286			74,109

Date of approval of the financial statements: March 28, 2005

Rafael Aravot Chairman of the Board and CEO		Haim Schleifer Director and Joint General Manager		Hanan Eiboshitz Chief Financial Officer

(1)	Convenience translation into U.S. Dollars.
(*)	Discontinuance of the adjustment for the effects of inflation according to the Israeli CPI as of December 2003
	(see note 2).
(*)	Adjusted amounts for the Israeli CPI as of December 2003.

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

F-4

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RoboGroup T.E.K. Ltd.

Statement of Operations

(NIS in Thousands)

			Consolidated												Company
	Note		Year ended December, 31 2004 U.S. $ (K) (1) Reported amounts (*)			Year ended December, 31 2004 NIS (K) Reported amounts (*)			Year ended December, 31 2003 NIS (K) Adjuste damounts (**)			Year ended December, 31 2002 NIS (K) Adjuste damounts (**)			Year ended December, 31 2004 NIS (K) Reporte damounts (*)			Year ended December, 31 2003 NIS (K) Adjuste damounts (**)			Year ended December, 31 2002 NIS (K) Adjuste damounts (**)
Revenues	21			14,330			61,734			56,116			86,159			28,941			23,169			38,811
Cost of revenues	22			8,320			35,843			32,598			41,412			16,667			14,558			19,008
Gross profit				6,010			25,891			23,518			44,747			12,274			8,611			19,803
Operating expenses
Research and development  expenses, net	23			1,769			7,619			12,651			12,755			3,570			4,765			3,004
Marketing and selling  expenses	23			3,065			13,204			12,622			14,240			4,592			5,286			3,531
Administrative and general  expenses	23			2,331			10,042			14,569			13,630			5,461			6,659			7,423
				7,165			30,865			39,842			40,625			13,623			16,710			13,958
Operating income (loss)				(1,155	)		(4,974	)		(16,324	)		4,122			(1,349	)		(8,099	)		5,845
Financial expenses, net	23			(490	)		(2,111	)		(3,783	)		(1,402	)		(1,746	)		(3,643	)		(2,105	)
Other income, net	23			188			809			2,032			1,640			1,643			2,799			2,130
Income (loss) before  taxes on income				(1,457	)		(6,276	)		(18,075	)		4,360			(1,452	)		(8,943	)		5,870
Income tax expenses   (income)	24			327			1,411			(82	)		1,051			1,162			(42	)		-
Income (loss) before Company’s share in results  of Investee companies				(1,784	)		(7,687	)		(17,993	)		3,309			(2,614	)		(8,901	)		5,870
Company’s share in losses  of Investee companies				-			-			-			-			(5,073	)		(9,092	)		(2,561	)
Net income (loss)				(1,784	)		(7,687	)		(17,993	)		3,309			(7,687	)		(17,993	)		3,309
Earnings (loss) per  share (“EPS”)				(0.17	)		(0.71	)		(1.67	)		0.31
Number of shares used in  computation of EPS (in  thousands)				10,757			10,757			10,744			10,731

(1)	Convenience translation into U.S. Dollars.
(*)	Discontinuance of the adjustment for the effects of inflation according to the Israeli CPI as of December 2003
	(see note 2).
(**)	Adjusted amounts for the Israeli CPI as of December 2003.

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

F-5

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RoboGroup T.E.K. Ltd.

Statement of Changes in Shareholders’ Equity

(NIS in Thousands)

	Number of shares (1)			Share capital			Premium on shares			Capital reserves			Adjustments on translation of financial statement of an autonomous consolidated company			Shares purchase			Accumulated deficit			Total
				NIS (K)			NIS (K)			NIS (K)			NIS (K)			NIS (K)			NIS (K)			NIS (K)
Balance at January 1, 2002  Adjusted amount (**)		10,727,831			11,392			42,191			2,260			-			(1,003	)		(9,285	)		45,555
Exercise of options		3,000			-			4			-			-			-			-			4
Adjustments on translation of  financial statement of an  autonomous consolidated  company		-			-			-			-			120			-			-			120
Net income		-			-			-			-			-			-			3,309			3,309
Balance at December 31, 2002  Adjusted amount (**)		10,730,831			11,392			42,195			2,260			120			(1,003	)		(5,976	)		48,988
Exercise of options		13,200			7			19			-			-			-			-			26
Adjustments on translation of  financial statement of an  autonomous consolidated  company		-			-			-			-			(573	)		-			-			(573	)
Net loss		-			-			-			-			-			-			(17,993	)		(17,993	)
Balance at December 31, 2003  Adjusted amount (**)		10,774,031			11,399			4,214			2,260			(453	)		(1,003	)		(23,969	)		30,448
Exercise of options		1,600			1			3			-			-			-			-			4
Granting of treasury stock (see  Note 16)		105,396			-			235			-			-			214			-			449
Adjustments on translation of  financial statement of an  autonomous consolidated  company		-			-			-			-			(80	)		-			-			(80	)
Net loss		-			-			-			-			-			-			(7,687	)		(7,687	)
Balance at December 31, 2004  Reported amounts (*)		10,851,027			11,400			42,452			2,260			(533	)		(789	)		(31,656	)		23,134

(1)	Convenience translation into U.S. Dollars.
(*)	Discontinuance of the adjustment for the effects of inflation according to the Israeli CPI as of December 2003
	(see note 2).
(**)	Adjusted amounts for the Israeli CPI as of December 2003.

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

F-6

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RoboGroup T.E.K. Ltd.

Statement of Cash Flows

(NIS in Thousands)

	Consolidated												Company
	Year ended Dec. 31 2004 (*) U.S. $ (K) (1) Reported amounts (*)			Year ended Dec. 31 2004 NIS (K) Reported amounts (*)			Year ended Dec. 31 2003 NIS (K) Adjusted amount (**)			Year ended Dec. 31 2002 NIS (K) Adjusted amount (**)			Year ended Dec. 31 2004 NIS (K) Reported amounts (*)			Year ended Dec. 31 2003 NIS (K) Adjusted amount (**)			Year ended Dec. 31 2002 NIS (K) Adjusted amount (**)
Cash flows from operating activities:
Net income (loss)		(1,784	)		(7,687	)		(17,993	)		3,309			(7,687	)		(17,993	)		3,309
Adjustments to reconcile net income (loss) to  net cash provided by (used in) operating   activities (Appendix A):		387			1,667			8,776			10,074			4,189			14,017			6,504
Net cash provided by (used in) operating  activities		(1,397	)		(6,020	)		(9,217	)		13,383			(3,498	)		(3,976	)		9,813
Cash flows from investing activities:
Decrease (increase) in credit given to  consolidated companies, net		-			-			-			-			(1,192	)		(1,013	)		746
Acquisition of an operation (Appendix C)		-			-			-			(605	)		-			-			(605	)
Acquisition of fixed assets		(162	)		(700	)		(1,075	)		(2,171	)		(195	)		(228	)		(2,007	)
Proceeds from sales of fixed assets		27			17			384			552			-			112			1,357
Sale of short-term investments, net		-			-			334			1,476			-			334			1,476
Net cash provided by (used in) investing  activities		(135	)		(583	)		(357	)		(748	)		(1,387	)		(795	)		967
Cash flows from financing activities:
Increase (decrease) in short term credit from  banks, net		142			614			3,926			(341	)		673			1,770			(385	)
Long-term loans received		4,971			21,414			-			765			21,414			-			765
Repayment of long –term loans		(5,412	)		(23,315	)		(3,778	)		-			(23,315	)		(3,778	)		-
Proceeds from exercise of options by   employees		1			4			26			4			4			26			4
Net cash provided by (used in) financing  activities		(298	)		(1,283	)		174			428			(1,224	)		(1,982	)		384
Effect of exchange rate changes on  cash and cash equivalents		(9	)		(35	)		(55	)		-			-			-			-
Increase (decrease) in cash and cash   equivalents		(1,839	)		(7,921	)		(9,455	)		13,063			(6,109	)		(6,753	)		11,164
Cash and cash equivalents at the  beginning of the year		3,454			14,878			24,333			11,279			9,460			16,213			5,049
Cash and cash equivalents at the end of   the year		1,615			6,957			14,878			24,333			3,351			9,460			16,213

(1)	Convenience translation into U.S. Dollars.
(*)	Discontinuance of the adjustment for the effects of inflation according to the Israeli CPI as of December 2003
	(see note 2).
(**)	Adjusted amounts for the Israeli CPI as of December 2003.

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

F-7

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RoboGroup T.E.K. Ltd.

Statement of Cash Flows

(NIS in Thousands)

Appendix A: Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

	Consolidated												Company
	Year ended Dec. 31 2004 (*) U.S. $ (K) (1) Reported amounts (*)			Year ended Dec. 31 2004 NIS (K) Reported amounts (*)			Year ended Dec. 31 2003 NIS (K) Adjusted amount (**)			Year ended Dec. 31 2002 NIS (K) Adjusted amount (**)			Year ended Dec. 31 2004 NIS (K) Reported amounts (*)			Year ended Dec. 31 2003 NIS (K) Adjusted amount (**)			Year ended Dec. 31 2002 NIS (K) Adjusted amount (**)
Income and expenses not involving   cash flows:
Company’s share in loss from   Investee companies, in addition  of received dividends		-			-			-			-			6,867			9,092			2,561
Depreciation and amortization		601			2,589			2,597			2,685			1,600			1,662			1,665
Decrease in liability for termination of  employee/employer relationship		(126	)		(543	)		(869	)		(467	)		(482	)		(714	)		(538	)
Write-down of loans		37			158			(259	)		675			158			(259	)		691
Decrease (increase) in value of marketable  securities		(20	)		(84	)		155			166			(84	)		155			166
Decrease (increase) in deferred taxes		245			1,054			444			(18	)		853			350			2
Other		(32	)		(136	)		71			88			(115	)		62			27
		705			3,038			2,139			3,129			8,797			10,348			4,574
Changes in assets and liabilities:
Decrease (increase) in trade receivables		(502	)		(2,163	)		6,141			5,216			(2,962	)		3,724			(3,210	)
Decrease (increase) in other receivables  and debit balances		47			201			(752	)		1,661			401			(102	)		1,445
Decrease (increase) in inventories		954			4,111			1,391			681			1,718			(626	)		136
Increase (decrease) in trade payables		107			459			(3,178	)		(2,389	)		281			(1,475	)		796
Increase (decrease) in other payables  and credit balances		(924	)		(3,979	)		3,035			1,776			(4,046	)		2,148			2,763
		(318	)		(1,371	)		6,637			6,945			(4,608	)		3,669			1,930
		387			1,667			8,776			10,074			4,189			14,017			6,504
	Appendix B: Non-monetary events
Granting of treasury stocks	104			449			-			-			449			-			-
Conversion of loans from short-term to long-term	-			-			-			13,121			-			-			13,121

A consolidated company converted a loan of NIS 12,036 thousands to capital on January, 1 2002

(1)	Convenience translation into U.S. Dollars.
(*)	Discontinuance of the adjustment for the effects of inflation according to the Israeli CPI as of December 2003
	(see note 2).
(**)	Adjusted amounts for the Israeli CPI as of December 2003.

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

F-8

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RoboGroup T.E.K. Ltd.

Statement of Cash Flows

(NIS in Thousands)

Appendix C: Activities Acquisition

	Consolidated
	For the year ended December 31
	2004			2003			2002
	NIS (K)			NIS (K)			NIS (K)
Working capital, net		-			-			(280	)
Other assets		-			-			(325	)
		-			-			(605	)

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

F-9

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 1     -	GENERAL
	RoboGroup T.E.K. Ltd. (hereafter – “the Company”) was incorporated in 1982 under the name of Eshed Robotec (1982) Ltd. The Company changed its name to its current name in the year 2000. The Company, by itself and through consolidated companies, is engaged in the development, manufacturing and marketing of robotic technologies, CNC machines, software and distance learning products for education and training. The Company is also engaged, through its proportionately consolidated company, in development, manufacturing and marketing of products in the field of industrial motion control. During the previous years the Company developed a technology whose aim was to reduce the time required for locating and retrieving information in computers and communication networks, through its consolidated companies. This activity was significantly reduced during the year 2004.
	In the years ended on December 31, 2004 and 2003, the Company had losses of approximately NIS 8 million and NIS 18 million, respectively. In addition, in the years 2004 and 2003 the Company’s negative cash flows from operating activities were approximately NIS 6 million and NIS 9 million, respectively. The Company’s management took up measures to increase efficiency, in order to improve the Company’s financial state and its profitability, as follows:

	1.	Merger of operations, personal cutbacks, decrease in salaries costs of senior employees and cutbacks in general expenses.
	2.	The Company signed an agreement of Equity Line with Cornell Capital Partners LP company (See note 16 (2)).

In the fourth and third quarters of the year 2004, the Company’s positive cash flows from operating activities were approximately NIS 1.5 million and NIS 0.4 million, respectively.

NOTE 2     -	SIGNIFICANT ACCOUNTING POLICIES
	The principal accounting policies, which have been applied consistently with those of previous years, are as follows:

	A.	Financial statements in adjusted and reported amounts

	(1)	Discontinuance of adjustment of financial statements and financial report in reported amounts

	(a)	Definitions:

	Adjusted amount  - historical nominal amount adjusted for the Israeli CPI as of December 2003, according to the provisions of Opinions No. 23 and No. 36 of the Institute of Certified Public Accountants in Israel.
	Reported amount  - adjusted amount as of the transition date (December 31, 2003), plus additions in nominal values after the transition date and less amounts deducted after the transition date. Deduction of amounts after the transition date is in nominal historical values, in adjusted amounts as of the transition date or combination of nominal historical values and adjusted amounts as of transition date, according to its own merits.

	(b)	On January 1, 2004 the Israel Accounting Standard 12 of the Israel Accounting Standards Board, which deals with discontinuing the adjustment of financial statements, has come into become effective (hereinafter – “Standard 12”).

	Pursuant to Standard 12, as of January 1, 2004, the Company ceased adjusting its financial statements to the Israeli CPI. As of interim financial reports of March 31, 2004 and afterwards the financial statements are stated in reported amounts.
	Data included in financial statements regarding dates and periods up to (including) December 31, 2003, are included in adjusted amounts.

F-10

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

 

NOTE 2    -	SIGNIFICANT ACCOUNTING POLICIES  (cont.)
	A.	Financial statements in adjusted and reported amounts  (cont.)

	(2)	Financial statements in reported amount:

	Balance sheet:

	1)	Non-monetary items are presented in reported amounts.
	2)	Monetary items are presented in nominal values as of the balance sheet date.
	3)	Investment in consolidated companies included in company’s accounts on equity value basis is presented based on financial reports in reported values of consolidated companies.

	Statement of operations:

	1)	Income and expenses, including financial, are included in nominal values.
	2)	Income and expenses relating to non-monetary items are derived from the change between adjusted amount in the opening balance and reported amount in the closing balance.
	3)	Company’s share in results of consolidated companies is based on financial statements in reported values of the consolidated companies.

	(3)	Financial statements in adjusted amounts until December 31, 2003:

	Principle of adjustment

	a)	Balance sheet

Non-monetary items (e.g. fixed assets and depreciation thereof, partnership capital, inventories, etc.) are adjusted for changes in the consumer price index (C.P.I.), between the index for the month of the transaction and the index for the month of the balance sheet. Monetary items are presented in the balance sheet in their nominal amounts at that date. Investment in consolidated companies included in company’s accounts based on equity value basis is presented on adjusted financial statements of the consolidated companies.

	b)	Statement of operations

	Statement of operations items’ are adjusted for changes in the consumer price index as follows:
	Amounts related to non-monetary items (e.g. depreciation, movements in inventories) and the various provisions included in the balance sheet (e.g. the provision for vacation pay, severance pay, etc.) and changes in deferred taxes are adjusted in tandem with the adjustment to the balance sheet item.
	Revenues and other expenses, excluding financial expenses, are adjusted for changes in the C.P.I. between transaction date and the balance sheet date. Incomes of consolidated companies are determined based on consolidated companies adjusted financial statements. Adjustment and inflationary adjustments not related to revenues or expenses already mentioned are included with financial expenses.

	(4)	The amounts for non-monetary assets do not necessarily represent realization value or current economic value but only the adjusted values, as explained above.
	(5)	In these financial statements “Cost” means cost in reported or adjusted amount, regarding the matter.
	(6)	A summary of the nominal amounts on which the adjusted financial statements are based is given in Note 25.

F-11

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 2     -

SIGNIFICANT ACCOUNTING POLICIES  (Cont.’)

	B.	Use of estimates and assessments

	The preparation of financial reports according to GAAP, requires that the management use estimates and assessments, which affect the reported data regarding assets and liabilities, conditional assets and contingent liabilities disclosed in the financial statements and income and expenses in the reported period. Actual results may differ from these estimates.

	C.	Convenience translation into US dollars

The adjusted consolidated financial statements as at December 31, 2004 and for the year then ended, have been translated into US dollars purely for the convenience of non-Israeli readers. The translation was made according to the representative exchange rate of the US dollar to NIS on December 31, 2004 ($1 = NIS 4.308). The translation dollar amounts should not be construed as amounts receivable or payable in dollars or convertible into dollars.

	D.	Principles of Consolidation

	The consolidated financial statements include the financial statements of the Company and those of its subsidiaries (consolidated companies). These financial statements also include the Company’s portion (50%) of the assets, liabilities, income and expenses of companies owned jointly.
	Significant inter-company balances and transactions between the Company and its consolidated companies or its proportionately consolidated company have been eliminated for the purpose of consolidation.

	E.	Exchange Rates and Basis of Linkage

	Balances in, or linked to, foreign currency are stated in the financial statements at the representative rates of exchange in effect at balance sheet date, as published by The Bank of Israel. Balances linked to the CPI are included in the balance sheets according to the latest index published prior to balance sheet date. Changes in monetary balances caused by changes in foreign currency exchange rate or from changes in the CPI are changed to the statement of operation as incurred.
	Hereunder are details of the CPI and dollar exchange rates:

		Dollar Exchange Rates		CPI
		NIS		Points (*)
At December 31, 2004		4.308		114.3
At December 31, 2003		4.379		112.9
At December 31, 2002		4.737		115.1

Rates of increase (decrease) in the years		In percentage %
2004		(1.62	)	1.2
2003		(7.55	)	(1.9	)
2002		7.27		6.5

	(*) The CPI based on average 1998=100.

	F.	Cash and Cash Equivalents

Cash and cash equivalents include cash balances and deposits with banks which have original maturities of three months or less that are not restricted.

F-12

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 2    -	SIGNIFICANT ACCOUNTING POLICIES  (Cont.’)
	G.	Marketable Securities

	Marketable securities held for short term as marketable securities are stated at market value. Changes in value are included in other income and expenses.

	H.	Customers - Allowance for doubtful accounts

	Provision for doubtful accounts have been calculated on a specific basis, in respect to debts whose collection is in doubt.

	I.	Inventories

	Inventories are stated at the lower of cost or market. The Company continuously examines the risk deriving from slow movement of inventories, technological obsolescence, inventories excess and market lower than cost.
	Cost is determined as follows:
	Raw materials and bought-in – by the moving average method.
	Work in progress and finished products: The raw materials component - by the moving average method. Labor and production overheads component – on the basis of actual manufacturing costs.

	J.	Investments in Investees and Other Companies

	The investments in Investee companies are stated in the Company’s financial statements on an equity value basis.
	The excess of cost of the investment in an Investee company over its net equity value on acquisition, which is not directly attributable, represents goodwill and is amortized over a period of five years.
	Investments in other companies, held as long-term investments, are presented at cost.

	K.	Financial statement of consolidated companies’ abroad

	1.	On January 1, 2004, the Israeli Accounting Standard No. 13 with respect to the effect of changes in foreign exchange rates became effective. Standard No. 13 replaces Interpretations No. 8 and No. 9 of Opinion No. 36 of the Institute of Certified Public Accountants in Israel, which were superseded when the Israeli Accounting Standard No. 12, as described above, became effective.
		Standard No. 13 deals with the translation of foreign currency transactions and with the translation of financial statements of foreign operations for incorporation into the financial statements of the Company.

	2.	Foreign operation that is classified as a foreign autonomous entity (“the entity”):

In accordance with Standard No. 13, assets and liabilities, both monetary and non-monetary, of the entity are translated at the closing rate. The components of the statement of operations and of the statement of cash flows of the entity are translated at the exchange rates at the dates of the transactions or at average exchange rates for the period if such exchange rates approximate the actual exchange rates. All exchange rate differences resulting from the translation, as above, are classified as a separate item in shareholders’ equity (“foreign currency translation adjustments for autonomous entities”) until the disposal of the investment.

F-13

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 2  -	SIGNIFICANT ACCOUNTING POLICIES  (Cont.’)
	L.	Fixed Assets

	Fixed assets are stated at cost (Demonstration equipment are valued at the cost of finished products of the same type) less accumulated depreciation.
	Financing costs of credit lines opened for financing the purchase of the building, in the period prior to its use, have been capitalized.
	Depreciation is calculated according to the straight-line method at the following rates, which are considered to be adequate to the depreciation of the assets over the course of their estimated useful lives:

		%
Machinery and equipment (mainly 20%)		10-20
Office equipment and furniture (mainly 6%)		6-10
Computers and computerized equipment (mainly 33%)		20-33
Vehicles (mainly 20%)		15-20
Building (mainly 2%)		2-4
Leasehold improvements		Over the lease period

	M.	Intangible Property

Intangible property includes mainly goodwill, know-how and rights to products. Goodwill which represents the excess of cost of the investments in businesses and consolidated companies over their fair value at acquisition, amortized at annual rates over a period of five years. Know-how and rights to products are amortized according to the straight-line method on the basis of their estimated useful lifetime, which is approximately three years.

	N.	Impairment of assets

The Company examines at each balance date the returnable amount of its assets whenever signs for impairment of those items exist. When an asset’s book value exceeds its returnable amount, the Company recognizes the loss from impairment of that asset. Loss from impairment of assets, excluding goodwill, which was recognized earlier, is annulled only in case of change in estimates used to determine the returnable amount, as of date when last loss from impairment was recognized. The book value after the annulment will not exceed the book value of that asset, which would have been set for unless the loss from impairment had been recognized during the prior years.

	O.	Deferred Taxes

	Deferred taxes are computed in respect of temporary differences between the reported amounts of assets and liabilities and their tax basis and calculated according to the enacted tax rates and lows that is expected to be in effect when the differences are expected to be paid or realized. The Company recognizes tax benefits receivable where the expectation of realization according to management estimate, is more likely than not.
	The proportionately consolidated company has accumulated earnings derived from tax exempt income as an “approved enterprise”. The distribution of a dividend out of such income would give rise to the imposition of corporation tax at the rate of 20% in respect to that income. It is the intention of the Company and the proportionately consolidated company to constantly reinvest its tax-exempt income and not to distribute it as dividend. Accordingly, there is no provision for deferred taxes in respect of tax exempt income.
	The Company included a provision for taxes, that may enact when dividends from proportionately consolidated company are received from income of “approved enterprise”, except for tax exempt income.

F-14

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 2    -	SIGNIFICANT ACCOUNTING POLICIES  (Cont.’)
	P.	Product Warranty

	The provision is calculated specifically for the obligation relating to each individual product sold, usually for a period of one year from the date of sale.

	Q.	Options to Employees

	The Company has adopted U.S. Opinion APB 25 for the accounting treatment for a share option program for employees and director-shareholders.
	Accordingly, Note 26 gives proforma data had the Company chosen to adopt U.S. Statement FAS 123 for the accounting treatment of benefits inherent in the above mentioned program.

	R.	Revenue Recognition

	Revenues from sale of products and from the sale of software rights are generally recognized upon delivery, provided that payment is fixed or determinable, collectibility is probable and there is no significant obligation remaining.
	In a revenue arrangement with multiple deliverables, the delivered item(s) considered a separate unit of accounting if all of the following criteria are met:

	1.	The delivered item(s) has value to the customer on a standalone basis.
	2.	There is a vendor specific objective evidence of fair value (market value) of the delivered item(s).
	3.	If the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the vendor.

	Revenues from the sales of products dependent on installation are recognized on the conclusion of the installation. With respect to transactions that were entered into from June 15, 2003 and henceforth, the company adopted the provisions of publication of the Emergency Issues Task Force on Issue 00-21 (EITF 00-21) and they are recognized as arrangement with multiple deliverables as detailed above.
	Revenues from development services are recognized upon completion of the development, and in accordance with the terms of the related contracts.
	Revenues from software maintenance services are recognized ratably over the contractual period.
	Revenues from the grant of production licenses are recognized upon fulfilling the terms of the commitments under the contract and are spread over the license period.
	Revenues from software and content development based upon a fixed cost performance contract are recognized on completion percentage basis. Completion percentage is determined on actual cost compared to the total predicted cost basis.

F-15

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 2      -	SIGNIFICANT ACCOUNTING POLICIES  (Cont.’)
	S.	Research and Development Costs

	Research and development costs are charged to income as incurred. Related grants are deducted from the related costs on an accrual basis.

	T.	Earnings Per Share

	The basic earnings (losses) per share are calculated on the basis of a weighted average of the issued and paid-up shares during the year, with no accounting for possible dilution.
	These financial statements do not include the effect of a possible dilution from options given to employees because their effect is anti-dilution or not material.

	U.	Impact of recently issued Accounting Standards

	On July 2004, the Israeli Accounting Standards Board published Accounting Standard No. 19, “Taxes on Income”. The Standard provides that a liability for deferred taxes is to be recorded for all temporary differences subject to tax, except for a limited number of exceptions. In addition, a deferred tax asset is to be recorded for all temporary differences that may be deducted, losses for tax purposes and tax benefits not yet utilized, if it is anticipated that there will be taxable income against which they can be offset, except for a limited number of exceptions. The new Standard applies to financial statements for periods beginning on January 1, 2005. The Standard provides that it is to be implemented by means of a cumulative effect of a change in accounting method.
	The Company estimates the impact of the Standard on its financial statements will not be material.

F-16

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 3        -	TRADE RECEIVABLES

	Consolidated						Company
	December, 31 2004 U.S.$ (K)		December, 31 2004 NIS (K)		December, 31 2003 NIS (K)		December, 31 2004 NIS (K)		December, 31 2003 NIS (K)
Customers:
Open accounts	3,596		15,491		14,607		5,192		2,875
Checks for collection	4		20		346		-		230
Receivable income	203		875		-		875		-
Total trade receivables	3,803		16,386		14,953		6,067		3,105
Less: Allowance for doubtful accounts	256		1,104		1,736		341		341
	3,547		15,282		13,217		5,726		2,764

NOTE 4        -	OTHER RECEIVABLES AND DEBIT BALANCES

	Consolidated						Company
	December, 31 2004 U.S. (K)		December, 31 2004 NIS (K)		December, 31 2003 NIS (K)		December, 31 2004 NIS (K)		December, 31 2003 NIS (K)
Loans to employees	18		76		78		61		78
Advances to suppliers	143		614		577		322		577
Institutions	131		566		293		146		215
Deferred taxes	47		201		201		-		-
Proportionately consolidated company	-		44		-		88		-
Related parties (1)	-		-		138		-		138
Other receivables and debit balances	147		592		1,005		469		479
	486		2,093		2,292		1,086		1,487

	(1) Unlinked and do not bear interest.
NOTE 5        -	INVENTORIES

	a.	Composition:

	Consolidated						Company
	December, 31 2004 U.S.$ (K)		December, 31 2004 NIS (K)		December, 31 2003 NIS (K)		December, 31 2004 NIS (K)		December, 31 2003 NIS (K)
Raw materials	896		3,859		6,911		1,418		1,519
Work in process	379		1,633		2,350		650		454
Finished products	848		3,654		3,997		1,193		3,006
Bought-in finished products	52		226		345		-		-
	2,175		9,372		13,603		3,261		4,979

	b.	In the year 2004 the Company reduced the value of inventories due to slow movement and technological obsolescence of inventories, in the amount of 2.6 million NIS. This impairment was included in cost of revenues.

F-17

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

    

NOTE 6     -	INVESTMENTS IN INVESTEE AND OTHER COMPANIES
	A.    Composition

		Consolidated									Company
		December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Investment in consolidated   companies:
Cost of shares		-			-			-			14,320			14,320
Translation differences   of an autonomous   consolidated company		-			-			-			(533	)		(453	)
Accumulated losses		-			-			-			(34,762	)		(31,572	)
		-			-			-			(20,975	)		(17,705	)
Long-term loans and debit   balances		-			-			-			29,220			28,028
		-			-			-			8,245			10,323
Investment in   proportionately   consolidated companies:
Cost of shares		-			-			-			4,070			4,070
Accumulated income		-			-			-			1,924			5,601
		-			-			-			5,994			9,671
Investment in other   companies
Cost of shares		-			-			15			-			15
		-			-			15			14,239			20,009

	B.	Supplementary Information

	(1)	In December 2003 the Company decided to significantly reduce the activities of its consolidated companies, MemCall Ltd. and MemCall LLC. (Hereafter: “MemCall”).
		Following that decision, MemCall terminated the employment of all of its employees and will continue its operations in a limited scope, in order to search for alternative ways for implementation of solutions required by potential customers.
	(2)	Hereunder are summary data of the Company’s share in the assets and liabilities, income and expenses of its proportionately consolidated companies:
		a.   Assets and Liabilities

	December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Current assets	1,886			8,125			11,778
Non current assets	341			1,470			1,376
Current liabilities	(835	)		(3,595	)		(3,441	)
Long-term liabilities	(1	)		(6	)		(42	)
Shareholders’ equity	1,391			5,994			9,671

F-18

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

    

NOTE 6      -	INVESTMENTS IN INVESTEE AND OTHER COMPANIES (cont.’)
	B.	Supplementary Information  (cont.)

	(2) (cont.)

	b.   Income and expenses

	December, 31 2004 U.S.$ (K)		December, 31 2004 NIS (K)		December, 31 2003 NIS (K)		December, 31 2002 NIS (K)
Income	2,438		10,501		7,070		9,488
Expenses	(2,428	)	(10,461	)	(7,842	)	(6,622	)
Net income (loss)	10		40		(772	)	2,866

(3)

On July 7, 2004 the Board of directors of a proportionately consolidated company, decided to distribute dividend to the shareholders in the amount of NIS 3,588 thousands. The net dividend received by the Company amounted to NIS 1,552 thousands.

	On March 10, 2005 the Board of directors of a proportionately consolidated company, decided to distribute dividend to the shareholders in the amount of NIS 1,725 thousands. The Company’s portion in the dividend net of tax deduction amounts to NIS 733 thousands.

NOTE 7     -	ACQUISITION OF OPERATIONS
	In December 2002, the Company signed an agreement with Mentergy Ltd. for the acquisition of assets relating to the TrainNet activity (an e-learning product for distance learning via satellite broadcasts and broadband lines) in consideration for approximately NIS 600 thousand (consisting of approximately US$ 130 thousand in cash and an undertaking to pay royalties on certain sales for three years, as specified in the agreement). Pursuant to the agreement the Company acquired, among other things, proprietary rights to the software, the right to use the name TrainNet and production files and engineering documentation for the product.
	Hereunder are data of the assets acquired:

	December, 31 2002 NIS (K)
Receivables	141
Inventories	139
Other assets	325
	605

F-19

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 8     -    FIXED ASSETS, NET

		Machinery and Equipment		Office Equipment and Computers		Vehicles		Building		Leasehold Improve- ments		Total		Total
		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		U.S.$ (K)
Consolidated
Cost
Balance at January 1, 2004 (*)		7,456		8,816		1,255		38,276		805		56,608		13,140
Additions		414		87		-		180		19		700		162
Disposals		(111	)	-		(166	)	-		-		(277	)	(64	)
Translation differences of an autonomous consolidated company		(37	)	(15	)	(1	)	-		(4	)	(57	)	(13	)
Balance at December 31, 2004		7,722		8,888		1,088		38,456		820		56,974		13,225
Accumulated Depreciation
Balance at January 1, 2004 (*)		4,768		7,315		1,100		4,899		293		18,375		4,265
Provision for the year		378		651		71		1,074		95		2,269		527
Disposals		(33	)	-		(146	)	-		-		(179	)	(41	)
Translation differences of an autonomous consolidated company		(22	)	(14	)	(1	)	-		(2	)	(39	)	(9	)
Balance at December 31, 2004		5,091		7,952		1,024		5,973		386		20,426		4,742
Depreciated cost at December 31, 2004		2,631		936		64		32,483		434		36,548		8,483
Depreciated cost at December 31, 2003		2,688		1,501		155		33,377		512		38,233		8,875
		Machinery and Equipment		Office Equipment and Computers		Vehicles		Building		Total
		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)
The Company
Cost
Balance at January 1, 2004 (*)		2,066		4,939		666		38,276		45,947
Additions		-		15		-		180		195
Disposals		-		-		-		-		-
Balance at December 31, 2004		2,066		4,954		666		38,456		46,142
Accumulated Depreciation
Balance at January 1, 2004 (*)		1,740		4,122		599		4,899		11,360
Additions		55		320		39		1,074		1,488
Disposals		-		-		-		-		-
Balance at December 31, 2004		1,795		4,442		638		5,973		12,848
Depreciated Cost at December 31, 2004		271		512		28		32,483		33,294
Depreciated Cost at December 31, 2003		326		817		67		33,377		34,587

(*) Reclassified.

F-20

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 8       -

FIXED ASSETS, NET (cont.’)

	(1)  Building:

	a.	An investment in a building in Rosh Ha’Ayin in which the Company and its Israeli Investee companies conduct their activities. The Company has capitalized leasehold on the land on which the building is erected. The lease expires in 2042.
	b.	Includes capitalized financial expenses of NIS 1,307 thousand.

(2)  As to pledges, see Note 15B.

NOTE 9       -	OTHER ASSETS  AND DEFERRED EXPENSES

		Consolidated									Company
		December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Deferred taxes			85			369			1,097			-			527
Deferred issue expenses			131			564			-			564			-
Goodwill (1)			-			-			213			-			-
Know-how (1)			24			103			215			103			215
			240			1,036			1,525			667			742

	Based on the business environment and market conditions in the US, where a consolidated company operates, a consolidated company concluded that signs, indicating a possible impairment of goodwill, exist.
	The consolidated company examined the utilization value of goodwill and the provision for impairment for the year 2004 was set for NIS 99 thousand.
	(1)  Cost of goodwill and know-how is NIS 362 thousand and NIS 325 thousand, respectively.

NOTE 10      -	CREDIT FROM BANKS

A. Composition

					Consolidated									Company
		Rate of Interest % (1)			December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Overdrafts			6.5			3			12			107			9			17
Short-term loans
in NIS			5.8			1,821			7,843			7,340			7,843			7,340
in U.S dollars			5			528			2,273			2,245			-			-
In Swiss Franks			2.1			618			2,664			2,486			2,664			2,486
Current maturities of
long-term loans						565			2,436			3,763			2,436			3,763
						3,535			15,228			15,941			12,952			13,606

(1)  As at December 31, 2004.

B. As to guarantees for the loans, see Note 15B.

F-21

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 11       -

TRADE PAYABLES

		Consolidated									Company
		December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Open balances			1,230			5,299			4,804			2,227			2,262
Checks for collection			127			554			590			402			86
			1,359			5,853			5,394			2,629			2,348

NOTE 12       -	OTHER PAYABLES AND CREDIT BALANCES

		Consolidated									Company
		December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Income in advance			237			1,023			1,544			896			1,481
Customers advances			112			483			835			230			134
Payroll and related expenses			380			1,638			2,291			850			934
Liabilities to interested parties (1)			117			505			942			505			942
Liabilities to a   proportionately   consolidated  company			-			-			1,668			-			3,335
Accrued expenses			996			4,291			3,947			3,291			3,195
Institutions			297			1,280			2,266			9			12
Provision for deferred taxes			38			163			-			163			-
Other payables and credit balances			221			950			852			364			158
			2,398			10,333			14,345			6,308			10,191

(1)  Unlinked and free of interests.

F-22

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 13       -

LOANS FROM BANKS

A. Composition

					Consolidated									Company
		Rate of Interest % (1)			December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Loans in Japanese Yen			3			1,407			6,064			6,392			6,064			6,392
Loans in U.S dollars			5.5			1,489			6,416			7,050			6,416			7,050
Loan in NIS linked to the   CPI			6			1,638			7,056			7,837			7,056			7,837
						4,534			19,536			21,279			19,536			21,279
With deduction of current   maturities						565			2,436			3,763			2,436			3,763
						3,969			17,100			17,516			17,100			17,516

Repayment by years
In the first year - current maturities			565			2,436			3,763			2,436			3,763
- In the second year			585			2,523			3,763			2,523			3,763
- In the third year			602			2,594			3,763			2,594			3,763
- In the fourth year			620			2,669			3,763			2,669			3,763
- In the fifth year and thereafter			2,162			9,314			6,227			9,314			6,227
			3,969			17,100			17,516			17,100			17,516
			4,534			19,536			21,279			19,536			21,279

(1)  As at December 31, 2004.

B.   As to guarantees for the loans, see Note 15B.

F-23

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 14   -	LIABILITY FOR TERMINATION OF EMPLOYEE/EMPLOYER RELATIONSHIP, NET
	The liability of the Company and its Investee companies to pay severance pay to their employees is covered by the provision and by the payment of premiums for managers’ insurance policies. In addition, the companies make payments into a general provident fund. The amounts deposited in the provident fund and the amounts paid for managers’ insurance policies in the names of the companies include accrued profits and may be withdrawn subject to restrictions determined by law.
	Composition:

	Consolidated									Company
	December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Liability for severance pay		90			389			953			23			468
Less – deposits in a provident fund		(189	)		(813	)		(834	)		(586	)		(549	)
		(99	)		(424	)		119			(563	)		(81	)
The above amounts are represented in the balance sheet as follows:
Liability for termination of   employee/employer   relationship, net		32			139			200			-			-
Excess of provident fund over   liability for termination   of employee/employer   relationship		(131	)		(563	)		(81	)		(563	)		(81	)
		(99	)		(424	)		119			(563	)		(81	)

	The provision for severance pay for director-shareholders assumes that their employment will terminate under circumstances, which do not entitle them to increased severance pay.
	In this regard, and as to “risk life insurance” for the benefit of related parties, see Note 18.

NOTE 15       -	COMMITMENTS, CONTINGENT LIABILITIES AND PLEDGES
	A. Contingent liabilities

	1.	Royalties and know-how
		The Company, a consolidated company and a proportionately consolidated company are committed to pay royalties on products developed under projects supported by the Office of the Israeli Chief Scientist, at the rate of 2%–4.6% of the sale price, limited to the amount of grant received (linked to the US dollar). As of the balance sheet date the grant balance on which royalties have not yet been accrued amounts to US$ 3.2 millions in the consolidated statements. In February 2004, the Company received a letter from the Office of the Chief Scientist, stating the Company is required to pay approximately US $900 thousand due to royalties payments differences for the years 1996-2002. The said letter was lacking any supporting documentation and the Company completely rejects the demand completely.
		The Company, based on its legal advisors, does not project any additional payments to the Office of the Chief Scientist beyond the amounts included in the financial statements.

F-24

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 15       -	COMMITMENTS, CONTINGENT LIABILITIES AND PLEDGES  (cont.)

	A.  Contingent liabilities (cont.)

	2.	Claims

	1.	A claim was filed against the Company by a subcontractor of a former consolidated company in the Labor Court for payment of approximately NIS 320 thousand, for an alleged debt of the Company to the plaintiff.
	2.	The Company and the consolidated company have filed a legal claim, in the amount of 2.6 million NIS against “Fourier Systems 1989 Ltd.” (Hereafter: “Fourier”) due to unlawful use of trade secrets, other commercial wrongful acts and breach of a distribution agreement. Fourier has filed a counter legal claim in the amount of 3 million NIS.

	Due to the preliminary stages of the legal claim, the Company is unable to estimate the prospects of these legal claims. Therefore, the Company has not made any provision in its financial statements.

	B. Pledges

	1.   The Company

	(a)	In order to obtain credit from a bank the Company pledged to the bank its real estate rights and the right to receive rent payments.
	(b)	In order to obtain credit from a bank, the Company is obliged to retain a financial ratio of shareholders equity to total consolidated balance sheet assets of at least 27%. In case the company will not retain this ratio the company will be required to pay off its liabilities to the bank. The credit from the bank amounts to approximately NIS 5 million, and the Company retains the required financial ratio.
	(c)	The Company has pledged vehicles and mortgaged its portfolio of marketable securities, notes and other securities as security for the receipt of credit and other banking services.
	(d)	The Company has entered an obligation to support the working capital including bank credit payments of a consolidated company, if and when requested by the bank during the year ending on December 31, 2005.
	(e)	The Company has given a guarantee for up to US $3 million for the liabilities of a consolidated company to a bank. To the balance sheet date, this guarantee was not utilized.

	2.   Consolidated Companies

	(a)	A consolidated company has given a bank floating pledge on its assets to secure credit from this bank when requested by that Company. At the balance sheet date the credit line is approximately US $850 thousand. The utilized credit at the balance sheet date is US $530 thousand. According to the agreement with the bank, credit is subject to retaining certain financial ratios. At the balance sheet date the consolidated company does not comply with these financial ratios and has received a letter of renunciation from the bank regarding the aforementioned period. Correspondingly, the interest rate of the loan was increased by 0.75%.
	(b)	A consolidated company has given a bank a senior floating pledge on its notes.
	(c)	A consolidated company has pledged to a bank its vehicles and its right to receive payments from a customer.
	(d)	A consolidated company has given an unlimited guarantee for the Company’s liabilities to the bank. To the balance sheet date, the guarantee was not utilized.

F-25

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

   

NOTE 16   -	SHARE CAPITAL
	1.   Company’s shares held by the Company itself:

	For December, 31
	2004		2003
Number of shares		388,925		494,321

	2.	On June 22, 2004 the Company entered into a standby equity distribution agreement with Cornell Capital Partners LP company (hereinafter- “Cornell”), according to which Cornell committed to purchase the Company’s ordinary shares, those will be sold to her by the Company and/or allotted by it up to a total amount of US$ 5.5 million and over the course of 24 months starting from the American Security Stock Exchange (hereinafter – “SEC”) approval of effective registration of offered shares for trade.

	Execution of sales of shares to Cornell will be upon the Company’s judgement and according to its needs on the relevant dates, providing every aforementioned sale or allotment will not exceed the scope of US$ 250 thousand and the frequency of sales will not exceed once a week.
	The shares will be sold and/or allotted to Cornell in average daily market price of the shares, weighted according to volume of trade, the lowest daily volume weighted average price of the common stock during the five consecutive trading days period beginning on the first trading day after the requested purchase date.
	Pursuant to the agreement the Company did not obligate to issue common stock to Cornell in a minimum somewhat amount.
	Upon the initial purchase of shares and all subsequent purchases, Cornell shall receive compensation equal to five percent (5%) of the gross proceeds of the purchase, and additional payments as shown hereunder:

	1.	US $90 thousand will be paid after effectiveness of the registration statement from the SEC.
	2.	An additional US $111 thousand dollars at the earlier of the following:

	a.	The day the Company draws more than 2 million dollars from proceeds of its shares.
	b.	The day on which an initial purchase statement will be published after the first anniversary to this agreement.

	The agreement states that in any case Cornell can purchase and hold up to 5% of the Company’s ordinary shares.
	The agreement was approved by the Company’s General Assembly on August 11, 2004.
	In September 2004, SEC validated the registration of the proposed stocks for trade (Form F-2).
	In December 2004, the Company transferred 105,396 shares, from treasury stock held by it, as payment of commission of approximately $100 thousands to Cornell and a trustee company as part of the agreement. This commission was included in the financial statements as deferred expenses.

F-26

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 16   -	SHARE CAPITAL  (cont.)
	3.	Program for purchasing the Company’s shares:

	On October 10, 2002 the Company’s Board of Directors resolved to buy up to US $450,000 of the Company’s shares and to reconsider the resolution after each US $100,000 acquisition.
	The amount of the distribution sought to be approved by the Court, in April 2003, was NIS 2,140 thousand.

	4.	Programs for issuing shares to directors and options to employees:

	a)	In November 1996 (hereinafter “program 1996”) the Company’s Board of directors approved a plan to allot 450,000 options to buy ordinary shares of the Company of par value NIS 0.5 each for an exercise price equal to $ 0.5 per option, according to market price at the approval date. The plan is designated for employees who are not related parties to the Company.

	On February 9, 1998, 405,000 options were issued to a trustee. Exercise of the options is conditional on the beneficiary being employed by the Company or its subsidiary under certain rules set by the plan. The right to exercise the option will expire on December 31, 2006.
	Below is the balance of the options issued in 1996:

	For December, 31
	2004			2003
Number of options exercised by employees		299,800			298,200
Number of options expired		44,600			43,600
Number of options exercisable by employees		60,600			63,200

	b)	On November 11, 2002 (hereinafter- “plan 2002”) the Company’s Board of Directors approved a plan to allot 1,270,000 options to buy ordinary shares of the Company of par value NIS 0.5 each in consideration for an exercise price equal to share price at grant date. The plan includes an allotment of 570,000 options to directors of the Company. The balance of 700,000 options is reserved for the employees of the Company and its consolidated companies in Israel and overseas. The vesting period is over 5 years from the date of issuance.

	The Company issued options to a trustee for directors and employees of the company and the subsidiary companies according to section 102 to the Israeli Tax Ordinance capital gain track. In addition, the Company issued 190,000 options to the directors according to the option plan.
	Plan’s activity as follows:

	$ Exercise price			Number of options
Number of options granted during the year 2003 (*)		0.91-1.03			1,027,500
Number of options expired during the year 2003					(90,000	)
Balance at December 31, 2003					937,500
Number of options granted during the year 2004		0.74-0.83			210,000
Number of options expired during the year 2004					(57,000	)
Balance at December 31, 2004					1,090,500
Balance of exercisable options on 31.12.2004		0.92			176,100

(*) See note 18 c 3 regarding options granted to interested parties.

F-27

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 17   -	FINANCIAL INSTRUMENTS AND CREDIT RISKS
	A.	The Company and its investee companies did not enter into significant futures contracts in the the years 2002-2004.
	B.	The cash, cash equivalents and short-term investments of the Company and its Investee companies (the “Group”), are deposited mainly in Israeli and U.S. banks.

	Approximately 11.5% of the Company’s sales are made in Israel. Out of aforementioned, 5% of Company’s sales are to a large number of customers who are mainly local municipalities and educational institutions.
	Export sales and sales overseas are made mainly through dealers, and via them to a large number of end users.
	The breakdown of customer credit as of December 31, 2003 amounting to approximately NIS 15,282 thousand in the consolidated statements and to approximately NIS 5,726 thousand in the Company’s statements is as follows:

	(1)	Customer receivables due from local municipalities or educational institutions in Israel amount to approximately NIS 1.1 million in the consolidated statements.
	(2)	Other customer receivables amount to approximately NIS 14.1 million in the consolidated statements and to NIS 5.7 million in the Company’s statements.
	(3)	Group’s sales to customers in Israel and abroad, are generally conducted by credit, as accepted.

	Credit to customers in South Africa countries, Asia, Africa and Eastern Europe is secured by notes.

	(4)	A proportionately consolidated company with revenues of approximately 10.5 million NIS (in 2003, approximately NIS 7 million), that is included in the consolidated statement of operations, has one principal customer (who holds the other 50% of the company).

The sales to this customer accounted for in 2004 are approximately 50% of this proportionately consolidated company’s sales (in 2003 – 90%).

F-28

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 18     -	BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES
	A.	Balances of related parties:

	Consolidated									Company
	December, 31 2004 U.S.$ (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)			December, 31 2004 NIS (K)			December, 31 2003 NIS (K)
Current assets
Related parties		-			-			138			-			138
Proportionately consolidated companies		10			44			-			88			-
Long term investments
Debit balance of consolidated companies (1)		-			-			-			29,220			28,028
Current liabilities
Liabilities to related parties		117			505			942			505			942
Proportionately consolidated companies		-			-			1,668			-			3,335

	(1) A sum of NIS 5,282 thousand linked to foreign currency (in 2003 NIS 6,124 thousand).

	B.	Income and expenses with interested and related parties

	Consolidated												Company
	Year ended December, 31 2004 U.S.$ (K)			Year ended December, 31 2004 NIS (K)			Year ended December, 31 2003 NIS (K)			Year ended December, 31 2002 NIS (K)			Year ended December, 31 2004 NIS (K)			Year ended December, 31 2003 NIS (K)			Year ended December, 31 2002 NIS (K)
Sales to consolidated companies		-			-			-			-			5,800			5,769			8,342
Sales to proportionately   consolidated companies		447			1,924			-			-			3,848			-			-
Purchases from consolidated   companies		-			-			-			-			2,411			1,734			348
Purchases from proportionately    consolidated companies		17			72			-			101			143			-			202
Payroll for related parties   employed by the company		535			2,306			2,723			3,370			2,306			2,723			3,370
Number of related parties,    employed by the Company		3			3			3			4			3			3			4
Compensation to directors, not   employed by the Company		54			232			213			156			232			213			156
Number of directors, not employed    by the Company		6			6			6			5			6			6			5
Participation of consolidated    companies in expenses		-			-			-			-			266			370			905
Participation of proportionately    consolidated companies in expenses		91			391			465			360			782			914			720
Interest from consolidated    companies		-			-			-			-			132			52			321
Rent income from consolidated    companies		-			-			-			-			230			382			63
Rent income from proportionately    consolidated companies		96			415			406			471			830			812			942

F-29

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 18     -	BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (cont.’)
	C.    Transactions with interested and related parties

	1.   Interested parties employed by the Company

	a.	Pursuant to an agreement, approved on January 13, 1996, terms of employment of related parties who are employed by the Company (as directors and officers) include monthly salary linked to the changes in the CPI, in addition of social benefits, risk-life insurance in an amount of US $1 million for each, and assurance of real increment annually of 5% or 10%, on condition that the consolidated pre-tax earnings will equal or be greater than $0.5 million and $1 million, respectively.

	Additional annual bonuses on earnings for the related parties are:

	•	Where the consolidated pre-tax earnings are less than $1 million - 2.49% of those earnings.
	•	Where the annual earnings are between $1 million and $2 million - 5.01% of those earnings.
	•	Where the annual earnings exceed $2 million - 7.50% of those earnings.

	In addition, these related parties are entitled, in the event of dismissal, to enlarged severance pay of 175% for the period of their employment in the Company. The Company did not include a provision for enlarged severance pay that will apply in case of dismissal in its financial statements, as to the Company’s assessment, the probability of its realization is unlikely.
	The agreement is for a period of three years. At completion of first period and with completion of any additional extension period, employment agreements will be extended for an additional period of three years subject to approval of auditing committee and board of directors. A non-extended agreement will be accounted for as dismissal.

	b.	As of November 2001, by the initiative of three related partied, a temporary decrease of approximately 15% of salary cost took place. (hereinafter –“the first decrease”).

	As of June 2004, by the initiative of three related partied, an additional temporary decrease of approximately 23% of salary cost after the first decrease, took place. (hereinafter –“the second decrease”).

	c.	Total cost of salary of three related parties, following the aforementioned decreases, sums up to approximately NIS 160 thousand a month.
	d.	On December 27, 2004 the Company’s Auditing Committee and its Board of Directors, approved of an additional extension of aforementioned employment agreements for an additional period of three years. The related parties agreed by their own initiative to continuance of salary decreases (both first and second) during the year 2005. Salary decreases in the year 2005 will be retroactively cancelled under following terms:

	•	When pre-tax consolidated earnings after cancellation of the decrease will be positive, the second decrease, amounting to NIS 45 thousand a month will be cancelled.
	•	When pre-tax consolidated earnings after cancellation of the decreases will exceed $ 0.5 million, the first decrease, amounting to NIS 35 thousand a month will be cancelled as well.

F-30

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 18     -	BALANCES AND TRANSACTIONS WITH INTERESTED PARTIES AND INVESTEE  (cont.’)
	C.    Transactions with interested and related parties (cont.)

	2.	An interested party, not employed by the Company, is entitled to risk-life insurance in an amount of $333 thousand.

	Additionally, the aforementioned is entitled to annual bonuses on earnings as follows:

	•  Where the consolidated pre-tax earnings are less than $1 million – 0.83% of those earnings.
	•  Where the annual earnings are between $1 million and $2 million – 1.67% of those earnings.
	•  Where the annual earnings exceed $2 million –2.50% of those earnings.

	3.	In the year 2003 270,000 options were issued to related parties employed by the Company and 300,000 options to related parties not employed by the Company, with exercise price of $0.91 for each option. See note 16 4 b.
	4.	The Company maintains a Directors and Officers Liability Insurance Policy in the amount of approximately $ 5 million.
	5.	The Company has irrevocably undertaken to indemnify its directors and officers for any liability or expense incurred by them due to an act, including an omission, performed by them in their capacity as officers of the Company. The amount of the indemnification under the letters of indemnification to all the recipients of the indemnification, cumulatively for a single event, will not exceed an amount in NIS equal to US$ 4 million.

	The Company has also provided its directors and officers indemnification letters according to which the Company will irrevocably indemnify each such director and officer (under Section 259 of the Companies Law), from liability for damages caused to the Company due to the breach of the officers’ or director’s duty of care to the Company.

	6.	In October 2003, the Company entered into a contract with a proportionately consolidated company for the supply of a LearnMate platform, in consideration of 850 thousand dollars.

The system was supplied on March 31, 2004 and revenues from it were included as part of revenues for the year 2004.

F-31

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 19   -    LINKED BALANCES  

	December 31, 2004
	Linked to US dollar		Linked to Euro		Linked to Japanese Yen		Linked to Swiss Franks		Linked to the CPI		Unlinked		Autonomous Unit & Non- monetary items		Total
	NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)
Consolidated
Assets
Cash and cash equivalents	4,842		990		-		-		-		870		255		6,957
Short-term investments	99		-		-		-		-		-		-		99
Trade receivables	5,893		1,493		-		-		-		2,205		5,691		15,282
Other receivables and debit     balances	40		-		-		-		-		1,811		242		2,053
Inventories	-		-		-		-		-		-		9,372		9,372
Funds in respect of employee     rights upon retirement, net	-		-		-		-		-		563		-		563
Fixed assets, net	-		-		-		-		-		-		36,548		36,548
Other assets and deferred    expenses	-		-		-		-		-		564		472		1,036
	10,874		2,483		-		-		-		6,013		52,580		71,950
Liabilities
Short-term bank credits	694		-		656		2,664		1,087		7,854		2,273		15,228
Trade payables	173		105		599		-		-		3,176		1,800		5,853
Other payables and credit    balances	3,408		-		-		-		-		6,279		646		10,333
Long-term loans	5,722		-		5,409		5,969		-				-		17,100
Deferred taxes	-		-		-		-		-		163		-		163
Liability for termination of   employee/employer    relationship, net	-		-		-		-		-		139		-		139
	9,997		105		6,664		2,664		7,056		17,611		4,719		48,816
Excess of assets (liabilities)	877		2,378		(6,664	)	(2,664	)	(7,056	)	(11,598	)	47,861		23,134

F-32

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 19   -    LINKED BALANCES  

	December 31, 2003
	Linked to US dollar		Linked to Japanese Yen		Linked to Swiss Franks		Linked to the CPI		Unlinked		Autonomous Unit & Non- monetary items		Total
	NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)
Consolidated
Assets
Cash and cash equivalents	13,266		-		-		-		1,304		308		14,878
Short-term investments	-		-		-		-		-		-		-
Trade receivables	6,076		-		-		-		2,806		4,335		13,217
Other receivables and debit balances	52		-		-		-		1,934		306		292
Inventories	-		-		-		-		-		13,603		13,603
Investments in other companies	-		-		-		-		-		15		15
Funds in respect of employee rights upon    retirement, net	-		-		-		-		81		-		81
Fixed assets, net	-		-		-		-		-		38,233		38,233
Other assets and deferred expenses	-		-		-		-		682		843		1,606
	19,394		-		-		-		6,807		57,643		83,844
Liabilities
Short-term bank credits	1,226		1,112		2,486		1,425		7,447		2,245		15,941
Trade payables	412		-		-		-		3,554		1,428		5,394
Other payables and credit    balances	5,755		-		-		-		8,045		545		14,345
Long-term loans	5,824		5,280		-		6,412		-		-		17,516
Liability for termination of    employee/employer relationship, net	-		-		-		200		-		-		200
	13,217		6,392		2,486		8,037		19,046		4,218		53,396
Excess of assets (liabilities)	6,177		(6,392	)	(2,486	)	(8,037	)	(12,239	)	53,425		30,448

F-33

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 19   -    LINKED BALANCES  (cont.’)

	December 31, 2004
	Linked to US dollar		Linked to Euro		Linked to Japanese Yen		Linked to Swiss Franks		Linked to the CPI		Unlinked		Autonomous Unit & Non- monetary items		Total
	NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)
Company
Assets
Cash and cash equivalents	2,676		18		-		-		-		657		-		3,351
Short-term investments	99		-		-		-		-		-		-		99
Trade receivables	4,449		1,277		-		-		-		-		-		5,726
Other receivables and debit   balances	-		-		-		-		-		1,086		-		1,086
Inventories	-		-		-		-		-		-		3,261		3,261
Investment in invests	5,282		-		-		-		22,508		1,430		(14,981	)	14,239
Funds in respect of employee   rights upon retirement, net	-		-		-		-		-		563		-		563
Fixed assets, net	-		-		-		-		-		-		33,294		33,294
Other assets and deferred    expenses	-		-		-		-		-		564		103		667
	12,506		1,295		-		-		22,508		4,300		21,677		62,286
Liabilities
Short-term bank credits	694		-		656		2,664		1,087		7,851		-		12,952
Trade payables	129		50		-		-		-		2,450		-		2,629
Other payables and credit   balances	2,846		-		-		-		-		3,462		-		6,308
Long-term loans	5,722		-		5,409		-		5,969		-		-		17,100
Deferred taxes	-		-		-		-		-		163		-		163
	9,391		50		6,065		2,664		7,056		13,926		-		39,152
Excess of assets (liabilities)	3,115		1,245		(6,065	)	(2,664	)	15,452		(9,626	)	21,677		23,134

F-34

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 19   -    LINKED BALANCES  (cont.’)

	December 31, 2003
	Linked to US dollar		Linked to Japanese Yen		Linked to Swiss Franks		Linked to the CPI		Unlinked		Autonomous Unit & Non- monetary items		Total
	NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)
Company
Assets
Cash and cash equivalents	8,198		-		-		-		1,262		-		9,460
Trade receivables	2,764		-		-		-		-		-		2,764
Other receivables and debit balances	-		-		-		-		1,487		-		1,487
Inventories	-		-		-		-		-		4,979		4,979
Investments in invests and other companies	6,124		-		-		18,869		2,229		(7,213	)	20,009
Funds in respect of employee rights upon   retirement, net	-		-		-		-		81		-		81
Fixed assets, net	-		-		-		-		-		34,587		34,587
Other assets and deferred expenses	-		-		-		-		527		215		742
	17,086		-		-		18,869		5,586		32,568		74,109
Liabilities
Short-term bank credits	1,226		1,112		2,486		1,425		7,357		-		13,606
Trade payables	161		-		-		-		2,187		-		2,348
Other payables and credit balances	6,930		-		-		-		3,261		-		10,191
Long-term loans	5,824		5,280		-		6,412		-		-		17,516
	14,141		6,392		2,486		7,837		12,805		-		43,661
Excess of assets (liabilities)	2,945		(6,392	)	(2,486	)	11,032		(7,219	)	32,568		30,448

F-35

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 20   -	FINANCIAL DATA REGARDING SEGMENTS ACCORDING TO COMMERCIAL AND GEOGRAPHICAL AREAS
	1.   General

	The Company operates in two operational segments: robotic products, automation products, software and distance learning in the field of education and training (“education segment”) and motion control products for the industrial market (“motion control for industry”).
	In previous years the Company operated in addition in developing a technology whose aim was to reduce the time required for locating and retrieving information in computers and communication networks, through its consolidated companies, MemCall LLC and MemCall Ltd. (“MemCall”). This operation was significantly reduced in the year 2004 and is no longer qualified as a reportable segment.

	2.   Financial data regarding the reportable operational segments:

	Consolidated
	Education segment		Motion control for industry		Adjustments		Total
	NIS (K)		NIS (K)		NIS (K)		NIS (K)
For the year ended December 31, 2004
Information regarding operations:
Revenues:
From customers	51,233		10,501		-		61,734
Inter-segment	-		71		(71	)	-
Total revenues	51,233		10,572		(71	)	61,734
Segment operations	(2,059	)	(422	)	1,577		(924	)
Non allocated expenses							(4,050	)
Operating loss							(4,974	)
Other income							809
Financial expenses							(2,111	)
Taxes on income							(1,411	)
Net loss							(7,687	)
Other information:
Segment’s assets	28,907		9,685		-		38,592
Non allocated assets							33,358
Total consolidated assets							71,950
Segment’s liabilities	19,874		3,601		-		23,475
Non allocated liabilities							25,341
Total consolidated liabilities							48,816
Costs of purchase of fixed assets	263		258
Depreciation and amortization	1,148		182

F-36

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 20   -	FINANCIAL DATA REGARDING SEGMENTS ACCORDING TO COMMERCIAL AND GEOGRAPHICAL AREAS  (cont.)
	2.   Financial data regarding the reportable operational segments: (cont.)

	Consolidated
	Education segment		Motion control for industry		Adjustments		Total
	$ (K)		$ (K)		$ (K)		$ (K)
For the year ended December 31, 2004
Information regarding operations:
Revenues:
From customers	11,892		2,438		-		14,330
Inter-segment	-		16		(16	)	-
Total revenues	11,892		2,454		(16	)	14,330
Segment operations	(478	)	(98	)	361		(215	)
Non allocated expenses							(940	)
Operating loss							(1,155	)
Other income							188
Financial expenses							(490	)
Taxes							(327	)
Net loss							(1,784	)
Other information:
Segment’s assets	6,710		2,248		-		8,958
Non allocated assets							7,743
Total consolidated assets							16,701
Segment’s liabilities	4,613		836		-		5,449
Non allocated liabilities							5,882
Total consolidated liabilities							11,331
Costs of purchase of fixed assets	61		60
Depreciation and amortization	267		42

F-37

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 20   -	FINANCIAL DATA REGARDING SEGMENTS ACCORDING TO COMMERCIAL AND GEOGRAPHICAL AREAS  (cont.)
	2.   Financial data regarding the reportable operational segments: (cont.)

	Consolidated
	Education segment		Motion control for industry		MemCall		Adjustments		Total
	NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)
For the year ended December 31, 2003
Revenues from customers	49,155		6,961		-		-		56,116
Inter-segment revenues	-		110		-		(110	)	-
	49,155		7,071		-		(110	)	56,116
Financing expenses, net	(3,249	)	(403	)	(131	)	-		(3,783	)
Depreciation and amortization	(2,138	)	(161	)	(298	)	-		(2,597	)
Segment loss	(10,649	)	(1,752	)	(5,482	)	(110	)	(17,993	)
Assets (at end of year)	36,961		962		300		-		38,223
Acquisition of fixed assets	948		112		15		-		1,075

	Consolidated
	Education segment		Motion control for industry		MemCall		Adjustments		Total
	NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)
For the year ended December 31, 2002
Revenues from customers	76,511		9,648		-		-		86,159
Inter-segment revenues	-		166		-		(166	)	-
Revenues	76,511		9,814		-		(166	)	86,159
Financing income (expenses), net	(1,650	)	248		-		-		(1,402	)
Depreciation and amortization	(2,247	)	(154	)	(284	)	-		(2,685	)
Segment profit (loss)	9,288		1,632		(7,445	)	(166	)	3,309
Assets (at end of year)	38,477		1,019		571		-		40,067
Acquisition of fixed assets	1,869		111		191		-		2,171

F-38

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 20   -	FINANCIAL DATA REGARDING SEGMENTS ACCORDING TO COMMERCIAL AND GEOGRAPHICAL AREAS  (cont.)

	3.	Financial Data by Geographical Areas

	Revenues  by geographical areas:

	Consolidated								Company
	Year ended December, 31								Year ended December, 31
	2004 U.S. $ (K)		2004 NIS (K)		2003 NIS (K)		2002 NIS (K)		2004 NIS (K)		2003 NIS (K)		2002 NIS (K)
North America	6,428		27,692		24,562		37,311		5,725		5,574		7,321
Israel	1,636		7,047		8,170		9,445		4,284		871		1,666
Far East	2,827		12,181		8,983		16,078		6,938		2,667		6,430
Europe	1,665		7,174		5,487		2,028		4,354		5,144		4,101
South America	1,438		6,195		3,699		10,129		6,195		3,699		10,129
Others	336		1,445		5,215		11,168		1,445		5,214		9,164
Total	14,330		61,734		56,116		86,159		28,941		23,169		38,811

	Fixed assets – by geographical areas

	Consolidated						Company
	Year ended December, 31						Year ended December, 31
	2004 U.S. $ (K)		2004 NIS (K)		2003 NIS (K)		2004 NIS (K)		2003 NIS (K)
Israel	8,018		34,541		36,031		33,294		34,587
U.S.A	465		2,004		2,192		-		-
	8,483		36,545		38,223		33,294		34,587

	4.	Major customers

A shareholder of proportionately consolidated company is a major customer of the Company with total sales to him in the year 2004 of approximately 12% of the consolidated sales.

F-39

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 21   -    REVENUES

	Consolidated								Company
	Year ended December, 31								Year ended December, 31
	2004 U.S. $ (K)		2004 NIS (K)		2003 NIS (K)		2002 NIS (K)		2004 NIS (K)		2003 NIS (K)		2002 NIS (K)
Production operations	12,588		54,228		42,639		68,129		28,941		23,169		38,481
Trade activities	515		2,220		7,166		8,217		-		-		-
Management fees	-		-		-		166		-		-		330
Development services
and royalties	1,227		5,286		6,311		9,647		-		-		-
	14,330		61,734		56,116		86,159		28,941		23,169		38,811

NOTE 22   -    COST OF REVENUES

	Consolidated								Company
	Year ended December, 31								Year ended December, 31
	2004		2004		2003		2002		2004		2003		2002
	U.S. $ (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)		NIS (K)
Cost of manufacturing operations	7,870		33,905		28,851		37,519		16,667		14,558		19,008
Cost of commercial operations	149		640		2,721		2,754		-		-		-
Cost of development services and   royalties	301		1,298		1,026		1,139		-		-		-
	8,320		35,843		32,598		41,412		16,667		14,558		19,008
Materials consumed	4,189		17,924		12,548		22,188		6,039		4,524		7,891
Payroll and related expenses	2,171		9,355		10,925		11,503		4,746		6,141		5,801
Subcontractors	299		1,287		1,986		2,629		1,261		1,946		2,841
Depreciation and amortization	105		451		341		495		308		203		231
Other	1,183		5,098		5,194		5,390		2,696		2,774		2,171
	7,947		34,115		30,994		42,205		15,050		15,588		18,935
Acquisition of commercial   goods	127		549		2,406		2,762		-		-		-
Decrease (increase) in   inventories of work-in-process	(45	)	717		181		(444	)	(196	)	181		(444	)
Decrease (increase) in finished  products	269		343		(1,298	)	(3,103	)	1,813		(1,211	)	517
Decrease (increase) in   commercial products	21		119		315		(8	)	-		-		-
	245		1,179		(802	)	(3,555	)	1,617		(1,030	)	73
	8,320		35,843		32,598		41,412		16,667		14,558		19,008

F-40

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 23   -    ADDITIONAL DATA RELATING TO STATEMENTS OF OPERATIONS

	Consolidated								Company
	Year ended December, 31								Year ended December, 31
	2004 U.S. $ (K)		2004 NIS (K)		2003 NIS (K)		2002 NIS (K)		2004 NIS (K)		2003 NIS (K)		2002 NIS (K)
A.  Research and Development
Costs, Net
Research and development       expenses	1,769		7,619		13,352		15,775		3,570		4,765		3,004
Less grants	-		-		701		3,020		-		-		-
	1,769		7,619		12,651		12,755		3,570		4,765		3,004
B.  Marketing and Sales       Expenses
Payroll and related expenses	1,909		8,226		8,150		7,347		2,249		3,133		2,337
Advertising and trade shows	145		624		854		1,485		154		341		24
Depreciation and amortization	30		131		258		539		131		150		202
Others	981		4,223		3,360		4,869		2,058		1,662		968
	3,065		13,204		12,622		14,240		4,592		5,286		3,531
C.  Administrative and       General Expenses
Payroll and related expenses	1,022		4,403		6,551		8,049		2,257		2,673		4,219
Depreciation and amortization	93		398		480		393		156		159		186
Doubtful debts	66		285		480		178		-		155		70
Others	1,150		4,956		7,058		5,010		3,048		3,672		2,948
	2,331		10,042		14,569		13,630		5,461		6,659		7,423
D.  Financial Income       (Expenses), Net
Income (expenses) due from
long-term debts	(273	)	(1,175	)	(88	)	326		(764	)	107		221
Expenses due from short-term       credit	(217	)	(936	)	(3,695	)	(1,728	)	(982	)	(3,750	)	(2,326	)
	(490	)	(2,111	)	(3,783	)	(1,402	)	(1,746	)	(3,643	)	(2,105	)
E.  Other Income (Expenses)
Income from building rental, net	236		1,015		2,022		1,474		1,660		2,700		2,296
Profit (loss) from negotiable       securities, net	21		92		(152	)	166		95		(152	)	(166	)
Others	(69	)	(298	)	162		-		(112	)	251		-
	188		809		2,032		1,640		1,643		2,799		2,130

F-41

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 24   -	TAXES ON INCOME
	A.	Israeli income tax law (inflationary adjustments) – 1985

	Pursuant the law, the Company and consolidated companies measure results for tax purposes, on real basis according to changes in the Israeli CPI.

	B.	Composition of Tax Expense

	Consolidated								Company
	Year ended December, 31								Year ended December, 31
	2004 U.S. $ (K)		2004 NIS (K)		2003 NIS (K)		2002 NIS (K)		2004 NIS (K)		2003 NIS (K)		2002 NIS (K)
Current taxes	74		320		-		859		266		-		-
Deferred taxes	244		1,053		444		101		853		350		-
Previous year taxes	9		38		(526	)	91		43		(392	)	-
	327		1,411		(82	)	1,051		1,162		(42	)	-

	-	Current taxes expenses as of 2004 include an amount of 240 thousands NIS due to dividend distribution from “approved enterprise” income of proportionately consolidated company.
	-	Deferred taxes expenses as of 2004 include an amount of 330 thousand NIS due to the company’s share in approved enterprise income of proportionately consolidated company, that have yet been distributed and due to depreciation of tax benefits receivable as a result of a lack in certainty on its realization.

	C.	Changes in Deferred Taxes:

	Consolidated								Company
	Balance at Dec. 31 2003 NIS (K)		Changes in the year 2004 NIS (K)		Balance at Dec. 31 2004 NIS (K)		Balance at Dec. 31 2004 U.S.$		Balance at Dec. 31 2004 NIS (K)		Changes in the year 2004 NIS (K)		Balance at Dec. 31 2003 NIS (K)
Short-term deferred taxes	201		-		201		47		-		-		-
Long-term deferred taxes	414		(45	)	369		85		-		-		-
Provision for short term taxes	-		(163	)	(163	)	(38	)	-		(163	)	(163	)
Provision for long term taxes	-		(163	)	(163	)	(38	)	-		(163	)	(163	)
	615		(371	)	244		56		-		(326	)	(326	)
Tax advances on account of undeductible expenses	682		(682	)	-		-		527		(527	)	-
	1,297		(1,053	)	244		56		527		(853	)	(326	)

F-42

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 24     -	TAXES ON INCOME  (cont.’)
	D.	Below is a reconciliation between the theoretical tax expense (the regular tax rates applied to the reported income before tax) and the tax expense for the Group:

	Consolidated								Company
	Year ended December, 31 2004 U.S. $ (K)		Year ended December, 31 2004 NIS (K)		Year ended December, 31 2003 NIS (K)		Year ended December, 31 2002 NIS (K)		Year ended December, 31 2004 NIS (K)		Year ended December, 31 2003 NIS (K)		Year ended December, 31 2002 NIS (K)
Income (loss) before taxes	(1,457	)	(6,276	)	(18,075	)	4,360		(1,452	)	(8,943	)	5,870
Statutory tax rate	35	%	35	%	36	%	36	%	35	%	36	%	36	%
Theoretical tax	(510	)	(2,197	)	(6,507	)	1,570		(508	)	(3,219	)	2,112
Increase (decrease) in tax due to:
Losses utilized during previous years	(3	)	(15	)	-		(3,043	)	-		-		(2,218	)
Permanent differences	(12	)	(51	)	345		283		16		271		194
Previous years taxes	9		38		(526	)	91		43		(392	)	-
Items in respect of which no tax benefits were recorded	846		3,647		6,606		2,690		1,611		3,298		(88	)
Tax benefits from an approved enterprise	(3	)	(12	)	-		(540	)	-		-		-
	837		3,608		6,425		(519	)	1,670		3,177		(2,112	)
Taxes on income	327		1,411		(82	)	1,051		1,162		(42	)	-

	E.	Tax rates at which the taxes were calculated:

	Current taxes        22%  - 35%
	Deferred taxes      22%  - 35%
	In a proportionately consolidated company, the tax rate that was taken into account for the calculation of deferred taxes was 22%, which is the weighted tax rate that is expected to apply upon utilization of the benefits due to the “approved enterprise” (See note 24G).
	The Company and consolidated companies have carry forward tax losses amounting to approximately NIS 13 million and NIS 33 million, respectively.
	The Company and consolidated companies did not state deferred taxes asset regarding these losses, as there is an uncertainty in utilization possibility.
	Consolidated company has a carry forward loss of NIS 6 million that can be utilized between 2005 and 2024.

F-43

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 24     -	TAXES ON INCOME  (cont.’)
	F.	Decrease in corporate tax rates:
		On June 29, 2004 an amendment to the Income Tax Law (number 140 and hourly instruction), 2004 was passed by the “Knesset” (Israeli Parliament). This amendment asserts a gradual reduction in the rate of corporate tax from 36% to 30% as follows:

	In the year 2004 the tax rate will be 35%, in the year 2005 the tax rate will be 34%, in the year 2006 the tax rate will be 32% and from the year 2007 and forward the tax rate will be 30%.
	The impact of changes in tax rate over the consolidated financial statements, results of operations and cash flows is not material.

	G.	Benefits of approved enterprise:
		Certain investments in fixed assets made by proportionately consolidated company have been granted an “approved enterprise” status subject to the law. The Company chose the alternative income course, accordingly income from the “approved enterprise” will be exempt from taxes for two years after which a reduced tax rate of 20% will be enacted for the remaining benefit period. The benefit period is a 10 year period beginning in the year in which the company first generates taxable income and contingent to a time period limitation as stated in the law. These benefits are contingent on an investment by foreigners of at least 50%. The program was enacted in 2000 and accordingly the benefit period is expected to end in 2009. Dividends distributed from “approved enterprise” income will be liable for a 15% corporate tax rate. If the company should distribute dividends from exempt income, at 20% tax rate will be withheld of the amount distributed (see note 2 O). The above mentioned benefits are contingent on the company meeting the terms of the law and regulations and an authorization letter according to which the company invested in an “approved enterprise”. Non - fulfillment of these terms may lead to the cancellation of some or all of the above mentioned befits and a demand for the repayment of certain amounts including interest.
	H.	Tax Benefits as an “Industrial Company”

The Company and its proportionately consolidated company are “Industrial companies”, as defined by the Law for the Encouragement of Industry (Taxation) 1969 and, as such, are entitled to certain benefits, mainly accelerated depreciation and the right to claim expenses and amortization of intangible rights, at a period of 8 years, and expenses of registration of stock to commerce at a period of 3 years.

	I.	Final tax assessments

	The Company, its consolidated companies and its proportionately consolidated company have final tax assessments under the Law up to and including the tax year 2000.

	J.	Consolidated companies abroad

Consolidated companies, incorporated abroad, are taxed according to tax laws in countries of their residence.

F-44

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(In Thousands NIS)

NOTE 25     -	DATA IN NOMINAL TERMS FOR TAX PURPOSES
	A.  Balance Sheets

	December 31,
	2004		2003
	NIS (K)		NIS (K)
Current Assets
Cash and cash equivalents	3,351		9,460
Short-term investments	99		-
Trade receivables	5,726		2,764
Other receivables and debit balances	1,086		1,487
Inventories	3,261		4,974
	13,523		18,685
Long-term investments
Investments in investee and other companies	14,462		20,442
Funds in respect of employee rights upon retirement, net	563		81
	15,025		20,523
Fixed Assets, net	28,087		29,156
Other assets and deferred expenses	672		531
	57,307		68,895
Current Liabilities
Credit from banks	12,952		13,606
Trade payables	2,629		2,348
Other payables and credit balances	6,308		10,191
	21,889		26,145
Long-Term Liabilities
Long-term bank loans	17,100		17,516
Provision for deferred taxes	163		—
Liability for termination of employee/employer relationship, net	—		—
	17,263		17,516
Shareholders’ Equity
Share capital and capital reserves	28,850		28,679
Accumulated deficit	(9,952	)	(2,500	)
	18,898		26,179
Treasury stock	(743	)	(945	)
	18,155		25,234
	57,307		68,895

F-45

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(In Thousands NIS)

NOTE 25    -	DATA IN NOMINAL TERMS FOR TAX PURPOSES (cont.’)
	B.   Statements of Operations

	For the year ended December 31,
	2004		2003		2002
	NIS (K)		NIS (K)		NIS (K)
Revenues	28,941		23,485		39,388
Cost of revenues	16,571		14,769		19,193
Gross profit	12,370		8,716		20,195
Operating Expenses
Research and development expenses, net	3,553		4,840		3,038
Marketing and selling expenses	4,576		5,356		3,554
Administrative and general expenses	5,453		6,763		7,396
	13,582		16,959		13,988
Operating Income (Loss)	(1,212	)	(8,243	)	6,207
Financing expenses, net	(1,746	)	(3,562	)	(1,771	)
Other income, net	1,742		2,965		2,372
Income (loss) before taxes	(1,216	)	(8,840	)	6,808
Taxes on income	1,163		(42	)	-
Income (loss) before Company’s share in results of   Investee companies	(2,379	)	(8,798	)	6,808
Company’s share in loss of Investee companies	(5,073	)	(9,029	)	(2,397	)
Net income (loss)	(7,452	)	(17,827	)	4,411

F-46

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(In Thousands NIS)

NOTE 25   -	DATA IN NOMINAL TERMS FOR TAX PURPOSES (cont.’)
	C.  Statement of Changes in Shareholders’ Equity

	Number of shares (1)		Share capital		Premium on shares		Capital reserves		Adjustments on translation of financial statement of an autonomous consolidated company		Treasury stock		Retained Earnings (loss)		Total
			NIS		NIS		NIS		NIS		NIS		NIS		NIS
Balance at January 1, 2002	10,727,831		5,615		21,618		1,842		-		(945	)	10,916		39,046
Exercise of options	3,000		1		4		-		-		-		-		5
Adjustment on translation of  financial statements of an  autonomous consolidated company	-		-		-		-		122		-		-		122
Net income	-		-		-		-		-		-		4,411		4,411
Balance at December 31, 2002	10,730,831		5,616		21,622		1,842		122		(945	)	15,327		43,584
Exercise of options	13,200		7		19		-		-		-		-		26
Adjustment on translation of  financial statements of an  autonomous consolidated company	-		-		-		-		(549	)	-		-		(549	)
Net loss	-		-		-		-		-		-		(17,827	)	(17,827	)
Balance at December 31, 2003	10,744,031		5,623		21,641		1,842		(427	)	(945	)	(2,500	)	25,234
Exercise of options	1,600		1		3		-		-		-		-		4
Issuance of treasury stock	105,396		-		247		-		-		202		-		449
Adjustment on translation of  financial statements of an  autonomous consolidated company	-		-		-		-		(80	)	-		-		(80	)
Net loss	-		-		-		-		-		-		(7,452	)	(7,452	)
Balance at December 31, 2004	10,851,027		5,624		21,891		1,842		(507	)	(743	)	(9,952	)	18,155

                   (1)  Issued and paid up after deduction of treasury stock.

F-47

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 26     -	EFFECT OF VARIANCES BETWEEN ISRAELI GAAP AND U.S. GAAP IN THE CONSOLIDATED STATEMENTS
	The financial statements are represented according to Israeli GAAP.
	The significant differences between the Israeli GAAP and the U.S. GAAP relate primarily to the following matters:
	A. Proportional Consolidation

	According to Israeli GAAP, an investment in jointly held investee companies is presented according to the proportionate consolidation method. According to U.S. GAAP, such an investment is presented according to the equity method.

	B.   Presentation of liability for termination of employee/employer relationship

	According to Israeli GAAP, the sum of a funded provision in a provident fund is deducted from the related liability. According to U.S. GAAP, the offsetting of assets and liabilities in these circumstances is not acceptable.

	C.   Amortization of goodwill

	According to Israeli GAAP, goodwill is amortized over the period it is expected to grant the Company future economic benefits. According to US GAAP, goodwill is only amortized in case of impairment.

	D.  Following are the effects of the differences on the financial statements:

	December 31, 2004								December 31, 2003
	Financial Statements		Effect of Differences		After effect of differences		After effect of differences		Financial Statements		Effect of differences		After effect of differences
	NIS (K)		NIS (K)		NIS (K)		U.S.$ (K) (*)		NIS (K)		NIS (K)		NIS (K)
Balance Sheet
Current assets	33,803		(8,125	)	25,678		5,960		43,990		(11,778	)	32,212
Fixed assets, net	36,548		(1,101	)	35,447		8,228		38,233		(961	)	37,272
Long-term investments	563		6,243		6,806		1,580		96		10,290		10,386
Other assets and deferred expenses	1,036		(369	)	667		155		428		108		536
Current liabilities	31,414		(3,595	)	27,819		6,458		35,680		(3,441	)	32,239
Long-term liabilities	17,402		243		17,645		4,096		17,716		577		18,293

F-48

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 26   -	EFFECT OF VARIANCES BETWEEN ISRAELI GAAP AND U.S. GAAP IN THE CONSOLIDATED STATEMENTS  (cont.’)
	D.  Following are the effects of the differences on the financial statements: (cont.)

	December 31, 2004
	Financial Statements		Effect of differences		After effect of differences		After effect of differences
	NIS (K)		NIS (K)		NIS (K)		U.S.$ (K) *
Profit and Loss
Revenues	61,734		(10,501	)	51,233		11,893
Gross profit	25,891		(4,875	)	21,016		4,879
Operating loss	4,974		351		(4,623	)	(1,072	)
Cash Flows
Operating activities	(6,020	)	6,450		430		100
Investment activities	(583	)	258		(325	)	(75	)
Financing activities	(1,283	)	-		(1,283	)	(298	)

	December 31, 2003
	Financial Statements		Effect of differences		After effect of differences
	NIS (K)		NIS (K)		NIS (K)
Profit and Loss
Revenues	56,116		(6,960	)	49,156
Gross profit	23,518		(4,182	)	19,336
Operating loss	(16,324	)	657		(15,667	)
Cash Flows
Operating activities	(9,217	)	2,729		(6,488	)
Investment activities	(357	)	104		(253	)
Financing activities	174		-		174

	December 31, 2002
	Financial Statements		Effect of differences		After effect of differences
	NIS (K)		NIS (K)		NIS (K)
Profit and Loss
Revenues	86,159		(9,488	)	76,671
Gross profit	44,747		(7,836	)	36,911
Operating income	4,122		(3,603	)	519
Cash Flows
Operating activities	13,383		(4,195	)	9,188
Investment activities	(748	)	32		(716	)
Financing activities	428		(244	)	184

F-49

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

NOTE 26   -	EFFECT OF VARIANCES BETWEEN ISRAELI GAAP AND U.S. GAAP IN THE CONSOLIDATED STATEMENTS  (cont.’)
	E.   Proforma Information with Regard to the Effect of FAS-123

	Following is the proforma data of the net loss and basic loss per share had the company chosen to apply FAS 123 and calculated the cost of the benefits of the stock option plan to the employees according to their fair value.

		Financial Statements		Effect of FAS 123		Pro-forma		Pro-forma
		NIS (K)		NIS (K)		NIS (K)		U.S.$ (K) *
Loss		(7,687	)	(606	)	(8,293	)	(1,925	)
Loss per share		(0.71	)	(0.06	)	(0.77	)	(0.18	)

	According to the rules set forth in FAS 123, the fair value of the options is calculated at presentation date according to the Black & Scholes Option Pricing Model.
	The assumptions used are:
	1.  Expected life length of the options – 3-4 years.
	2.  Expected dividend distribution rate – 0%.
	3.  Expected standard deviation – 101%-110% per year.
	4.  No-risk interest rate – 3.5% per year.

F-50

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RoboGroup T.E.K. Ltd.

Notes to Financial Statements

(NIS in Thousands)

Appendix to Financial Statements

Name of company		Percent of direct holding (%)		Name of holding company
Consolidated companies:
Intelitek Inc.		100		RoboGroup T.E.K. Ltd.
Robotec Technologies Ltd.		100		RoboGroup T.E.K. Ltd.
Intelitek Training Systems (1989) Ltd. (formerly Sim-Lev Ltd)		100		RoboGroup T.E.K. Ltd.
Computras Computerized Training Systems Ltd.		100		RoboGroup T.E.K. Ltd.
Computras Marketing Training Systems Equipment (1988) Ltd.		100		RoboGroup T.E.K. Ltd.
Robotec Industries Ltd.		100		RoboGroup T.E.K. Ltd.
MemCall Inc.		100		RoboGroup T.E.K. Ltd.
Eshed Robotec BV.		100		RoboGroup T.E.K. Ltd.
Burelco N.V		100		Eshed Robotec BV .
MemCall LLC		82		Burelco N.V
MemCall Ltd.		100		MemCall LLC
Proportionately consolidated companies:
Yaskawa Eshed Technology Ltd.		50		RoboGroup T.E.K. Ltd.
Yet US Inc.		100		Yaskawa Eshed Technology Ltd.

F-51

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