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  1. 1. DELTA FUND I, L.P. INTERIM FINANCIAL STATEMENTS AS OF MARCH 31, 2004 IN U.S. DOLLARS UNAUDITED INDEX Page Review Report of Unaudited Interim Financial Statements 2 Balance Sheets 3 Statements of Operations 4 Statements of Changes in Partners’ Capital Accounts 5 Statements of Cash Flows 6 Notes to Financial Statements 7 - 12 ----------
  2. 2.  Kost Forer Gabbay & Kasierer  Phone: 972-3-6232525 3 Aminadav St. Fax: 972-3-5622555 Tel-Aviv 67067, Israel The Partners Delta Fund I, L.P. Re: Review report of unaudited interim financial statements as of and for the three months ended March 31, 2004 At your request, we have reviewed the accompanying interim balance sheet of Delta Fund I, L.P. as of March 31, 2004, and the related interim statements of operations, changes in Partners' capital accounts and cash flows for the three months then ended. Our review was made in accordance with the procedures prescribed by the Institute of Certified Public Accountants in Israel, and included, inter-alia, reading the aforementioned interim financial statements, reading the minutes of meetings of the partners and their committees and making inquiries of certain officers responsible for financial and accounting matters. The foregoing procedures do not constitute an examination made in accordance with generally accepted auditing standards in Israel, and are limited in scope. Therefore, we do not express an opinion on the interim financial statements. In the course of our review, nothing came to our attention as a result of our review that would indicate that material changes of the interim financial statements are required in order that they may be considered prepared in accordance with generally accepted accounting principles in Israel. Tel-Aviv, Israel KOST FORER GABBAY & KASIERER May 20, 2004 A Member of Ernst & Young Global -2-
  3. 3. DELTA FUND I, L.P. BALANCE SHEETS U.S. dollars in thousands March 31, December 31, 2004 2003 2003 Unaudited Audited ASSETS CURRENT ASSETS: Cash and cash equivalents 2,126 4,402 3,274 Accounts receivable - - 2 2,126 4,402 3,276 VENTURE CAPITAL INVESTMENTS (Note 4) 24,100 20,026 22,713 OTHER ASSETS: Deferred expenses 289 339 301 26,515 24,767 26,290 LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS CURRENT LIABILITIES: Accounts payable 543 1,032 540 PARTNERS' CAPITAL ACCOUNTS 25,972 23,735 25,750 26,515 24,767 26,290 The accompanying notes are an integral part of the financial statements. May 20, 2004 Date of approval of the Ben Harel financial statements Director -3-
  4. 4. DELTA FUND I, L.P. STATEMENTS OF OPERATIONS U.S. dollars in thousands Three months ended Year ended March 31, December 31, 2004 2003 2003 Unaudited Audited Interest from venture capital investments 7 8 33 Appreciation (impairment) in value of investments 574 (515) (2,434) General and administrative expenses *) (361) (360) (1,441) Financial income, net 2 11 25 Income (loss) 222 (856) (3,817) *) Mainly management fees in the amount of $ 343 to Delta Venture (Cayman) Ltd. (December 31, 2003 - $1,371 and March 31, 2003 - $ 343). The accompanying notes are an integral part of the financial statements. -4-
  5. 5. DELTA FUND I, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL ACCOUNTS U.S. dollars in thousands General Limited partner partners Total Balance as of January 1, 2003 (audited) 196 19,418 19,614 Capital contributions 100 9,853 9,953 Loss (38) (3,779) (3,817) Balance as of December 31, 2003 (audited) 258 25,492 25,750 Income 2 220 222 Balance as of March 31, 2004 (unaudited) 260 25,712 25,972 Balance as of January 1, 2003 (audited) 196 19,418 19,614 Capital contributions 50 4,927 4,977 Loss (9) (847) (856) Balance as of March 31, 2003 (unaudited) 237 23,498 23,735 The accompanying notes are an integral part of the financial statements. -5-
  6. 6. DELTA FUND I, L.P. STATEMENTS OF CASH FLOWS U.S. dollars in thousands Three months ended Year ended March 31, December 31, 2004 2003 2003 Unaudited Audited Cash flows from operating activities: Income (loss) 222 (856) (3,817) Adjustments to reconcile income (loss) to net cash used in operating activities: Interest on venture capital investments (7) (8) (33) Amortization of deferred expenses 12 12 50 Impairment (appreciation) in value of investments (574) 515 2,434 Increase in accounts payable 3 3 20 Decrease in accounts receivable 2 2 - Net cash used in operating activities (342) (332) (1,346) Cash flows from investing activities: Venture capital investments (806) (2,557) (7,647) Net cash used in investing activities (806) (2,557) (7,647) Cash flows from financing activities: Capital contributions - 4,927 9,903 Net cash provided by financing activities - 4,927 9,903 Increase (decrease) in cash and cash equivalents (1,148) 2,038 910 Cash and cash equivalents at the beginning of the period 3,274 2,364 2,364 Cash and cash equivalents at the end of the period 2,126 4,402 3,274 Significant non-cash activities: Venture capital investments - - 506 Capital contribution - 50 50 The accompanying notes are an integral part of the financial statements. -6-
  7. 7. DELTA FUND I, L.P. NOTES TO FINANCIAL STATEMENTS NOTE 1:- GENERAL a. The Delta Ventures Fund ("The Fund") consists of four separate partnerships as follows: 1. Delta Fund I, L.P. - a Cayman Islands Partnership; 2. Delta Fund I (Israel), L.P. - an Israeli Partnership; 3. Gmulot Delta Fund, L.P. - an Israeli Partnership; 4. Poalim Delta Fund L.P. - an Israeli Partnership. All non-Israeli investors are included in Delta Fund I, L.P. ("The Partnership"). The Partnership was established and commenced its operations in January 2000. b. The Fund held its final closing on October 6, 2000, with a total capital commitment of $ 62 million. The total capital commitment of the partnership amounts to $ 50 million. According to the limited partnership agreement, the partnerships will generally make investments in portfolio companies on a pro-rata basis, in proportion to their respective aggregate commitments. As of balance sheet date, the General Partner has called for 75% of the total capital commitment. c. Definitions: Venture capital fund - an entity, which invests in venture capital investments and fulfills all of the following: 1. At least 80% of the original cost of the entity's assets as of the balance sheet date, was venture capital investments at the time these investments were carried out, and as of the balance sheet date, the entity has no control over said investments. 2. The entity's policy is to realize venture capital investments when the time is ripe for an exit, usually via an initial public offering (IPO) or acquisition. 3. The entity's policy is to diversify holdings in venture capital investments in an attempt to minimize the overall risk. 4. The entity's policy is not to control the venture capital investments. -7-
  8. 8. DELTA FUND I, L.P. NOTES TO FINANCIAL STATEMENTS NOTE 1:- GENERAL (cont.) Venture capital investment: An entity, which fulfills the following conditions: 1. Mainly engaged in the research or development of products or innovative hi-tech procedures, which the risk in the investment is higher than the acceptable risk in business transactions. 2. At least 90% of the entity's financing derives from shareholders' equity (including shareholders' loans), or supported by government authorities or research grants. d. These financial statements have been prepared as of March 31, 2004 and for the three months then ended. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies applied in the audited annual financial statements of the Partnership as of December 31, 2003, are applied consistently in these financial statements. NOTE 3:- FINANCIAL STATEMENTS IN U.S. DOLLARS a. The financial statements are prepared in accordance with generally accepted accounting principles in Israel. b. The U.S. dollar ("the dollar") is the functional currency of the Partnership and, accordingly, monetary accounts maintained in currencies other than the dollar are remeasured using the foreign exchange rate at balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the exchange rate in effect at the date of the transaction. The effects of foreign currency remeasurement are reported in current operations. The exchange rate of the U.S. dollar in relation to the NIS as of March 31, 2004 - U.S. $ 1 = NIS 4.528. -8-
  9. 9. DELTA FUND I, L.P. NOTES TO FINANCIAL STATEMENTS NOTE 4:- VENTURE CAPITAL INVESTMENTS a. The venture capital investments are composed as follows (as of March 31, 2004, the Partnership's share in the Fund's investments is 80.9%): December 31, March 31, 2004 (Unaudited) 2003 The The Partnership The Fund Partnership Shares Share Share in rights Cost of Cost of Fair Number of issuable to in rights fully diluted Cost of investment investment value Shares held (1) the Fund Voting and earnings investment U.S. dollars Number of U.S. dollars in thousands shares % in thousands TDNet Ltd. 1,586 1,960 1,960 3,762 - 32.18 31.26 1,586 Buyerforce Inc. (2) - - - 2,811,946 - 28.30 20.80 - Cast-Up Inc. (3) - - - 1,071 - 31.80 25.81 - Optun Inc. 4,362 5,392 5,392 740,075 - 23.36 20.65 4,362 Broadlight Inc. (4) 4,853 6,000 6,000 991,756 25,842 30.46 21.16 4,047 E4X Inc. 3,580 4,425 4,765 4,153,299 116,010 19.81 16.02 3,580 Appilog Inc. (5) 3,211 3,969 3,969 13,417,185 2,290,718 23.53 19.45 2,637 Chiaro Networks Ltd. (6) 1,214 1,500 1,500 3,750,001 - 1.75 1.47 1,214 Redux Inc. (7) 1,214 1,500 1,500 485,437 - 11.34 9.53 1,214 818 1,010 1,010 convertible loan - - - 811 Provigent Inc. 1,684 2,082 2,082 1,452,693 - 11.69 10.10 1,684 Medigus Ltd. 607 750 750 6,837 1,026 4.38 4.51 607 ClickFox Inc. 971 1,200 1,200 6,044,393 - 19.76 15.79 971 24,100 29,788 30,128 22,713 (1) Most of the shares held by the Fund are Preferred and convertible to Ordinary shares. The Preferred shares confer on the Fund special rights, mainly veto rights on certain decisions and priority rights upon liquidation. (2) After write-off of $ 1,281 thousand (the Fund - $ 1,583 thousand). (3) After write-off of $ 1,214 thousand (the Fund - $ 1,500 thousand). (4) After write-down of $ 243 thousand (the Fund - $ 300 thousand). (5) After appreciation of $ 574 thousand to its original cost (see Note 5b). (6) After write-down of $ 1,213 thousand (the Fund - $ 1,500 thousand). -9-
  10. 10. DELTA FUND I, L.P. NOTES TO FINANCIAL STATEMENTS (7) After write-down of $ 404 thousand (the Fund - $ 500 thousand). - 10 -
  11. 11. DELTA FUND I, L.P. NOTES TO FINANCIAL STATEMENTS NOTE 4:- VENTURE CAPITAL INVESTMENTS (cont.) b. The Partnership venture capital investments presented as if the financial statements were prepared in accordance with the U.S. GAAP: The Partnership March 31, 2004 (unaudited) Accumulated Number of Cost of Estimated unrealized Accumulated shares investment fair value (loss) gain realized loss TDNet Ltd. (Israel) Series A Preferred shares 3,044 1,586 1,586 - - Buyerforce Inc. (USA) Series A Preferred shares 2,275,057 1,281 - - (1,281) ABN Global Inc. (USA) Series A Preferred shares - 1,348 - - (1,348) Cast-Up Inc. (USA) Series B Preferred shares 867 1,214 - - (1,214) Optun Inc. (USA) Series A Preferred shares 227,550 1,214 1,431 217 - Series B Preferred shares 114,604 996 779 (217) - Series C Preferred shares 256,618 2,152 2,152 - - 4,362 - - Broadlight Inc. (USA) Series A Preferred shares 11,580 1,861 1,744 (117) - Series B Preferred shares 75,826 2,023 1,897 (126) - Series B warrants 3,033 - - - - Series C Preferred shares 714,992 1,212 1,212 - - Series C warrants 17,875 - - - - 4,853 (243) - E4X Inc. (USA) Common shares 444,988 142 142 - - Series A Preferred shares 219,802 809 809 - - Series B Preferred shares 938,599 1,011 1,011 - - Series B Warrants 93,860 - - - - Series C Preferred shares 1,756,917 1,618 1,893 275 - 3,855 275 - Appilog Inc. (USA) *) Common shares 182,793 183 183 - - Series A Preferred shares 1,411,077 1,411 1,411 - - Series B Preferred shares 9,261,228 1,617 1,617 - - Series B warrants 926,673 - - - - Common warrants 926,673 - - - - 3,211 - - Chiaro Networks Ltd. (Israel) Series D Preferred shares 3,034,008 2,427 1,214 (1,213) - Redux Inc. (USA) Series C Preferred shares 392,752 1,618 1,214 (404) - Convertible loan - 818 818 - - 2,032 (404) - Provigent Inc. (USA) Series B Preferred shares 1,175,328 1,684 1,684 - - Medigus Ltd. (Israel) Series B Preferred shares 5,532 607 607 - - Series B warrants 830 - - - - 607 - - ClickFox Inc. (USA) Preferred A-1 shares 4,890,330 971 971 - - 29,803 24,375 (1,585) (3,843) Accumulated realized and unrealized loss (5,703) - 11 -
  12. 12. DELTA FUND I, L.P. NOTES TO FINANCIAL STATEMENTS Cost of investments as included in the balance sheet 24,100 *) See Note 5b. - 12 -
  13. 13. DELTA FUND I, L.P. NOTES TO FINANCIAL STATEMENTS NOTE 4:- VENTURE CAPITAL INVESTMENTS (Cont.) c. Below are details pertaining to the principles used by the Partnership in determining the fair value of the investments: Non-marketable investments: Non-marketable investments are valued by the Fund manager and are based, among other things, on the last capital activity made in the companies in which the Fund invested in issuance of shares, conversion of debentures into shares and issuance of rights or same activity effected close to the date the financial statements were prepared, as well as an updated follow-up of Partnership's development by the Fund manager. Preferred shares are valued by the Fund manager on the basis of their conversion ratio into Ordinary shares. Non-marketable options, which are held by the Fund and others, are valued based on their cost adjusted to the changes in the exchange rate of the U.S. dollar. The valuation does not include the tax effects resulting from the increase or the decrease in the value of the investments. It should not be concluded from the valuation principles set above that the transactions on which the estimate of the Fund manager is based are identical in all terms to transactions that the Fund was a party to and which are the subject of the investments, which were valued. Further, it should not be concluded that the estimated amount as determined reflects a price that is expected to be received upon the realization of the investments. d. Changes in the investments in companies until and subsequent to March 31, 2004, are as follows: Broadlight Inc. ("Broadlight") In February 2004, the Fund undertook to invest $ 1,500 thousand in 883,723 Preferred C shares of Broadlight including conversion of the convertible loan plus accrued interest (the number of Preferred C shares indicated are after a reverse split of 1:200). The Fund was also granted 22,093 Preferred C warrants. Following the additional investment, the Fund's holding in Broadlight is 21.16% on a fully diluted basis. Since Series C round valuation was lower than that of Series B Preferred stock, the Fund wrote-down $ 300 thousand of its Preferred A and Preferred B investment. - 13 -
  14. 14. DELTA FUND I, L.P. NOTES TO FINANCIAL STATEMENTS NOTE 5:- SUBSEQUENT EVENTS a. In April 2004, the Fund committed to invest up to $ 1,500 thousand in up to 750,000 Preferred A shares of Monaliza Medical Ltd. (“Monaliza”) in 3 installments linked to milestones according to the Company’s development achievements. As of the investment date, the Fund invested $ 750 thousand in 325,000 Preferred A shares (the first installment). Monaliza developes a genetic test platform enabling Prenatal Genetic Screening in Transcervical Cell Samples tests in the first trimester of pregnancy (weeks 4 to 12). This process enables the detection of chromosomal abnormalities in the first trimester of pregnancy. b. In May 2004, Appilog Inc. was acquired by Mercury Interactive Corporation. The Fund approximate consideration shall be $ 13 million of which 80% shall be received upon closing (within 45 days) and the remaining 20% shall be in escrow pending certain events and shall be released in one year. As of the date of approval of the financial statements, due to the fact that Closing has not yet occurred, the Fund appreciated Appilog investment valuation to cost value. Following the Closing of the transaction, the full appreciation will be reflected. ---------- /home/pptfactory/temp/20100610083450/c93dcb17f611e70514174623.doc - 14 -

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