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THIS DOCUMENT IS A COPY OF THE EXHIBIT 99.1 TO THE AMENDMENT ON FORM 8-K/A
TO ELECTRONIC ASSOCIATES, INC.'S CURRENT REPORT ON FORM 8-K (DATE OF REPORT
- -- JANUARY 16, 1995) FILED ON MARCH 31, 1995 PURSUANT TO A RULE 201 TEMPORARY
HARDSHIP EXEMPTION.
BARON RESEARCH AND
DEVELOPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
as of December 31, 1993
-----------------------
<PAGE>
BARON RESEARCH AND
DEVELOPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
C O N T E N T S
<TABLE>
<CAPTION>
P a g e
<S> <C>
AUDITORS' REPORT 2
FINANCIAL STATEMENTS
Balance Sheets 3
Statements of Operations 4
Statements of Changes in Shareholders' Equity 5
Statements of Cash Flows 6
Notes to the Financial Statements 7 - 14
</TABLE>
<PAGE>
22632930
INDEPENDENT AUDITORS' REPORT
Extended form to comply with U.S. standards
To the Shareholders of
Baron Research and Development Ltd.
(a development stage company)
We have audited the balance sheets of Baron Research and Development Ltd. (a
development stage company) (the "Company") as of December 31, 1993 and 1992, and
the statements of operations, shareholders' equity and cash flows for the
periods ended December 31, 1993 and 1992. 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 generally accepted auditing standards
in Israel and the United States, including those prescribed by the Auditors'
(Mode of Performance) Regulations (Israel), 1973. Those standards require that
we plan and perform the audit to obtain reasonable assurance as to 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 the significant estimates made by management, as well as an
evaluation of 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 the Company as of December 31,
1993 and 1992, and the results of their operations and cash flows for the
periods ended December 31, 1993 and 1992, in conformity with accounting
principles generally accepted in Israel (as applicable to the financial
statements of the Company, generally accepted accounting principles in Israel
are practically identical to those of the U.S. except for the restatement to
inflation, see Note 3(D)).
/s/ Luboshitz, Kasierer & Co. /s/ Yosef Shimony
Certified Public Accountants (Israel) Certified Public Accountants (Israel)
Tel Aviv, March 21, 1995.
_______________________________________________________________________________
2
<PAGE>
BALANCE SHEETS
_______________________________________________________________________________
In shekels of December 1993
<TABLE>
<CAPTION>
December 31
-----------
1993 1992
Note NIS NIS
----- ---- ----
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 281 35,200
Receivables and prepaid expenses 19,233 69,478
----------- -------
19,514 104,678
----------- -------
FIXED ASSETS (4) 168,283 102,092
----------- -------
OTHER ASSETS (5) 6,403 5,656
----------- -------
194,200 212,426
=========== =======
CURRENT LIABILITIES
Bank overdraft 48,040 -
Creditors and accounts payable (6) 410,903 256,990
----------- -------
458,943 256,990
----------- -------
ACCRUED SEVERANCE PAY (7) 49,907 -
----------- -------
SHAREHOLDERS' DEFICIENCY
Share capital (8) 40,055 2
Receipts on account of shares (8) 1,046,795 417,955
Accumulated deficit (1,401,500) (462,521)
----------- -------
(314,650) (44,564)
----------- -------
194,200 212,426
=========== ========
</TABLE>
/s/ E.A. Wolfe
Director
March 21, 1995.
The accompanying notes form an integral part of the financial statements.
- --------------------------------------------------------------------------------
3 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
In shekels of December 1993
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
inception
Year ended Period ended until
Note December 31 December 31 December 31
---- ----------- ----------- -----------
1993 1992 1993
----
NIS NIS NIS
--- --- ---
<S> <C> <C> <C> <C>
Research and development
costs (11) 697,412 404,171 1,101,583
General and administrative
expenses (12) 249,472 64,494 313,966
------- ---------- -----------
(946,884) (468,665) (1,415,549)
Financing income, net (13) 7,905 6,144 14,049
-------- --------- -----------
Net loss (938,979) (462,521) (1,401,500)
========= ========= ===========
</TABLE>
The accompanying notes form an integral part of the financial statements.
- --------------------------------------------------------------------------------
4 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
In shekels of December 1993
<TABLE>
<CAPTION>
Receipts
Number Share on account Accumulated
of shares capital of shares deficit Total
NIS NIS NIS NIS
--------- ------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Shares issued 2 2 - 2
Receipts on account of shares - - 417,955 - 417,955
Net loss - - - (462,521) (462,521)
--------- ----- ------- ------- --------
Balance as of
December 31, 1992 2 2 417,955 (462,521) (44,564)
Receipts on account of shares - - 628,840 - 628,840
Shares issued 39,998 40,053 - - 40,053
Net loss - - - (938,979) (938,979)
--------- ------ --------- ------- --------
Balance as of
December 31, 1993 40,000 40,055 1,046,795 (1,401,500) (314,650)
========= ====== ========= ========= ========
</TABLE>
The accompanying notes form an integral part of the financial statements.
- --------------------------------------------------------------------------------
5 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
In shekels of December 1993
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
inception
Year ended Period ended until
December 31 December 31 December 31
----------- ----------- -----------
1993 1992 1993
----
NIS NIS NIS
--- --- ---
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (938,979) (462,521) (1,401,500)
------- ------- ---------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 32,737 3,476 36,213
Exchange rate differences 1,126 - 1,126
Increase in provision for severance pay 49,907 - 49,907
Changes in assets and liabilities:
(Increase) decrease in receivables and
prepaid expenses 50,245 (69,478) (19,233)
Increase in creditors and accounts payable 79,263 256,990 336,253
-------- -------- --------
213,278 190,988 404,266
-------- -------- -------
Net cash used in operating activities (725,701) (271,533) (997,234)
-------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of fixed assets (98,171) (105,568) (203,739)
Acquisition of other assets (1,504) (5,656) (7,160)
------- ------- -------
Net cash used in investing activities (99,675) (111,224) (210,899)
------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of shares 40,053 2 40,055
Receipts on account of shares 628,840 417,955 1,046,795
Increase in short-term bank credit 48,040 - 48,040
Loan received from related parties 73,524 - 73,524
-------- ------- ---------
Net cash provided by financing activities 790,457 417,957 1,208,414
-------- ------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (34,919) 35,200 281
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 35,200 - -
-------- ------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD 281 35,200 281
=== ====== ===
</TABLE>
The accompanying notes form an integral part of the financial statements.
- --------------------------------------------------------------------------------
6 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - GENERAL
The Company is a development stage Israeli corporation established in
July 1992. Since its inception the Company has been primarily engaged in
the development of an electronic pen as an input device for computers.
In the course of its development activities, the Company has sustained
continuous operating losses and expects such losses to continue for the
duration of the development stage. The Company's ability to continue as a
going concern depends upon its success in raising the required additional
financing. See also Note 14.
Note 2 - FINANCIAL STATEMENTS RESTATED FOR INFLATION
A. GENERAL
The financial statements are presented on the basis of historical
cost, restated for changes in the general purchasing power of the
Israeli currency. Accordingly, the nominal figures in the
accounting records (the Company maintains its books of accounts in
nominal shekels) are restated to New Israeli Shekels (NIS) of the
last month of the reported period (December 1993) based on the
changes in the Consumer Price Index (CPI). Condensed statements in
nominal shekels are presented in Note 15.
The restatement is made in accordance with principles laid down in
the relevant Opinions issued by the Institute of Certified Public
Accountants in Israel.
The increase in the CPI for the year ended December 31, 1993 was
11.2% (for the comparative period in 1992 - 4.4%).
B. BALANCE SHEET
Nonmonetary items - fixed assets, other assets and items in
shareholders' equity, are restated for changes in the CPI from the
date of the transaction to balance sheet date.
Monetary items are presented in the balance sheet at nominal
amounts. (Comparative figures are restated to shekels of balance
sheet date).
The restated values of nonmonetary items do not necessarily
represent economic or realization values, but merely the
historical values restated for changes in the general purchasing
power of the Israeli currency.
- --------------------------------------------------------------------------------
7 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Cont.)
Note 2 - FINANCIAL STATEMENTS RESTATED FOR INFLATION
C. STATEMENT OF OPERATIONS
Amounts relating to nonmonetary items (principals, depreciation
and amortization) are restated on the same basis as the restated
balance sheet item. Other expenses (excluding finance) are
restated on the basis of changes in the CPI between transaction
date and balance sheet date.
Note 3 - SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies, applied in the preparation of the
financial statements on a consistent basis, are as follows:
A. FIXED ASSETS - Fixed assets (including leasehold improvements) are
stated at cost. Depreciation is calculated by the straight-line
method at rates considered adequate to amortize the cost of assets
over their estimated useful lives.
B. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include
deposits in banks which are held for immediate or short-term
withdrawal (original deposit period not exceeding three months).
C. RESEARCH AND DEVELOPMENT COSTS - These costs are
charged to operations as incurred.
D. U.S. GAAP - As applicable to the Company's financial statements,
generally accepted accounting principles in Israel are practically
identical to those of the U.S. except for the restatement for
changes in the general purchasing power of the Israeli currency as
detailed in Note 2.
- --------------------------------------------------------------------------------
8 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (Cont.)
- --------------------------------------------------------------------------------
Note 4 - FIXED ASSETS
<TABLE>
<CAPTION>
December 31 December 31
1993 1992
----
----------------------------------------------
Rate of Cost Accumulated Net Net
depreciation depreciation
----------------- ------------- ------------------ ------------ -------------
% NIS NIS NIS NIS
- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Computers and
peripheral equipment 10-20 170,269 32,096 138,173 91,658
Furniture and office
equipment 7-10 21,188 1,547 19,641 10,434
Leasehold improvements 20 12,282 1,813 10,469 -
-------- ------ ------- -------
203,739 35,456 168,283 102,092
======= ====== ======= =======
</TABLE>
Note 5 - OTHER ASSETS
Mainly patents acquired, net of accumulated amortization of NIS 761 (1992
- nil).
Note 6 - CREDITORS AND ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
December 31
-----------------------
1993 1992
NIS NIS
--- ---
<S> <C> <C> <C>
Directors, shareholders and other
related parties (1) 197,567 54,919
Short-term loan from a shareholder (2) 74,650 -
Government institutions 19,326 28,638
Employees 50,331 47,713
Suppliers and accounts payable 69,029 125,720
-------- -------
410,903 256,990
======= =======
</TABLE>
(1) Loans and current accounts which did not bear interest up to
balance sheet date.
(2) The loan is linked to the U.S. dollar and bears interest at
Libor + 1.5%. The loan was repaid during the first half of 1994.
- --------------------------------------------------------------------------------
9 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (Cont.)
- --------------------------------------------------------------------------------
Note 7 - ACCRUED SEVERANCE PAY
The Company's obligation for severance pay to employees is covered by the
unfunded accrual in the balance sheet.
Note 8 - SHARE CAPITAL
Share capital consists of ordinary shares of NIS 1 par value each.
Authorized share capital - 110,000 shares (1992 - 19,800). Issued and
paid-up capital - 40,000 shares (1992 - 2).
Note 9 - COMMITMENTS AND CONTINGENT LIABILITIES
A. The Company has an obligation to pay a shareholder royalties of 2%
of sales up to a maximum of U.S. $ 500,000. The shareholder also
has the right to market the Company's products in Japan.
B. Maximum exposure of a claim and threatened litigation against the
Company amounts to approximately U.S. $ 43,000. Managements
estimates that ultimate outcome of these claims will not have
a material adverse effect on the Company.
Note 10 - INCOME TAXES
A. The Company has not as yet received any final tax assessment since
its establishment (1992).
B. The Company's loss and deductions available to be carried forward
for tax purposes amount to approximately NIS 1.3 million. The
difference between the reported loss and the loss for tax purposes
is due mainly to unallowable expenses. Future tax benefits will be
included on realization.
- --------------------------------------------------------------------------------
10 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (Cont.)
- --------------------------------------------------------------------------------
Note 11 - RESEARCH AND DEVELOPMENT COSTS
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
inception
Year ended Period ended until
December 31 December 31 December 31
1993 1992 1993
---------- ------------ -----------
NIS NIS NIS
<S> <C> <C> <C>
Salaries and related expenses 599,232 212,289 811,521
Depreciation and amortization 29,503 3,353 32,856
Materials and components 19,058 8,259 27,317
Travel 26,707 13,266 39,973
Consultants and subcontractors (1) 22,912 167,004 189,916
-------- ------- ---------
697,412 404,171 1,101,583
======== ======= =========
(1) Including to related parties - 103,662 103,662
======== ======= =========
Note 12 - GENERAL AND ADMINISTRATIVE EXPENSES
Rent and building maintenance (1) 66,914 2,553 69,467
Travel (1) 58,454 1,707 60,161
Salaries and related expenses 35,246 2,873 38,119
Communications 32,934 7,607 40,541
Professional fees 25,164 44,876 70,040
Depreciation 3,234 127 3,361
Other 27,526 4,751 32,277
-------- ------- --------
249,472 64,494 313,966
======== ======= =======
(1) Including to related parties 92,826 - 92,826
======== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
11 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (Cont.)
- --------------------------------------------------------------------------------
Note 13 - FINANCING INCOME, NET
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
inception
Year ended Period ended until
December 31 December 31 December 31
1993 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Financing income is net of expenses to
a related party 5,959 - 5,959
===== ============= ==========
</TABLE>
Note 14 - EVENTS SUBSEQUENT TO BALANCE SHEET DATE
A. Subsequent to balance sheet date the Company changed its name to:
"Baron Technologies Ltd."
B. - Subsequent to balance sheet date and up to September 1994,
the Company issued 33,007 shares for approximately NIS 3.1
million, including receipts of NIS 1,046,795 on account of
shares, included in the balance sheet at December 31, 1993.
- The Company split each share of NIS 1.0 par value into 100
shares of NIS 0.01 par value each. On October 1994 the
Company issued 125,100 shares of NIS 0.01 par value each
for approximately NIS 160,000. As a result, the Company's
issued share capital consists of 7,425,800 shares of NIS 0.01
par value each.
- --------------------------------------------------------------------------------
12 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (Cont.)
- --------------------------------------------------------------------------------
Note 14 - EVENTS SUBSEQUENT TO BALANCE SHEET DATE (Cont.)
C. In January 1995 the Company, its shareholders and Electronic Asso-
ciates, Inc. (a company registered in the U.S., "EAI") signed an
agreement according to which:
- EAI will purchase newly issued shares of the Company
for U.S.$ 4 million, of which U.S.$ 3 million is to be
paid in cash and U.S.$ 1 million is to be paid in
shares of EAI.
- EAI will purchase Company shares held by existing
shareholders.
After completing these two purchases, EAI will hold 25.01% of the
Company's outstanding shares.
- EAI has an option to increase its holding in the
Company to up to 33.33% for an additional U.S.$ 4
million (U.S.$ 2 million to be paid in cash and U.S.$ 2
million to be paid in shares of EAI).
- EAI will have a right of first refusal to enter into
manufacturing contracts to produce for the Company
electronic hardware elements for its products and will
provide the Company with certain consulting services.
Note 15 - CONDENSED STATEMENTS IN NOMINAL SHEKELS
<TABLE>
<CAPTION>
December 31
------------------------
1993 1992
NIS NIS
---- ----
<S> <C> <C>
A. BALANCE SHEET
Current assets 19,485 94,091
Fixed assets, net 153,849 90,484
Other assets 5,860 5,084
--------- -------
179,194 189,659
========= =======
Current liabilities 458,943 231,002
---------- -------
Accrued severance pay 49,907 -
---------- -------
Shareholders' deficiency
Share capital 40,000 2
Receipts on account of shares 955,010 365,989
Accumulated deficit (1,324,666) (407,334)
--------- -------
(329,656) (41,343)
--------- -------
179,194 189,659
========== ========
</TABLE>
- --------------------------------------------------------------------------------
13 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS (Cont.)
- --------------------------------------------------------------------------------
Note 15 - CONDENSED STATEMENTS IN NOMINAL SHEKELS (Cont.)
<TABLE>
<CAPTION>
Year ended Period ended
December 31 December 31
1993 1992
---------- ----------
NIS NIS
--- ---
<S> <C> <C>
B. STATEMENT OF OPERATIONS
Research and development costs 665,859 360,110
General and administrative expenses 238,786 55,710
------- -------
904,645 415,820
Financing income (expenses), net (12,687) 8,486
------- -------
Net loss (917,332) (407,334)
======= =======
</TABLE>
C. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Receipts
Number Share on account Accumulated
of shares capital of shares deficit Total
NIS NIS NIS NIS
---------- ---- --- --- ---
<S> <C> <C> <C> <C> <C>
Shares issued 2 2 - - 2
Receipts on account of shares - - 365,989 - 365,989
Net loss - - - (407,334) (407,334)
------ ------ ------- ---------- -------
Balance at December 31, 1992 2 2 365,989 (407,334) (41,343)
Receipts on account of shares - - 589,021 - 589,021
Shares issued 39,998 39,998 - - 39,998
Net loss - - - (917,332) (917,332)
------ ------ ------- ---------- -------
Balance at December 31, 1993 40,000 40,000 955,010 (1,324,666) (329,656)
====== ====== ======= ========= =======
</TABLE>
* * * * * * * * * * *
- --------------------------------------------------------------------------------
14 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
BARON RESEARCH AND
DEVELOPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM
FINANCIAL STATEMENTS
as of September 30, 1994
------------------------
(Unaudited)
<PAGE>
BARON RESEARCH AND
DEVELOPMENT LTD.
(A DEVELOPMENT STAGE COMPANY)
22632949
C O N T E N T S
<TABLE>
<CAPTION>
P a g e
<S> <C>
CONDENSED INTERIM FINANCIAL (UNAUDITED) STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Shareholders' Equity 4
Statement of Cash Flows 5
Notes to the Financial Statements 6 - 7
</TABLE>
<PAGE>
BALANCE SHEET
- ------------------------------------------------------------------------------
In shekels of September 1994
<TABLE>
<CAPTION>
September 30 December 31
------------ -----------
1994 1993
NIS NIS
--- ---
<S> <C> <C>
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents 203,989 311
Receivables and prepaid expenses 66,473 21,262
------- -------
270,462 21,573
------- -------
FIXED ASSETS 287,525 186,037
------- -------
OTHER ASSETS AND DEFERRED
EXPENSES 70,579 7,079
------- -------
628,566 214,689
======= =======
CURRENT LIABILITIES
Bank overdraft - 53,108
Creditors and accounts payable 720,204 454,255
------- -------
720,204 507,363
------- -------
ACCRUED SEVERANCE PAY 149,443 55,172
------- -------
SHAREHOLDERS' DEFICIENCY
Share capital 81,923 44,280
Premium on shares 3,258,804 -
Receipts on account of shares - 1,157,232
Accumulated deficit (3,581,808) (1,549,358)
--------- ---------
(241,081) (347,846)
------- -------
- -
628,566 214,689
======= =======
</TABLE>
/s/ E.A. Wolfe
-----------------------
Director
March 21 , 1995.
The accompanying notes form an integral part of the financial statements.
- ------------------------------------------------------------------------------
2 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
In shekels of September 1994
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
inception
Nine months ended Year ended until
September 30 December 31 September 30
------------ ----------- ------------
1994 1993 1994
----
NIS NIS NIS
---
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Research and development 1,421,057 770,990 2,638,856
costs
General and administrative
expenses 675,572 275,790 1,022,661
---------- ---------- ----------
(2,096,629) (1,046,780) (3,661,517)
Finance income, net 64,179 8,739 79,709
---------- ---------- ----------
Net loss (2,032,450) (1,038,041) (3,581,808)
========= ========= =========
</TABLE>
The accompanying notes form an integral part of the financial statements.
- ------------------------------------------------------------------------------
3 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
In shekels of September 1994
(Unaudited)
<TABLE>
<CAPTION>
Number Share Premium Receipts Accumulated Total
of shares capital on shares on account deficit
of shares
NIS NIS NIS NIS NIS
--------- ------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 4,000,000 44,280 -- 1,157,232 (1,549,358) (347,846)
Shares issued 3,300,700 37,643 3,258,804 (1,157,232) -- 2,139,215
Net loss . -- -- -- -- (2,032,450) (2,032,450)
---------- ---------- ---------- ---------- ---------- ----------
Balance at
September 30, 1994 7,300,700 81,923 3,258,804 -- (3,581,808) (241,081)
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes form an integral part of the financial statements.
- -------------------------------------------------------------------------------
4 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
In shekels of September 1994
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
Nine months inception
ended until
September 30 September 30
------------ ------------
1994 1994
NIS NIS
--- ---
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................................ (2,032,450) (3,581,808)
---------- ----------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ............................... 46,148 86,181
Exchange rate differences ................................... (2,450) (1,205)
Increase in provision for severance pay ..................... 94,271 149,443
Changes in assets and liabilities:
Increase in receivables and prepaid expenses ................. (45,211) (66,473)
Increase in creditors and accounts payable ................... 348,475 720,204
---------- ----------
441,233 888,150
---------- ----------
Net cash used in operating activities ..................... (1,591,217) (2,693,658)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets ...................................... (143,937) (369,166)
Acquisition of other assets ...................................... (68,235) (75,119)
---------- ----------
Net cash used in investing activities ..................... (212,172) (444,285)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares ................................. 2,140,251 3,340,727
Decrease in short term bank credit ............................... (53,108) --
Loans from related parties ....................................... (80,076) 1,205
---------- ----------
Net cash from financing activities ........................ 2,007,067 3,341,932
---------- ----------
Increase in cash during the period ............................... 203,678 203,989
CASH AT BEGINNING OF PERIOD ........................................ 311 --
---------- ----------
CASH AT END OF PERIOD .............................................. 203,989 203,989
========== ==========
</TABLE>
The accompanying notes form an integral part of the financial statements.
- -------------------------------------------------------------------------------
5 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A. These financial statements have been prepared as of September 30, 1994.
They should be read in conjunction with the Company's annual financial
statements as of December 31, 1993. No interim financial statements were
prepared in 1993, and therefore no comparative figures are presented.
B. The principal accounting policies have been applied consistently with the
prior period (1993).
C. The financial statements have been prepared on the basis of historical
cost restated for changes in the general purchasing power of the Israeli
currency based on the changes in the Consumer Price Index. The
restatement is made in accordance with principles laid down in the
relevant opinions issued by the Institute of Certified Public Accountants
in Israel. During the period of January - September 1994, the Consumer
Price Index increased by 10.5% (1993 - 11.2%).
D. Condensed statements in nominal shekels.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
NIS NIS
--- ---
(Unaudited) (Audited)
<S> <C> <C>
Current Assets 270,462 19,485
Fixed Assets, Net 253,302 153,849
Other Assets 66,684 5,860
------- -------
590,448 179,194
======= =======
Current Liabilities 720,204 458,943
------- -------
Accrued Severance Pay 149,443 49,907
------- -------
Shareholders' Deficiency
Share capital 73,007 40,000
Premium on shares 2,960,947 -
Receipts on account of shares - 955,010
Accumulated deficit (3,313,153) (1,324,666)
--------- ---------
(279,199) (329,656)
--------- ---------
590,448 179,194
========= =========
</TABLE>
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6 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30 December 31
1994 1993
(Unaudited) (Audited)
-------------------------------- ------------------------------
NIS NIS
--- ---
<S> <C> <C>
Research and development costs 1,340,708 665,859
General and administrative expenses 644,914 238,786
---------- ----------
1,985,622 904,645
Financing expenses, net 2,865 12,687
---------- ----------
Net loss (1,988,487) (917,332)
=========== ==========
</TABLE>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
Number Share Premium Receipts Accumulated Total
of shares capital on shares on account deficit
of shares
NIS NIS NIS NIS NIS
--------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 ............... 4,000,000 40,000 955,010 (1,324,666) (329,656)
Shares issued ................... 3,300,700 33,007 2,960,947 (955,010) - 2,038,944
Net loss ........................ - - - - (1,988,487) (1,988,487)
---------- ---------- ---------- ---------- ---------- ----------
Balance at
September 30, 1994 ............ 7,300,700 73,007 2,960,947 - (3,313,153) (279,199)
========== ========== ========== ========== ========== ==========
</TABLE>
- -------------------------------------------------------------------------------
7 BARON RESEARCH AND DEVELOPMENT LTD. (A DEVELOPMENT STAGE COMPANY)
<PAGE>
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