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<SEC-DOCUMENT>0001178913-04-000893.txt : 20040630
<SEC-HEADER>0001178913-04-000893.hdr.sgml : 20040630
<ACCEPTANCE-DATETIME>20040630121654
ACCESSION NUMBER:		0001178913-04-000893
CONFORMED SUBMISSION TYPE:	20-F
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040630

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SILICOM LTD
		CENTRAL INDEX KEY:			0000916793
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER COMMUNICATIONS EQUIPMENT [3576]
		IRS NUMBER:				000000000
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		20-F
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-23288
		FILM NUMBER:		04890609

	BUSINESS ADDRESS:	
		STREET 1:		08 HANAGAR ST
		CITY:			KFAR-SAVA ISRAEL
		STATE:			L3
		ZIP:			44000
		BUSINESS PHONE:		97297644555

	MAIL ADDRESS:	
		STREET 1:		P.O.BOX 2164
		CITY:			KFAR-SAVA
		STATE:			L3
		ZIP:			44000
</SEC-HEADER>
<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>zk40769.htm
<TEXT>
<HTML>

<HEAD>
<TITLE></TITLE>
</HEAD>

<BODY>
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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=1>


<P ALIGN=CENTER><FONT SIZE=4 FACE="TIMES NEW ROMAN"><B>SECURITIES AND EXCHANGE COMMISSION</B></FONT><BR>
<FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>WASHINGTON, D.C. 20549</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=4 FACE="TIMES NEW ROMAN"><B>FORM 20-F</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF<BR>
THE SECURITIES EXCHANGE ACT OF 1934<BR>
<I>For the
fiscal year ended December 31, 2003</I></B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=5 FACE="TIMES NEW ROMAN"><B>SILICOM
LTD.</B></FONT><BR>
<FONT SIZE=2 FACE="TIMES NEW ROMAN">(Exact name of Registrant as specified in its charter and
translation of Registrant&#146;s name into English)</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Israel<BR></B>(Jurisdiction of incorporation or organization)</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>8
Hanagar Street, Kfar Sava 44000, Israel<BR></B>(Address of principal executive offices)</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Securities registered or to be registered pursuant to Section 12(b) of
the Act:</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>None</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Securities registered or to be registered pursuant to Section 12(g) of
the Act:</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Ordinary
Shares, nominal value 0.01 New Israeli Shekels per share<BR></B>(Title of Class)</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>None<BR></B>(Title of Class)</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate
the number of outstanding shares of each of the issuer&#146;s classes of capital or
common stock as of the close of the period covered by the annual
report:&nbsp;&nbsp;4,126,800</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Yes
</B></FONT><FONT SIZE=3 FACE=WINGDINGS>x</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>No </B></FONT><FONT SIZE=3 FACE=WINGDINGS>o</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Indicate by check mark which financial statement item the registrant
has elected to follow:</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item
17</B></FONT> <FONT SIZE=3 FACE=WINGDINGS>o</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 18 </B></FONT><FONT SIZE=3 FACE=WINGDINGS>x</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>

<PAGE>

<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><IMG SRC="silicom.gif"></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">This annual report on Form 20-F includes certain &#147;forward-looking&#148;
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. The use of the words &#147;projects,&#148; &#147;expects,&#148; &#147;may,&#148; &#147;plans&#148; or &#147;intends&#148;,
or words of similar import, identifies a statement as &#147;forward-looking.&#148; There
can be no assurance, however, that actual results will not differ materially
from our expectations or projections. Factors that could cause actual results
to differ from our expectations or projections include the risks and
uncertainties relating to our business described in this report at Item 3
titled &#147;Risk Factors.&#148;</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We have prepared our consolidated financial statements in United States
dollars and in accordance with accounting principles generally accepted in the
United States. All references herein to &#147;dollars&#148; or &#147;$&#148; are to United States
dollars, and all references to &#147;Shekels&#148; or &#147;NIS&#148; are to New Israeli Shekels.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 1. <U>IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
Applicable.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 2. <U>OFFER STATISTICS AND EXPECTED
TIMETABLE</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not
Applicable</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 3.&#160;
<U>KEY INFORMATION</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Selected Financial Data</B></FONT></P>


<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
following selected financial data has been derived from our audited
consolidated financial statements for the periods, which have been prepared in
accordance with U.S. GAAP and were audited by Somekh Chaikin, a member firm of
KPMG International. The financial data set forth below should be read in
conjunction with our consolidated financial statements and the notes thereto,
which are set forth in Item 18 &#150; &#147;Financial Statements&#148; and are included
elsewhere in this report, and the other financial information appearing
elsewhere in this annual report. </FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">2</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>CONSOLIDATED STATEMENTS OF OPERATIONS DATA:</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=500>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="62%" COLSPAN="14" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year Ended
  December 31<BR>
  In US$ Thousands</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2000</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>1999</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Sales</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,725</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,726</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,530</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">7,769</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5,672</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Cost of sales</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,160</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,091</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,635</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,829</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,297</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Gross profit</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,565</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">635</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">895</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,940</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,375</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">R&amp;D costs, gross</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,647</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,523</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,333</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,418</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,078</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(Less) government<BR>
  royalty-bearing<BR>
  participations</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(150</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">15</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(469</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(410</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(417</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">R&amp;D costs, net</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,497</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,538</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">864</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,008</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">661</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Selling, marketing,<BR>
  general and<BR>
  administrative expenses</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,604</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,734</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,738</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,419</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,416</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total operating<BR>
  expenses</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,101</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,272</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,602</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,427</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,077</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Operating income (loss)</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,536</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(2,637</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,707</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">513</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">298</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Other expenses</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Financial income, net</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">27</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">152</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">254</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">398</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">264</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Income (loss) before<BR>
  taxes on income</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,509</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(2,485</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,453</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">911</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">562</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Taxes on income</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">33</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">24</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">42</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net income (loss)<SUP>(1)</SUP></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,509</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(2,485</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,486</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">887</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">520</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Earnings (loss) per<BR>
  share</U></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Basic earnings (loss)<BR>
  per ordinary share</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.37</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.60</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.36</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.22</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.13</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Weighted average<BR>
  number of ordinary<BR>
  shares used to compute<BR>
  basic earnings (loss)<BR>
  per share (in thousands)</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,112</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,110</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,110</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,103</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,986</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Diluted earnings (loss)<BR>
  per ordinary share</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.37</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.60</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.36</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.20</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.13</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Weighted average<BR>
  number of ordinary<BR>
  shares used to compute<BR>
  diluted earnings (loss)<BR>
  per share (in thousands)</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4.112</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,110</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,110</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,394</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,014</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="31%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1)
Net income is after deduction of taxes on income, which has been reduced by
virtue of tax benefits to which the Company is entitled in its capacity as an
&#147;Approved Enterprise&#148; under Israeli law.&#160;
As such, the Company was not required to pay full income tax for a
period of up to seven years ending in 1997 and also for ten years ending in
2006. See Note 10B
to the Financial Statements and &#147;Item 10&#148;
- - Additional Information - Taxation.&#148;</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">3</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2000</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>1999</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD   WIDTH="1%"><P>&nbsp;</TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%"><P>&nbsp;</TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Consolidated Balance<BR>
  Sheets Data:</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Working
  capital</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,675</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5,686</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5,583</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">9,051</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">7,949</FONT></P>  </TD>
  <TD WIDTH="1%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total assets</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">6,118</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">7,404</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">9,658</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">12,159</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">10,014</FONT></P>  </TD>
  <TD WIDTH="1%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Short-term
  debt</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,046</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">976</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">760</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,812</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">922</FONT></P>  </TD>
  <TD WIDTH="1%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Long-term
  debt</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">895</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">743</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">728</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">691</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">569</FONT></P>  </TD>
  <TD WIDTH="1%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Shareholders&#146;
  equity</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,177</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5,685</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">8,170</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">9,656</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">8,523</FONT></P>  </TD>
  <TD WIDTH="1%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="29%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Number of
  shares<BR>
  outstanding</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,126,800</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,125,300</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,125,300</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,125,300</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4,024,600</FONT></P>  </TD>
  <TD WIDTH="1%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Risk Factors</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">This annual report and statements that we may make from time to time
may contain forward-looking information. There can be no assurance that actual
results will not differ materially from our expectations, statements or
projections. Factors that could cause actual results to differ from our
expectations, statements or projections include the risks and uncertainties
relating to our business described below.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Our Multi Port
Gigabit Ethernet</I> <I>Server/Storage
Networking products, including our TOE/iSCSI products are characterized by long
sales cycles</I></B> </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We expect the Multi Port Gigabit-Ethernet Server Networking Adapters we
manufacture and sell, as well as the TOE/iSCSI Server Networking adapters we
recently announced to become our principal sales growth engine in the coming
years. Our sales of these products typically involve significant capital
investment decisions by prospective end customers, as well as a significant
amount of time to educate such end customers as to the benefits of systems and
appliances that include our products. As a result, before purchasing systems
and appliances which include our products (and consequently facilitating sales
of our products), companies spend a substantial amount of time performing internal
reviews and obtaining capital expenditure approvals. The decision making
process of our customers includes several time consuming processes: they need
to define the required configuration of their Server/Storage system/Appliance,
derive the need for adapters, evaluate adapters, qualify adapters and then (or
in parallel) negotiate the terms for a purchase. It may therefore take 12
months or more from the time we first contact a prospective customer before
receiving an initial order. These long sales cycles make it difficult to
predict when and to what extent discussions with potential customers will
materialize into sales and could cause our revenue and operating results to
fluctuate widely from period to period. In addition, our allocation of significant
resources to potential sales opportunities that do not materialize into sales
could have a material adverse affect on our business, results of operations and
financial condition.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">4</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>The loss or
ineffectiveness of our original equipment manufacturers may have a material
adverse effect on our operations and financial results.</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our sales and marketing strategy is to develop and maintain strategic
relationships with leading original equipment manufacturers (OEMs), installers
and integrators in the computer industry, which sell our Connectivity Products
under their own private labels or integrate our products into their systems.
These OEMs are not within our control, are not obligated to purchase our
products, and may represent other lines of products. A reduction in their sales
efforts or discontinuance of sales of our products by our OEMs could lead to
reduced sales and could materially adversely affect our operating results. Use
of OEMs also entails the risk that they will build up inventories in anticipation
of a growth in sales. If such growth does not occur as anticipated, such OEMs
may substantially decrease the amount of products ordered in subsequent
quarters, discontinue product orders or even attempt to return unsold products
(although our standard agreements do not allow return of products). In 2003,
one OEM, which was our major customer, was responsible for the vast majority of
our sales of Ethernet/Fast Ethernet products (see footnote 12 to the
consolidated financial statements). The termination or loss of this OEM, or of
several OEMs at approximately the same time, might have a material adverse
effect. </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>We depend on our
distributors.</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The distribution industry has been characterized by rapid change. While
alternative distribution channels have emerged, an increasing number of
companies are competing for access to these distribution channels. In addition,
consolidations and financial difficulties of distributors occur in the
distribution industry. Many of the same risks which apply to the use of OEMs
also apply to distributors namely, the fact that they are not under our
control, are not obligated to purchase our products, may represent other lines
of products and may build up inventories in anticipation of a growth in sales
only to substantially decrease the amount of products ordered in subsequent
quarters, discontinue product orders or even attempt to return unsold products
if such growth does not occur as anticipated. The loss or ineffectiveness of
any of our major distributors could have a material adverse effect on our
operating results. Although we believe that no termination of a single
distributor is likely to have a material adverse effect on us, the termination
or loss of several distributors at approximately the same time might have a temporary
material adverse effect on us.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>The markets for our
products change rapidly and demand for new products is difficult to predict.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The markets for our products are characterized by rapidly changing
technology, short product-life cycles and evolving industry standards. For
example, innovations in the modem and Ethernet industries have enabled PC
manufacturers to incorporate modems and Ethernet cards in their original
products. Such innovations have eliminated much of the need for our legacy
products and have caused the market for these products to decline
significantly. As such, our Modem PC Cards have been completely phased out and
we believe that our Ethernet/Fast Ethernet PC Cards will also be phased out
completely over time. We intend to continue making substantial investments in
product and technology development. Although we have already recorded purchase
orders for our new lines of products, Multi Port Gigabit-Ethernet Server
Adapters and TOE/iSCSI Network adapters, there can be no assurance that we will
continue to be successful in selecting, developing, manufacturing and marketing
enhanced and new products in a timely manner. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">5</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>We may experience
difficulty in developing new, commercially successful products at acceptable
release times.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Since we commenced operations, we have conducted extensive research,
development and engineering activities. Our efforts emphasize the development
of new products, cost reduction of current products, and the enhancement of
existing products, generally in response to rapidly changing customer
preferences, technologies and industry standards. Although we already recorded
purchase orders for our new lines of products, Multi Port Gigabit-Ethernet
Server Adapters and TOE/iSCSI Network adapters, we cannot guarantee that these
products will be widely accepted by the marketplace or that any of our
development efforts will result in commercially successful products, that such
products will be released in a timely manner or that we will be able to respond
effectively to technological changes or new product announcements by others.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Loss of our sources
for certain key components could harm our operations.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Although we generally use standard parts and components for our
products, certain key components used in our products are currently available
from only one source, and others are available from a limited number of
sources. We believe that we maintain a sufficient inventory of these components
to protect against delays in deliveries. However, we cannot guarantee that we
will not experience delays in the supply of critical components in the future
or that we will have a sufficient inventory of critical components at such time
to produce products at full capacity. In the event that we are not able to
purchase key components of our products from our limited sources, we may need
to redesign certain products. We cannot guarantee that we will have adequate
resources for such a redesign or that such a redesign will be successful. Such
inability to obtain alternative resources or to successfully redesign our
products could have a material adverse effect on our business, results of
operations and financial condition.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>The market for our
products is highly competitive and some of our competitors may be better
positioned than we are.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The data communications industry is highly competitive. We face
competition from numerous companies, most of which are more established,
benefit from greater market recognition (especially in the United States) and
have greater financial, production and marketing resources than we do. For
example, in the evolving server/storage networking industry for which we have
developed our multi-port Gigabit-Ethernet Server/Storage Networking cards, our
main competitors are Intel and 3Com Corporation, in the TCP/IP Offload Engine, or TOE, industry our main competitors
are Alacritec, Inc. and Adaptec, Inc. and in the iSCSI industry our main
competitors are Emulex, Inc., Qlogic, Inc., and JNI, Inc. We cannot guarantee
that our present or contemplated products will continue to be distinguishable
from those of our competitors or that the marketplace will find our products
preferable to those of our competitors. Furthermore, there can be no assurance
that competitive pressures will not result in price reductions that could
materially adversely affect our business and financial condition and the
results of our operations.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">6</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Our success depends
on the protection of our intellectual property rights.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our success and ability to compete depend to a significant degree on
our proprietary technology. The measures we have taken to protect our
proprietary technology afford only limited protection, and, accordingly, there
can be no assurance that such steps will be adequate to prevent
misappropriation of our technology or the independent development of similar
technologies by others. Despite our efforts, unauthorized parties may attempt
to copy aspects of our products and develop similar hardware or software or to
obtain and use information that we regard as proprietary. </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>We may not be able
to prevent others from claiming that we have infringed their proprietary
rights.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We cannot guarantee that one or more parties will not assert
infringement claims against us. The cost of responding to claims could be
significant, regardless of whether the claims have merit. Significant and protracted litigation may
be necessary to determine the scope of the proprietary rights of others or to
defend against claims of infringement, regardless of whether the claims have
merit. Although we believe that all our products use only our intellectual property,
or intellectual property which is properly licensed to us, in the event that
any infringement claim is brought against us and infringement is proven, we
could be required to discontinue the use of the relevant technology, to cease
the manufacture, use and sale of infringing products, to incur significant
litigation damages, costs and expenses, to develop non-infringing technology or
to obtain licenses to the alleged infringing technology and to pay royalties to
use such licenses. There can be no assurance that we would be able to develop
any such alternative technologies or obtain any such licenses on terms
commercially acceptable to us. Although in the past we have resolved a claim of infringement through a license
agreement, the terms of which did not have a material effect on our business,
any infringement claim or other litigation against us could seriously harm our
business, operating results and financial condition. While there are no lawsuits or other claims currently pending against us
regarding the infringement of patents or intellectual property rights of
others, we have been a party to such claims in the past and may be party to
such claims in the future. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>We are dependent on
key personnel.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our success has been, and will be, dependent to a large degree on our
ability to retain the services of key personnel and to attract additional
qualified personnel in the future. Competition for such personnel is intense.
There can be no assurance that we will be able to attract, assimilate or retain
key personnel in the future and our failure to do so would have a material
adverse affect on our business, financial condition and results of operations.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">7</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Exchange rate
fluctuations and international risks could increase the cost of our operations.</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Substantially all of our international sales are denominated in U.S.
dollars and may be subject to government controls and other risks, including,
in some cases, export licenses, federal restrictions on export, currency
fluctuations, political instability, trade restrictions, and changes in tariffs
and freight rates. We believe that the rate of inflation in Israel and exchange
rate fluctuations between the New Israeli Shekel (NIS) and the U.S. dollar have
had a minor effect on our business to date. However, our dollar costs in Israel
will increase if inflation in Israel exceeds the devaluation of the NIS against
the dollar, if the timing of such devaluation lags behind inflation in Israel
or if the dollar is devaluated against the NIS. See &#147;Item 5. Operating and Financial
Review and Prospects - Impact of Inflation and Devaluation on Results of
Operations, Liabilities and Assets.&#148;</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>If we are
characterized as a passive foreign investment company for U.S. federal income
tax purposes, our U.S. shareholders may suffer adverse tax consequences.</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We will be a passive foreign investment company, or PFIC, if 75% or
more of our gross income in a taxable year, including our pro rata share of the
gross income of any company, U.S. or foreign, in which we are considered to
own, directly or indirectly, 25% or more of the shares by value, is passive
income. Alternatively, we will be considered to be a PFIC if at least 50% of
our assets in a taxable year, averaged over the year and ordinarily determined
based on fair market value and including our pro rata share of the assets of
any company in which we are considered to own, directly or indirectly, 25% or
more of the shares by value, are held for the production of, or produce,
passive income. If we were to be a PFIC, and a U.S. Holder does not make an
election to treat us as a &#147;qualified electing fund,&#148; or QEF, or a &#147;mark to
market&#148; election, &#147;excess distributions&#148; to a U.S. Holder, and any gain
recognized by a U.S. Holder on a disposition or our ordinary shares, would be
taxed in an unfavorable way. Among other consequences, our dividends, to the
extent that they constituted excess distributions, would be taxed at the
regular rates applicable to ordinary income, rather than the 15% maximum rate
applicable to certain dividends received by an individual from a qualified
foreign corporation, and certain &#147;interest&#148; charges may apply. In addition,
gains on the sale of our shares would be treated&nbsp;in the same way
as&nbsp;excess distributions. The tests for determining PFIC status are applied
annually and it is difficult to make accurate predictions of future income and
assets, which are relevant to the determination of PFIC status. In addition,
under the applicable statutory and regulatory provisions, it is unclear whether
we would be permitted to use a gross loss from sales (sales less cost of goods
sold) to offset our passive income in the calculation of gross income. In light
of the uncertainties described above, no assurance can be given that we will
not be a PFIC in any year. If we determine that we have become a PFIC, we will
then notify our U.S. Holders and provide them with the information necessary to
comply with the QEF rules. A U.S. Holder who makes a QEF election is taxed
currently on such holder&#146;s proportionate share of our earnings. If the IRS
determines that we are a PFIC for a year with respect to which we have
determined that we were not a PFIC, however, it might be too late for a U.S.
Holder to make a timely QEF election, unless the U.S. Holder qualifies under
the applicable Treasury regulations to make a retroactive (late) election. U.S.
Holders who hold ordinary shares during a period when we are a PFIC will be
subject to the foregoing rules, even if we cease to be a PFIC, subject to
exceptions for U.S. Holders who made a timely QEF or mark-to-market election,
or certain other elections.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">8</FONT></P>


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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>The trading volume
of our shares has been low in the past and may be low in the future, resulting
in lower than expected market prices for our shares.</I>&#160; </B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our shares have been traded at low volumes in the past and may be
traded at low volumes in the future for reasons related or unrelated to our
performance. This low trading volume may result in lower than expected market
prices for our ordinary shares and our shareholders may not be able to resell
their shares for more than they paid for them. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Israeli
courts might not enforce judgments rendered outside of Israel. </I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are incorporated
in Israel. Most of our executive officers and all of our directors are
non-residents of the United States, and a substantial portion of our assets and
the assets of these persons are located outside the United States. Therefore,
it may be difficult to enforce a judgment obtained in the United States against
us or any such persons. It may also be difficult to enforce civil liabilities
under U.S. federal securities laws in original actions instituted in Israel.
However, subject to certain time limitations, Israeli courts may enforce United
States final executory judgments for liquidated amounts in civil matters
obtained after due trial before a court of competent jurisdiction (according to
the rules of private international law currently prevailing in Israel) which
enforces similar Israeli judgments, provided that the requisite procedural and
legal requirements are adhered to. If a foreign judgment is enforced by an
Israeli court, it generally will be payable in New Israeli Shekels, which can
then be converted into foreign currency at the rate of exchange of such foreign
currency on the date of payment. Pending collection, the amount of the judgment
of an Israeli court stated in New Israeli Shekels (without any linkage to a
foreign currency) ordinarily will be linked to the Israeli consumer price index
plus interest at the annual statutory rate prevailing at such time. Judgment creditors
bear the risk of unfavorable exchange rates.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>The political
environment and hostilities in Israel could harm our business.</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Since the establishment of the State of
Israel in 1948, a state of hostility has existed between Israel and the Arab
countries in the region. This state of hostility has varied in degree and
intensity over time. There has been a significant increase in violence since
September 2000 which has continued with varying levels of severity into 2004,
and negotiations between Israel and Palestinian representatives has ceased.
Since late September 2000, there has been a significant increase in hostilities
and unrest as between Israel, the Palestinian Authority and certain terrorist
groups operating within the Palestinian Authority. While this development has
not had a material impact on our business, we cannot guarantee that it will not
have such an effect in the future. The political and security situation in
Israel may result in parties with whom we have contracts claiming that they are
not obligated to perform their commitments under those agreements pursuant to
force majeure provisions. Any hostilities involving Israel or the interruption
or curtailment of trade between Israel and its present trading partners could
adversely affect our operations and could make it more difficult for us to
raise capital. Furthermore, many of our facilities are located in Israel. Since
we do not have a detailed disaster recovery plan that would allow us to quickly
resume business activity, we could experience serious disruptions if acts
associated with this conflict result in any serious damage to our facilities.
Our business interruption insurance may not adequately compensate us for losses
that may occur and any losses or damages incurred by us could have a material
adverse effect on our business. Any future armed conflicts or political
instability in the region would likely negatively affect business conditions
and harm our results of operations.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">9</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Many of our
employees in Israel are required to perform military reserve duty.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">All non-exempt male adult permanent residents
of Israel under the age of 40 are obligated to perform military reserve duty
and may be called to active duty under emergency circumstances. In recent
years, there have been significant call-ups of military reservists, and it is
possible that there will be additional call-ups in the future. While we have
operated effectively despite these conditions in the past, we cannot assess
what impact these conditions may have in the future, particularly if emergency
circumstances arise. Our operations could be disrupted by the absence for a
significant period of one or more of our executive officers or key employees or
a significant number of our other employees due to military service. Any
disruption in our operations would harm our business.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>We are affected by
volatility in the securities markets.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Due to the recent downturn in the world
economy, the securities markets in general have recently experienced volatility
which has particularly affected the securities of many high-technology
companies and particularly those in the fields of communications, software and
Internet, including companies that have a significant presence in Israel. This
volatility has often been unrelated to the operating performance of these
companies and may cause difficulties in raising additional financing required
to effectively operate and grow their businesses. Such difficulties and the
volatility of the securities markets in general may affect our financial results.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>We have been and may continue to be
negatively affected by the aftermath of September 11 events.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">On September 11,
2001, the United States was subject to terrorist attacks at the World Trade
Center buildings in New York City and at the Pentagon in Washington, D.C. In
response to these terrorist attacks, a United States-led coalition of nations
commenced a series of retaliatory military strikes in Afghanistan upon
strategic installations of the Taliban regime. Another United States-led
coalition also conducted a war in Iraq which led to the end of Saddam Hussein&#146;s
regime. These events have had, and we expect will continue in the foreseeable
future to have, an adverse effect on the global economy, and could result in a
disruption of our business or that of our customers.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">10</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>We are affected by
worldwide downturns in industries based on technology.</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The volatility in the securities markets
discussed above and its effect on high-technology companies may have a ripple
effect on our performance. Cable companies and internet providers were severely
affected by the recent downturn in internet related technologies, and some were
forced to cease operations. We felt the effects of this downturn in 2001
through 2003. We can give no assurance that our results will not be affected on
a going forward basis by any future downturns.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 4.&nbsp;&nbsp;<U>INFORMATION ON THE
COMPANY</U>.</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>History and Development of the Company</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our legal and commercial name is Silicom Ltd. We were incorporated
under the laws of Israel in 1987, and we operate under Israeli law and
legislation. Our registered and principal executive offices are located in
Israel at 8 Hanagar Street, Kfar Sava, Israel 44000, and our telephone number
is 011-972-9-764-4555. Our website is http://www.silicom.co.il. We do not
intend for any information contained on our internet website to be considered
part of this annual report.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are engaged in the design, manufacture, marketing and support of
connectivity solutions for a broad range of computer users. Our first products
were integrated circuits for information technology, or IT, manufacturers. In
the early 1990s, we began focusing our strategy on designing, manufacturing,
marketing and supporting a range of connectivity solutions for mobile and
remote personal computer, or PC, users. Our traditional line of products serves
as a communication gateway to enable portable computers to access information
and resources found on Local Area Networks (&#147;LANs&#148;) and Wide Area Networks
(&#147;WANs&#148;). </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Responding to changes in the market for connectivity products, we
leveraged our expertise in developing connectivity solutions for portable and
desktop computer users and introduced a range of connectivity solutions which
facilitate connection between PCs and broadband internet modems in the years
2000 and 2001. In 2002 we leveraged our expertise and know-how in networking
and operating systems to develop a line of high-end multi-port server/storage
networking cards, which we expect to be the principal engine of our sales
growth in the coming years. In November and December of 2003 we secured our
first design wins for these new products. Since that time we have started to
receive orders for our server/storage products and have been able to secure
additional design wins. In April 2004, we announced our new TOE/iSCSI Storage/Server
Network Adapters.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Business Overview</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our business model is based on the exploitation of our core
intellectual property relating to connectivity solutions and networking. On one
side of the spectrum, at the conception or &#147;pure thought&#148; stage, we offer
production files in which we develop the required product and deliver full
documentation needed to produce the product. In the middle of the spectrum, we
design modules which are subassemblies containing our intellectual property for
integration into products of other companies. At the far end of the IP
spectrum, we produce completed products which fulfill the time-to-market needs
of our clients.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">11</FONT></P>


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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are currently active in the following markets, each of which is
described in greater detail below:</FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>High-end Server/Storage networking cards: </B>this
  is the newest area in which we are leveraging our expertise in networking and
  operating systems.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Connectivity solutions for portable PCs</B>:
  this is our traditional area of expertise, in which demand for our products
  has significantly declined and in which we expect to fully phase out over
  time.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Broadband Internet access</B>: this is the area
  in which we leveraged our core technology and connectivity solutions know-how
  in 2000 and 2001. Our operations in this industry are declining as well.</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>High end
Server/Storage Networking Cards </I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In an effort to leverage our strengths, in late 2001 we began exploring
a new direction which we feel will be our primary growth driver in the future:
high-end server/storage networking cards. Our core expertise has always been
our broad range of Ethernet and connectivity products, which provided personal
computer users with solutions to their connectivity problems. In late 2002 we
decided to employ our core know-how in the realm of server-based systems. Doing
so takes advantage of our competitive edge by using the expertise we have
developed in connectivity solutions for personal computers in industries which
require broader connectivity solutions with very high-performance environments.
These industries include data storage, video on demand, internet content
delivery, high-performance computing, web servers, security appliances, etc.
Our decision to move into the server-based systems area also capitalizes on our
previous experience with the storage market. In order to increase our sales
efforts and to improve our access to the relevant markets, we opened two new
sales offices in the U.S., one in the Boston area and the other in California,
both targeted to sell networking cards to the server-based industries.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We believe that the high-end storage/server networking cards will be
the key driver of our growth in the coming years. A distinct advantage of these
products is that the demand in the Server/Storage industry has been almost continuously
growing. Server-based systems and data storage are industries that continue to
require innovative solutions which must become faster each time they are
implemented. However, it is taking us time to build our customer base as a
result of the fact that the sales cycles for products in this industry are
long. Once we begin to build this base, though, each success we have may
represent an opportunity for sustained, long-term revenues.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">12</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We have developed a line of products for the evolving server networking
industry which facilitates interaction between servers, allowing them to
communicate with each other. It would be difficult to design such high-end
products without a high level of cross-disciplinary knowledge. The products we
have developed use our Ethernet and operating systems expertise. The first
products in this line are eight multi-port Gigabit-Ethernet Server/Storage
Networking cards. These are powerful products that allow server-based systems
to fully exploit the high-speed potential of Gigabit Ethernet. The products
have either two, four or six ports, which plug into the servers between which
interaction is facilitated. We subsequently developed some of these same
products with a bypass feature. Intended for mission-critical environments, the
Silicom Gigabit Ethernet Bypass Adapters feature innovative bypass circuitry to
maintain continuity of network connectivity in the event of a gateway failure.
Upon the occurrence of a gateway failure, the adapter&#146;s bypass mechanism
automatically reroutes traffic to bypass faulty components, enabling customers
to have reliable and always available network accessibility. As with all of
Silicom&#146;s Multiport Gigabit Ethernet Adapters, the Bypass Adapters also improve
server throughput and performance during normal operations by reducing network
congestion, simplifying network management, and minimizing CPU utilization. The
addition of the innovative bypass capability makes Silicom Gigabit Ethernet
Bypass Adapters an appropriate connectivity solution for security appliances,
as well as for appliances targeted&nbsp;at&nbsp;other high-potential, growing
markets such as network monitoring, load balancing, network event management,
network optimization, LAN policy enforcement, intrusion detection, virus
protection, e-mail content filtering, and more. Our main competitors in this
area, Intel and 3Com Corporation, have developed cards which do not cover the
full scope of features that our products do. For instance, Intel&#146;s and 3COM&#146;s
products do not offer six ports, quad optical, or a bypass feature. We believe
that our expanded feature set coupled with the fact that our products are based
on two different industry leader chip sets, which makes them more compatible
with our potential customers&#146; needs, gives us a competitive edge. To the best
of our knowledge we are currently the only company offering such a product with
six ports and offering 3 types of bypass cards (Dual port copper, quad port
copper and Dual port optical). Although the situation may change in the future,
we believe that our competition in the bypass card market is less significant
than in the non bypass card market. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The following is a brief description of our new networking products:</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The products are divided into two groups: six products are based on
Broadcom&#146;s chipset and six products are based on Intel&#146;s chipset.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Products based on Broadcom&#146;s chipset are: PXG6, PXG4, PXG2, PXG2F,
PXG2BP, PXG4BP. The number in each product name represents the number of
Gigabit-Ethernet ports that the product has. The F (in the fourth product)
represents a Fiber-optic Ethernet interface, rather than a copper Ethernet
interface as in the other products. Products based on the Intel chipset carry
the same name with an addition of &#147;I&#148; at the end to indicate the Intel chipset.
We have: PXG6i, PXG4i, PXG2i, PXG2Fi, PXG4Fi and PXG2BPFi. Except for the
difference in the type of chipset, number of ports and type of Ethernet
interface, all of the following other principal applications and key features
of these products are similar:</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">13</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Principal Applications, all of which demand high performance multi port
connectivity:</FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Network-attached
  storage (NAS)</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Video on
  Demand servers</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Content
  Delivery servers</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Internet
  Service Providers / Web Hosting</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Firewalls,
  Gateways &amp; Routers</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Network
  segmentation for network security purposes.</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Key Features which enable high performance Gigabit speed multi port
cards:</FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>
  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Six, four or
  two independent copper, or, four or two independent fiber, Gigabit Ethernet
  channels with support for Gigabit Ethernet (1000Base-T), Fast Ethernet
  (100Base-Tx), and Ethernet (10Base-T)</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Auto-negotiation
  automatic sensing and switching between 1000Mbps full duplex or 100 / 10 Mbps
  operations Simplex or Full Duplex </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Host
  Interface standard support:</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">PCI v2.2
  32/64 bit, 33/66Mhz</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">PCI-X v1.0
  32/64-bit, 66/100/133MHz </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Individual
  MAC address for each port (support multiple domain/IP networks)</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Ultra deep,
  64 KB packet buffer per channel, which lowers CPU utilization and avoids
  PCI-X congestion</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Dual high
  speed RISC processor per channel for advanced packet classification</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>TCP/UDP/IP checksum offloads </B>to shift
  checksum processing from the host CPU to the NIC for improved system response
  and longer CPU life</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>TCP segmentation offloads</B> to reduce host CPU
  load for improved system performance. </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Server class
  reliability, availability and performance features.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Link
  Aggregation and Load Balancing:</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Switch
  dependent: 802.3ad (LACP), Generic Trunking (GEC / FEC)</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Switch and
  NIC Independent. </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Failover</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Priority
  queuing - 802.1p layer 2 priority encoding. </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Virtual LANs
  -802.1q VLAN tagging. </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Jumbo Frame</B> (9KB) to speed data transfer
  rates and further improve the throughput. </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>PCI Hot-Plug</B> for replacement and removal of
  server NIC to a PCI Hot Plug compatible server without powering down the
  system </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">802.x flow
  control. </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Boot ROM,
  embedded or optional, which can be used for Boot ROM applications.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="95%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Bypass
  capabilities for bypass cards. </FONT></P>  </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">14</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In April, 2004, we announced the release of our next generation of
products, which is based on a TOE (TCP/IP Offload Engine) solution. Multi port
Gigabit-Ethernet cards can work at very high speeds, but in some cases, they
bring the CPU utilization of the host-server to almost 100%. Our
high-performance TOE (TCP/IP Offload Engine)/iSCSI server adapters are designed
to accelerate server performance through the elimination of server-CPU
bottlenecks by independently handling many computation-intensive tasks, which
releases the CPU of the host-server and allows it to deal with its original
missions. In addition, by providing iSCSI functionality, our products
facilitate implementation of the low-cost iSCSI storage protocol without
loading the server. We have received evaluation purchase orders for our Dual
Port PCI-X TOE/iSCSI Server Adapter, the first product of the new line. </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Traditional
Connectivity Solutions for Portable PCs. </I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Since the early 1990s, there has been a steady growth in sales of
portable computers.This growth
has been driven by technological advances, which have resulted in the continued
introduction to the market place of more compact, more powerful, lighter and
easier to use portable computers. These advances have made portable computers a
solution for an increasingly mobile workforce, such as traveling executives,
consultants, salespeople, telecommuters and people who take their work home
with them. In addition, as portable computers have become more powerful, an
increasing number of portable computers are now utilized as primary PCs in and
out of the office, and are used instead of (and not in addition to) traditional
desktop PCs. The growth in the use of portable computers has corresponded with
an increased dependence on network-based communication systems, resulting from
the need to effectively and efficiently use resources and communicate
information in today&#146;s competitive business environment. In the field of
portable computers, our core strength has been our broad range of single and
multi-function connectivity products that incorporate various Silicom and third
party technologies to provide portable computer users with a comprehensive
solution to their connectivity problems. Our products enable connection of
portable computers to (i) any LAN networking standard, whether Ethernet, Fast
Ethernet, Token Ring or ARCnet, (ii) all commonly used cable types, whether
Coaxial, Twisted Pair or AUI, (iii) all forms of interfaces, whether parallel
port, USB, PCMCIA or CardBus, and (iv) commonly used serial ports, whether
RS-232 or USB. Our connectivity products incorporate pre-configured software
drivers that support a broad range of network operating systems and
communication protocols. In addition, our expertise in the technologies
relating to such products enabled us to provide customized solutions to various
customers, and consequently, secure accounts with such customers. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">While all the above is still true, the trend in the data communications
industry has been to incorporate modems as built-in elements of portable PCs,
and to incorporate Ethernet and Fast Ethernet as built-in elements of portable
PCs. Both these trends have obviated much of the need for our Modem and
Ethernet/Fast Ethernet PC Card products. Our Modem PC Cards have therefore been
completely phased out and we believe that Ethernet/Fast Ethernet PC Cards will
also be phased out completely over time. Nevertheless, one of our major OEM
customers integrates our customized Ethernet and Fast Ethernet PC Cards in its
systems. As such, the impact of the above-mentioned trend is not relevant to the
same extent for this customer. Sales of Ethernet and fast Ethernet PC Cards to
this customer in the years 2003, 2002 and 2001 were $1,531,000, $899,000 and
$1,387,000 respectively. However, we believe that sales of PC Cards to this
customer will decline and possibly cease altogether in the future. See &#147;Item 5
&#150; Operating and Financial Review and Prospects &#150; Trend Information&#148;. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">15</FONT></P>

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<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Broadband Internet
Access</I></B> </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">One of the technological challenges in delivering high-speed internet
services to subscribers is to easily connect a broadband modem to a
subscriber&#146;s PC. Most Broadband modems are external and must be physically
connected to the PC. While initially most broadband modems used Ethernet
technology, most home computers did not have an Ethernet card installed. This
created a bottleneck in installation, limiting the speed with which broadband
internet service providers could penetrate the market. This bottleneck was
further complicated by the fact that telephone and cable companies supplying
broadband internet service may not have had enough qualified technicians who
had the know-how to connect the internet platform to the PC.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our solutions to this challenge, which we dubbed &#147;the Last 10 Feet&#148;,
were our Universal Serial Bus-based external Ethernet product (the &#147;U2E&#148;), as
well as our USB Ethernet self-install adapter (the &#147;U2ES&#148;), a product which
incorporated our self-install technology. The U2ES was intended to connect
broadband modems to PCs through the PC&#146;s USB port, while performing automatic
installation and configuration steps. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">While initially most broadband modems used Ethernet technology for
connection to PCs, broadband manufacturers moved towards adding USB ports to
their modems, hence enabling USB to USB connection between the modem and the
PC. Although this solution eliminates the need for Ethernet connectivity, the
USB modem must still be installed into the PC with an installation CD or
diskette. The goal of our self-install technology was to enable broadband
manufacturers to offer self-install solutions, either inside the modem or
externally, that would perform all installation and configuration steps
automatically, with no user intervention. Our self-install technology, called
IPlug&#153;, removed the need for human intervention in the installation process,
whether by users or by technical support staff of broadband Internet service
providers. IPlug&#153; completely automated the installation process. </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Due to the general downturn worldwide in late 2000 and 2001 in
industries based on technology, the business transactions we proposed to enter
into in the broadband area moved very slowly, and the uncertainty in the market
made doing business more complicated. In addition, the technology and products
we developed in the broadband field, including the IPlug&#153; technology, lost
their competitive edge because of similar products which became commodities in
2002. For instance, regular peripherals, which did not require self-install
technology became a commodity, to the disadvantage of peripherals which
included our self-install technology. As such, we have decided not to invest
more of our resources in the further development of this area.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">16</FONT></P>

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<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Principal Markets</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The principal markets in which we compete are
set forth more particularly in, and are incorporated by reference to footnote
12(A) to Item 18 of this annual report (the Financial Statements). In 2001,
2002 and 2003, approximately 37%, 21% and 9%, respectively, of our sales were
in Europe, 45% 65% and 86%, respectively, were in the United States and Canada,
and 18% 14% and 5%, respectively, were in other countries. Our main business is not seasonal, and we
believe that there are sufficient sources and raw materials available to
sustain it.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Sales and Marketing</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Over the last few years, our sales and marketing has been carried out
through a network of strategic relationships with leading original equipment
manufacturers, installers and integrators in the computer industry which sell
our connectivity products under their own private labels or incorporate our
integrated circuits or modules into their products. They are referred to in
this report as OEMs, or OEM customers. Our strategy of carrying out strategic
relationships with OEM customers has not changed. We believe that these
relationships enable us to take advantage of the superior financial resources
and market presence of these companies to increase our sales and establish,
maintain and strengthen our position and reputation in the market for
connectivity products. We will continue to market complete product solutions,
but believe that these complete product solutions will become less important as
we move towards the server/storage networking markets. In addition, we believe
that relationships with OEMs improve access to new technologies developed by
such OEMs, thereby shortening the time-to-market of our products and technology
and ensuring smooth integration of our products and technology with those of
the OEMs. In furtherance of this strategy, we have entered into additional
strategic arrangements with additional OEMs. These companies incorporate our
connectivity products and/or technology under their own private labels or
integrate our products/technology into their systems or as part of their
systems. Revenues from sales of our connectivity products (including integrated
circuits) to OEM customers in 2003 constituted approximately 74% of our
revenues. We expect the percentage of our revenues that is derived from sales
of connectivity products to OEM customers to increase as we continue to focus
our efforts on our server/storage products, which are sold to OEMs as well. As such, the loss of some of our OEM
customers may have a material adverse effect on our operations and financial
results and we cannot assure you that we will be able to enter into strategic
relationships with OEMs in the future. Our other non OEM products are marketed
directly, through our U.S.-based subsidiary and through a worldwide network of
independent distributors. Normal payment terms of our distributors are up to 60
days net. Substantially all of our
international sales are denominated in U.S. dollars and may be subject to
government controls and other risks, including, in some cases, export licenses,
federal restrictions on export, currency fluctuations, political instability,
trade restrictions, and changes in tariffs and freight rates. We have
experienced no material difficulties to date as a result of these factors.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our arrangements with OEMs, distributors and resellers are generally
non-exclusive. We have generally experienced good relations with our OEM
customers and distributors and are not aware of any pending terminations other
than with respect to products that newer technologies have eliminated the need
for.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">17</FONT></P>

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<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our OEMs, distributors and resellers are not within our control. They
are not obligated to purchase products from us and may represent other lines of
products. A reduction in sales effort or discontinuance of sales of our
products by our OEMs, distributors and resellers could lead to reduced sales
and could materially adversely affect our operating results. Use of
distributors and OEMs also entails the risk that distributors or OEMs will build
up inventories in anticipation of a growth in sales. If such growth does not
occur as anticipated, these distributors or OEMs may substantially decrease the
amount of products ordered in subsequent quarters, discontinue product orders
or even attempt to return unsold products. The distribution industry has been
characterized by rapid change, including consolidations and financial
difficulties of distributors and the emergence of alternative distribution
channels. In addition, an increasing number of companies are competing for
access to these channels. The loss or ineffectiveness of our major distributors
or OEMs could have a material adverse effect on our operating results. We
believe that no termination of a single distributor is likely to have a material
adverse effect on us. However, the termination or loss of several distributors
at approximately the same time might have a temporary material adverse effect
on us. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Research and Product Development</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Since we commenced operations, we have conducted extensive research,
development and engineering activities. Our efforts emphasized the development
of new products, cost reduction of current products, and the enhancement of
existing products, generally in response to rapidly changing customer
preferences, technologies and industry standards. We currently are capitalizing
on our technology base and our experience in order to develop server/storage
networking cards to be used by manufacturers of server-based systems. During
2003 we fully matured our multi port line of products and further invested in
the development of our TOE/iSCSI cards (announced in April 2004) and our
By&#150;pass solution.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We cannot assure you that any of our development efforts will result in
commercially successful products, that such products will be released in a
timely manner or that we will be able to respond effectively to technological
changes or new product announcements by others.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The markets for our products are characterized by rapidly changing
technology, short product-life cycles and evolving industry standards. We
believe that success will depend upon our ability to successfully market new
networking and connectivity concepts, and to a lesser extent, upon our ability
to enhance our existing products, and to continue to introduce new products on
a timely basis. Accordingly, we intend to make substantial investments in
technology development. Notwithstanding these efforts, we cannot assure you
that we will be successful in selecting, developing, manufacturing and
marketing our technology or our enhanced and new products in a timely manner.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">18</FONT></P>

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<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Manufacturing and Suppliers</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our manufacturing operations for hardware components consist primarily
of producing finished goods from components and sub-assemblies purchased from
third parties. In addition, we perform testing and quality assurance procedures
with respect to the components and sub-assemblies which are incorporated into
our final products and the final products themselves.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We seek to monitor quality with respect to each stage of the production
process including, but not limited to, the selection of component suppliers,
warehouse procedures and final testing, packaging and shipping. We have been
certified as complying with &#147;ISO 9002&#148;, which is a quality control standard
used in our industry. We believe that our quality assurance procedures have
been instrumental in achieving a high degree of reliability for our products.
We intend to continue to maintain and improve the efficiency of such
procedures.<BR>
Although we generally use standard parts and components for our
products, certain key components used in our products are currently available
from only one source, and others are available from a limited number of
sources. Components currently available from one source include a proprietary
LAN (Fast Ethernet and Ethernet) chipset and other components, including other
semiconductor devices, transformers and plastic and metal product housings. We
believe that we maintain a sufficient inventory of these components to protect
against delays in deliveries. There can be no assurance that we will not
experience delays in the supply of critical components in the future or that we
will have a sufficient inventory of critical components at such time to produce
products at full capacity. If we do experience such delays and there is an
insufficient inventory of critical components at that time, our operations and
financial results would be adversely affected. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are generally required to fill orders for our products within a few
weeks after receipt of a firm purchase order. Consequently, backlog is
maintained at low levels.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Competition</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The data communications industry is highly competitive. We face
competition from numerous companies, most of which are more established,
benefit from greater market recognition (especially in the United States) and
have greater financial, production and marketing resources than we do. We
cannot guarantee that our present or contemplated products will continue to be
distinguishable from those of our competitors or that the marketplace will find
our products preferable to those of our competitors. Furthermore, there can be
no assurance that competitive pressures will not result in price reductions
that could materially adversely affect our business and financial condition and
the results of our operations.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">19</FONT></P>

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<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">With respect to our legacy products for portable computers, while the
demand for such products is declining, we still face competition from a variety
of companies which may expedite the rate of decline in demand for such legacy
products. In the broadband internet access industry, we face major competition
from numerous Taiwan-based companies, causing the demand for our products in
this industry to be less than previously expected. In the evolving
server/storage networking industry for which we have developed our multi-port
Gigabit-Ethernet Server/Storage Networking cards, our main competitors are
Intel and 3Com Corporation. In the TOE industry our main competitors are
Alacritec, Inc and Adaptec Inc., and in the iSCSI industry our major
competitors are Emulex Inc., Qlogic Inc., and JNI Inc. In the bypass cards
industry, our competition is not as significant. To the best of our knowledge,
our only significant competitor there is Interface Masters. There also may
exist other local solutions which may compete with our products, proposing
solutions which are not an embedded card but rather an external box.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Intellectual Property Rights and Software
Protection</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our success and ability to compete are dependent to a significant
degree on our proprietary technology. We currently rely on a combination of
trade secret, copyright and trademark laws, together with non-disclosure
agreements and technical measures, to establish and protect proprietary rights
in our products. These measures afford only
limited protection, and accordingly, there can be no assurance that the steps
we take to protect these proprietary rights will be adequate to prevent
misappropriation of our technology or the independent development of similar
technologies by others. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products and develop
similar hardware or software or to obtain and use information that we regard as
proprietary. In addition, there can be no assurance that one or more parties
will not assert infringement claims against us. The cost of responding to
claims could be significant, regardless of whether the claims are valid. </FONT></P>


<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In April 2002 we reached an agreement with a company that claimed that
certain of our connectivity products infringe its patents. We agreed to pay the
amount of $150,000 to this company in exchange for the right to a license for
our past and future products which use this alleged infringing technology. In
reaching agreement we avoided incurring additional costs and expenses. See Note
7 to the consolidated financial statements.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Governmental Regulation Affecting the Company</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are affected by the terms of research and development grants we have
received from the Office of the Chief Scientist of Israel (&#147;OCS&#148;). Under the
terms of Israeli Government participation, a royalty of 2% or up to 5% of the
net sales of products developed from a project funded by the OCS must be paid,
beginning with the commencement of sales of products developed with grant funds
and ending when 100% or 150% of the grant is repaid. For projects approved
after January 1, 1999, the amount of royalties payable is up to a dollar-linked
amount equal to 100% of such grants plus interest at LIBOR. The terms of Israeli
Government participation also instruct that the manufacturing of products
developed with government grants may take place only in Israel and that the
transfer to third parties of technologies developed through such projects is
subject to approval of the OCS.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">20</FONT></P>


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<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In addition, we receive certain tax benefits and reduced tax rates from
the Israeli government due to our being granted &#147;Approved Enterprise&#148; status
under the Law for the Encouragement of Capital Investments-1959, as amended.
See &#147;Item 10. Additional Information &#150; Taxation.&#148; The entitlement to these
benefits is conditional upon our fulfillment of the conditions stipulated by
the law, regulations promulgated thereunder and the instruments of approval for
the specific investments. In the event of failure to comply with these
conditions, the benefits could be canceled and we would be required to refund
the amount of the benefits, in whole or in part, with the addition of linkage
differences and interest. </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Organizational Structure</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are a member of the &#147;Rad Group&#148; of companies, which is an affiliated
group of high-technology companies in Israel. We have one wholly-owned
subsidiary which is incorporated in the United States under the name Silicom
Connectivity Solutions, Inc.&#160; Two of our
founders, Messrs. Yehuda and Zohar Zisapel, are also founders, directors and
principal shareholders of several other corporations within the Rad Group. See
Item 7. &#147;Major Shareholders and Related Party Transactions.&#148; </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Property, Plants and Equipment</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We do not own any real property, but we lease property at three
locations. Our executive offices and research and development facilities are
located in Kfar Sava, Israel. The original term of our lease with respect to
such space, expired on October 31, 1998, and was renewable for additional
one-year periods through October 31, 2002. Since that time we have nonetheless
continued to renew our lease for additional one year periods, most recently
through October 31, 2004. The lease was originally for approximately 945 square
meters and was reduced to 600 square meters in January 2003.&#160; We currently pay a monthly rent of $5,000. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We conduct our manufacturing from a facility of approximately 610
square meters in Yokneam, Israel. The monthly rent payments for this facility
are $5,010. The lease is for a 4-year period, and will expire on August 15,
2004, with an option to renew the lease for an additional period of one year.
We intend to exercise the renewal option for our manufacturing facility.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">From March 1997 through January 2004 we leased space in Mahwah, New
Jersey from an affiliate. In 2003, the base monthly rent payments were $924,
plus an additional $410 per month for maintenance and utilities. Commencing in
February 2004, we began to sub-lease space in Paramus, New Jersey, from an affiliate.
Currently, the base monthly rent payments are $405, plus an additional $50 per
month for maintenance and utilities. See &#147;Item 7 &#150; Major Shareholders and
Related Party Transactions.&#148;</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We believe that our facilities in Israel and in the United States are
suitable and adequate for our operations as currently conducted.&#160; In the event that additional facilities are
required or we need to seek alternative rental properties, we believe that we
could obtain such additional or alternative facilities at commercially
reasonable prices. </FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">21</FONT></P>

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<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 5.&nbsp;&nbsp;<U>OPERATING AND FINANCIAL
REVIEW AND PROSPECTS</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>General</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom was incorporated in Israel and commenced operations in 1987. We
have traditionally been engaged in the design, manufacture, marketing and
support of connectivity solutions for mobile and remote personal computer
users. In the years 2000 and 2001, we leveraged the IP developed in this area
for use in the broadband internet access market. In late 2002 we leveraged our
expertise and know-how in networking and operating systems to develop a line of
high-end server/storage networking cards. We made initial sales of these
products to a number of customers during 2003. We primarily sell our products
through Original Equipment Manufacturers and, to a lesser extent, through
independent distributors (on a non exclusive basis). In the United States, we
market our products through our wholly-owned United States subsidiary, Silicom
Connectivity Solutions, Inc.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Critical Accounting Policies</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or conditions.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Critical accounting policies are defined as those that are reflective
of significant judgments and uncertainties, and potentially result in
materially different results under different assumptions and conditions. We
believe that our critical accounting policies are limited to those described
below. </FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Inventories</U>
  - Inventories are stated at the lower of cost or market. Cost is determined
  using the &#147;average-cost&#148; method for raw materials.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The cost of
  the work in process and finished goods is determined based on the allocation
  of labor and overhead, which are allocated on the basis of raw materials
  consumption.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We carefully
  examine our obsolete or slow-inventory situation and establish all allowances
  for obsolete or slow-moving inventory to record at the lower of cost or
  market. The examination of obsolete or slow moving inventory includes our
  estimates of the likelihood of using or selling each of the material
  inventory parts.</FONT></P>  </TD>
 </TR>
</TABLE>

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<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Allowance
  for doubtful accounts</U> - Trade receivables are
  recorded less the related allowance for doubtful accounts receivable. We
  consider accounts receivable to be doubtful when it is probable that we will
  be unable to collect all amounts, taking into account current information and
  events regarding our customers&#146; ability to repay their obligations. The
  balance sheet allowance for doubtful debts is determined as a specific amount
  for those accounts the collection of which is uncertain. We perform our estimates
  regarding potential doubtful debts based on payment history and
  correspondence with our customers, and based on new information we receive
  about customers&#146; financial situation. As of March 31, 2004, the allowance for
  doubtful debts was $20,000.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="80%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Deferred
  Taxes</U> - We account for income taxes under SFAS 109 &#147;Accounting
  for Income taxes&#148;. Under SFAS 109, deferred tax assets or liabilities are
  recognized in respect of temporary differences between the tax bases of
  assets and liabilities and their financial reporting amounts as well as in
  respect of tax losses and other deductions which may be deductible for tax
  purposes in future years, based on tax rates applicable to the periods in
  which such deferred taxes will be realized. Deferred tax assets for future
  tax benefits from realization are included when their realization is more
  likely than not. Valuation allowances are established when necessary to
  reduce deferred taxes assets to the amount expected to be realized. Deferred
  taxes were not recorded in respect of the following matters:</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="80%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.</FONT></P>  </TD>
  <TD WIDTH="75%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Carry
  forward tax losses - As of December 31, 2003, we had carry forward tax losses
  in Israel of approximately $4,231,000 and our Subsidiary had federal carry
  forward tax losses of approximately $544,000 to be realized until 2018 to
  2023 and New Jersey state carry forward tax losses of approximately $452,000
  to be realized until 2010 to 2011. There is no assurance that these carry
  forwards will be realized.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="75%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2.</FONT></P>  </TD>
  <TD WIDTH="75%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Taxes, which
  may apply upon the realization of investments in consolidated subsidiaries
  and affiliated companies - currently there is no intention to realize such
  investments.</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Recently Enacted Accounting Pronouncements </B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>FASB Statement No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">On April 30, 2003, the FASB issued FASB Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which amends
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to address (1) decisions reached by the Derivatives Implementation
Group, (2) developments in other Board projects that address financial
instruments, and (3) implementation issues related to the definition of a
derivative. Statement 149 has multiple effective date provisions depending on
the nature of the amendment to Statement 133. We believe that the adoption of
SFAS 149 does not have a significant impact on our consolidated financial
statements.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">23</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>FASB Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">On May 15, 2003, the FASB issued FASB
Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This Statement establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This Statement is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable financial
instruments of nonpublic entities. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the Statement and still
existing at the beginning of the interim period of adoption. Restatement is not
permitted. We believe that the adoption of SFAS 150 does not have a significant
impact on our consolidated financial statements.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Financial Accounting
Standard Board issued Interpretation No. 46, Consolidation of Variable Interest Entities.</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In January 2003, the FASB issued FASB Interpretation No. 46, <I>Consolidation of Variable Interest Entities </I>(&#147;FIN
46&#148;). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, <I>Consolidated Financial Statements</I> (&#147;ARB
51&#148;), to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. ARB 51 requires that an
enterprise&#146;s consolidated financial statements include subsidiaries in which
the enterprise has a controlling financial interest. That requirement usually
has been applied to subsidiaries in which an enterprise has a majority voting
interest. The voting interest approach is not effective in identifying
controlling financial interests in entities that are not controllable through
voting interests or in which the equity investors do not bear the residual
economic risk. FIN 46 explains how to identify variable interest entities and
how an enterprise assesses its interests in a variable interest entity to
decide whether it is its primary beneficiary and therefore is required to
consolidate that entity. FIN 46 also addresses the initial valuation of the
assets and liabilities to be consolidated, the treatment of any gain or loss
resulting from the initial measurement and disclosure requirements for the
primary beneficiary. All entities with variable interest in variable interest
entities created after January 31, 2003 shall apply the provisions of FIN 46
immediately. Public entities with a variable interest in a variable interest
entity created before February 1, 2003 shall apply the provisions of this
interpretation no later than the first interim or annual reporting period
beginning after December 15, 2003. On December 24, 2003, FASB issued an
Interpretation which made certain amendments to FIN 46 (FIN 46R). The revision
clarifies the definition of a business by providing a scope exemption that
eliminates the overly-broad definition in the original release that potentially
could have classified any business as a variable interest entity. The revision
also delays the effective date of the interpretation from the first reporting
period following December 15, 2003 to the first reporting period ending March
15, 2004.&#160; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We are currently evaluating the
impact that FIN 46R may have on our consolidated financial statements. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">24</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><U>Operating Results</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The following table sets forth, for the periods indicated, the
relationship (in percentages) of items from our Consolidated Statement of
Operations Data to our total sales:</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><U>Year Ended December 31,</U></B></FONT></P>
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Sales</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">100</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">100.0</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">100.0</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cost of sales</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">58.0</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">76.7</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">80.2</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Gross profit</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">42.0</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">23.3</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">19.8</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>R&amp;D costs, gross</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">44.0</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">55.9</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">29.4</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(Less) government royalty<BR>
  bearing participation</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(4.0</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.5</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(10.3</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>R&amp;D costs, net</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">40.0</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">56.4</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">19.1</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Selling, marketing, general and<BR>
  administrative expenses</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">43.1</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">63.6</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">38.4</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Operating Loss</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(41.1</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(96.7</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(37.7</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Financial income, net</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.7</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5.5</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5.6</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Loss before taxes on income</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(40.4</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(91.2</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(32.1</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Taxes on income</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.0</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.0</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.7</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Net Loss for the year</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(40.4</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(91.2</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(32.8</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Sales in 2003 increased to $3,725,000 compared to $2,726,000 in 2002,
mainly due to higher sales to our major OEM customer. About 57% of our sales in
2003 were to this OEM customer. About 62% of our sales in 2003 were attributed
to our traditional connectivity solutions for portable computers products,
while 14% were attributable to broadband internet access products, 6% were
attributable to our new line of multi-port Gigabit Ethernet networking cards
and 18% were attributable to other sales.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Sales in 2002 decreased to $2,726,000 compared to $4,530,000 in 2001,
mainly due to the continuing global slowdown in the data communication markets
and the continuing phasing out of Modem and Ethernet/Fast Ethernet PC Cards.
About 53% of our sales in 2002 were attributed to our traditional connectivity
solutions for portable computers products, while 35% were attributable to
broadband internet access products and 12% were attributable to other sales. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">25</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Gross profit in 2003 was $1,565,000 compared to $635,000 in 2002. Gross
profit as percentage of sales in 2003 was 42.0%, compared to 23.3% in 2002. The
Gross profit percentage was higher in 2003 than in 2002 mainly due to sales of
products with higher profit margins in 2003, and also due to the fact that as
sales increase, the impact of fixed cost of sales on the gross profit is lower.
There was no significant change in labor and materials costs in 2003. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Gross profit in 2002 was $635,000 compared to $895,000 in 2001. Gross
profit as percentage of sales in 2002 was 23.3%, compared to 19.8% in 2001. The
Gross profit percentage was higher in 2002 mainly due to an inventory charge of
$923,000 in 2001, which was related to excess inventory.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Gross research and development expenses for 2003 increased by 8.1% to
$1,647,000 compared to $1,523,000 during 2002, mainly due to the level of our
investment in our new server/storage networking card product lines, in which we
invested all of our research and development efforts. Because the markets for
our products are characterized by rapidly changing technology, short
product-life cycles and evolving industry standards, our success will depend
upon our ability to select, develop, manufacture and market new and enhanced
connectivity and networking products in a timely manner to meet changing market
needs. We expect to continue to invest significant resources in new product
development, enhancements to existing products, and the development of new
networking and connectivity technologies.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Gross research and development expenses for 2002 increased by 14.3% to
$1,523,000 compared to $1,333,000 during 2001, mainly due to research and
development efforts in the development of our line of server/storage networking
cards that were even more extensive than in previous years. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Selling and marketing expenses for 2003 decreased immaterially by 1.6%
to $1,006,000, compared to $1,022,000 during 2002. While in 2003 we invested
significant resources in selling and marketing our new line of multi port
Gigabit Ethernet server adapters, we invested significantly less in our traditional
product lines, hence there was no material change between 2003 and 2002.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Selling and marketing expenses for 2002 decreased by 8.2% to
$1,022,000, compared to $1,113,000 during 2001, mainly due to lower commission
payments as a result of lower sales.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net loss for 2003 was $1,509,000 compared to a net loss of $2,485,000
in 2002, mainly due to our higher sales and higher gross profit in 2003.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net loss for 2002 was $2,485,000 compared to a net loss of $1,486,000
in 2001. The main reason for the higher loss in 2002 was the decrease in sales.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">26</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Impact of Inflation and Devaluation on
Results of Operations, Liabilities and Assets</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Since the institution by the Israeli government of an economic recovery
program for the halting of high inflation rates in 1985, inflation, while
continuing, has been significantly reduced and the rate of devaluation has been
substantially diminished. Since the majority of our revenues are denominated
and paid in U.S. dollars, we believe that inflation and fluctuations in the
U.S. dollar exchange rate have no material effect on our revenue. Inflation in
Israel and the Israeli currency as well as U.S. dollar exchange rate
fluctuations, do however, have some effect on our expenses and, as a result, on
our net income/loss. The cost of our Israeli operations, as expressed in U.S.
dollars, is influenced by the extent to which any increase in the rate of
inflation in Israel is not offset (or is offset on a lagging basis) by a
devaluation of the NIS in relation to the U.S. dollar.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We do not presently engage in any hedging or other transactions
intended to manage the risks relating to foreign currency exchange rate or
interest rate fluctuations. However, we may in the future undertake such
transactions if management determines that it is necessary to offset such
risks. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><U>Liquidity and Capital Resources</U></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">At December 31, 2003, we had working capital of $3,675,000 and our
current ratio (current assets to current liabilities) was 4.51. Since
inception, our operations have been funded through capital contributions,
research and development grants and cash flow from operations.Cash and cash equivalents as of December
31, 2003 increased by $950,000 to $1,811,000 compared with $861,000 as at
December 31, 2002. Short-term investments fell by $3,032,000 and long-term
investments rose by $549,000. The net decrease of $1,533,000 in these three
balance sheet items in 2003 was caused mainly due to the net annual loss.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Short term trade receivables increased to $628,000 at December 31, 2003
from $504,000 in December 31, 2002, mainly due to the increase in sales in the
fourth quarter of 2003, as compared to sales in the fourth quarter of 2002.
Other receivables increased immaterially from $277,000 to $290,000. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Cash used in operating activities in 2003 amounted to $1,414,000
compared to cash used in operating activities in the amount of $956,000 in
2002. The increase in 2003, despite a lower loss, was mainly due to the fact
that in 2002 we collected an old debt in the amount of $809,000 from Gilat
Satellite Networks, causing the cash used in operating activities in 2002 to be
much less than the net loss for that year.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Inventories increased immaterially from $1,221,000 at the end of 2002
to $1,225,000 at the end of 2003. Capital expenditures on property and
equipment in 2003 increased by $85,000 compared with 2002, mainly due to the
fact that our new product lines require more expensive development and testing
tools.<BR>We have cash and cash equivalents that we believe will enable us to
continue operating for at least the next 12 months.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">27</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Other Assets: Our subsidiary, Silicom Connectivity Solutions, Inc.,
entered into a &#147;Non-Exclusive Limited Patent License Agreement&#148; in April 2002
as part of an agreement with a company that suggested that certain of our
connectivity products infringe its patents. The agreement included a payment of
a one-time license fee of $150,000 which represented a licensing fee for both
past and future sales of certain connectors and PC cards under patents of the
licensor. Our subsidiary has established a sixteen-year amortization period
which is based on the expected life of this license. The subsidiary has
estimated that the past sales period under the licensing agreement was six
years and that the future sales period under the licensing agreement will be
ten years; therefore, in 2002 the subsidiary recognized amortization expenses
on the past six years of approximately $56,200, and $7,100 related to the
amortization for 2002. The total amortization expense for 2002 was
approximately $63,300. The total amortization expense for 2003 was
approximately $10,000. The remainder of the license fee to be amortized as of
December 31, 2003 was approximately $77,000. The amount of approximately
$10,000 was due within one year and is presented in Other Receivables in the
financial statements, while the amount of $67,000 was due within two years and
more and is presented as Other Assets in the financial statements.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Trade payables decreased immaterially from $561,000 at the end of 2002
to $558,000 at the end of 2003. Other payables and accrued liabilities
increased from $415,000 at the end of 2002 to $488,000 at the end of 2003.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><U>Research and development, patents and
licenses, etc.</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Because the market for our products is characterized by rapidly
changing technology, short product-life cycles and evolving industry standards,
our success depends upon our ability to select, develop, manufacture and market
new and enhanced products in a timely manner to meet changing market needs. As
such, we invest significant resources in research and new product development,
enhancements to existing products, and the development of new networking and
connectivity technologies, and we expect to continue to do so.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Government of Israel encourages research and development projects
oriented towards products for export or projects which will otherwise create
surplus yield for the Israeli economy. As indicated below, in each of the three
fiscal years from 1999 to 2001, we received grants from the Office of the Chief
Scientist (&#147;OCS&#148;) for the development of systems and products. We have received
from the OCS approximately 40% of certain research and development expenditures
for particular projects. Under the terms of Israeli Government participation, a
royalty of 2% or up to 5% of the net sales of products developed from a project
funded by the OCS must be paid, beginning with the commencement of sales of
products developed with grant funds and ending when 100% or 150% of the grant
is repaid. For projects approved after January 1, 1999, the amount of royalties
payable is up to a dollar-linked amount equal to 100% of such grants plus
interest at LIBOR. The terms of Israeli Government participation also place
restrictions on the location of the manufacturing of products developed with
government grants, which, in general, must be performed in Israel, and on the
transfer to third parties of technologies developed through projects in which
the government participates. See &#147;Item 10. Additional Information - Taxation.&#148;
Due to the decreasing budget of the OCS, we did not receive any grants for our
projects in 2002, and we received approximately 20% of certain research and
development expenditures for a particular project in 2003. We cannot guarantee
that such encouragement programs will be continued, or that we will continue to
participate in them to the extent they are continued.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">28</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The following table shows, for the periods indicated, our gross
research and development expenditures, the portion of such expenditures which
was funded by OCS and the net cost to us of our research and development
activities:</FONT></P>
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="43%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>1999</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2000</B></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="43%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="43%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Gross research and<BR>
  development expenses</B></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,078</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,418</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,333</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,523</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,647</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="43%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Portion funded by<BR>
  Chief Scientist</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">417</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">410</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">469</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">*(15</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">150</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="43%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Net research and<BR>
  development expenses</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">661</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,008</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">864</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,538</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,497</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">* This amount reflects final adjustments for projects supported in
previous years.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We expect that we will continue to commit substantial resources to
research and development in the future. As of May 31,
2004, the Company employed 17 persons in research and development. Our gross
research and development expenses constituted approximately 44%, 56% and 29% of our
sales, and our net research and development expenses constituted approximately 40%, 56% and 19% of such
sales, in the respective years ended December 31, 2003,
2002 and 2001. For additional information concerning
commitments to pay royalties on sales of products developed from projects
funded by the Office of the Chief Scientist, see Note 8A to our financial
statements included elsewhere in this annual report and see &#147;Item 10.
Additional Information - Taxation.&#148; </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><U>Trend Information</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The trend in the data communications industry has been to incorporate
modems and Ethernet/Fast Ethernet as built-in elements of portable PCs.&#160; This trend has obviated much of the need for
our Ethernet/Fast Ethernet PC Card products. Although 51% of our sales in 2003
still came from Ethernet/Fast Ethernet PC Card products, most of these sales
were to a single major OEM customer which integrates our Ethernet and Fast
Ethernet PC Cards into its systems. We believe that this shift in the market
will continue, and that gradually, Ethernet/Fast Ethernet PC Cards will be
phased out completely. Nevertheless, the major OEM customer mentioned above
integrates our Ethernet PC Cards in its systems. As such, the impact of the
above-mentioned trend is not yet as significant with regard to this customer;
however, we believe that sales of PC Cards to this customer will decline and
possibly cease altogether in the future. Of our sales in 2003, 41% came from
sales of Ethernet/Fast Ethernet PC Cards to this OEM customer (this percentage
is included in the 51% mentioned above).</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">29</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Having anticipated the above trend, we began a number of years ago to
position ourselves to compete in the broadband internet access industry. In
1999, 2000 and 2001, we invested most of our research and development efforts
in this industry. In 2001, 2002 and 2003 sales to the broadband internet access
and multi tenant unit, or MTU, markets constituted 36%, 35% and 14% of our
total sales, respectively. An additional trend which affected our sales of
these products was the worldwide slowdown in technology-based companies, which
worsened throughout 2002 and part of 2003, and had a ripple effect on our
performance. Especially in the broadband internet access and MTU markets, our
products are used by cable companies and internet providers. These companies
were adversely affected by the global downturn in the technology sector, which
caused some of them to go out of business. Those companies which have not gone
out of business have found themselves in a more precarious situation. In the
meantime, products for this industry have become commodities, mostly
manufactured by companies from Taiwan. We have therefore ceased our investments
in this market.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In late 2002, we leveraged our expertise and know-how in networking and
operating systems to develop a line of high-end server/storage networking cards.
In today&#146;s data communication environment, there is a growing demand for
server-based and storage systems. The markets for such systems were less
affected by the worldwide slowdown described above and are almost continuously
growing. We are currently investing in marketing and sales of this line to
potential markets and customers and have already received purchase orders from
a number of sources. The sales cycle in these markets is long, but once we
establish customers, each such customer will represent an opportunity for
sustained, long-term revenues. We expect this product line to be our principal
growth driver in the coming years, however, there is no assurance that we will
succeed in having significant sales in this area.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The worldwide slowdown in technology-related fields and the events of
September 11, 2001 have contributed to an atmosphere of great uncertainty, in
which doing business has become more complicated. In this current environment,
business transactions which are already in progress take much longer to
conclude, and new business transactions are more difficult to come by. One positive aspect of this trend is the
growth in demand for security appliances which are a target market for the
bypass cards that we developed as part of our new line of products.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><U>Off-Balance Sheet Arrangements</U></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">On July 22, 2002, our Audit Committee and the Board of Directors
approved an Indemnification Agreement with our directors and officers. Our
shareholders approved the terms of this agreement in a General and Extraordinary
Meeting held on January 7, 2004. The Agreement provides that the directors and
officers will be exempt from liability in certain circumstances. The Agreement
also provides that the expenses of these directors and officers for obligations
that are connected to an act performed in their capacity as an officer of the
Company will be paid by us. This right to indemnification is limited, and does
not cover breaches of an officers&#146; duty of loyalty or care, or reckless
disregard for the consequences of such breach. The right to indemnification
also does not cover acts that are taken intentionally to realize personal gain.
The maximum amount of our liability under the Indemnification Agreement is
currently $3,000,000.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">30</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><U>Tabular disclosure of contractual obligations</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The following table shows our outstanding contractual obligations by
category and by payments due:</FONT></P>
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="37%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="57%" COLSPAN="10" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Payments
  due by period</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="37%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="57%" COLSPAN="10" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="37%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Contractual<BR>
  Obligations</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Total</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Less than
  1<BR>
  year</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>1-3<BR>
  years</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>3-5<BR>
  years</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>More than
  5<BR>
  years</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="37%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="37%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Capital
  Lease<BR>
  Obligations</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">99,000</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">99,000</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="37%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Operating
  Leases</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">141,000</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">82,000</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">59,000</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="37%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Purchase
  Obligations</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">367,000</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">367,000</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="37%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">607,000</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">548,000</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">59,000</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 6.&nbsp;&nbsp;<U>DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Directors and Senior Management</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The following table and notes thereto set forth information regarding
our officers, directors and senior managers as of June 30, 2004.</FONT></P>


<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2><B>&nbsp;&nbsp;Name</B></FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2><B>&nbsp;&nbsp;Age</B></FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2><B>&nbsp;&nbsp;Position with Company</B></FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Avi Eizenman</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;47</FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Chairman of
  the Board</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Shaike
  Orbach</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;53</FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Chief
  Executive Officer, Director</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Yehuda
  Zisapel</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;61</FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Director</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Einat
  Domb-Har</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;37</FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Outside
  Director</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Ilan
  Kalmanovich</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;38</FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Outside
  Director</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Paul
  Bjorndahl</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;49</FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Vice President
  Sales, Silicom Connectivity Solutions, Inc.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;David Hendel</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;43</FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Vice
  President Research and Development </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="32%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:SOLID BLACK .5PT;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Ilan Erez</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:SOLID BLACK .5PT;BORDER-RIGHT:NONE;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;37</FONT></P>  </TD>
  <TD WIDTH="59%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK .5PT;BORDER-BOTTOM:SOLID BLACK .5PT;BORDER-RIGHT:SOLID BLACK .5PT;BORDER-LEFT:SOLID BLACK .5PT;'>
  <P><FONT SIZE=2>&nbsp;Chief
  Financial Officer and VP Operations</FONT></P>  </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">31</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Avi Eizenman</I></B>
co-founded the Company in 1987 and has served as its President and as a
Director, since its inception. Mr. Eizenman also served as Chief Executive
Officer from our inception until April 1, 2001, and on such date, he resigned
from his position as Chief Executive Officer and was appointed Chairman of the
Board. Mr. Eizenman served as head of the ASIC department at Scitex Ltd. in
1986. From 1979 until 1985, Mr. Eizenman held various positions, including
project manager, ASIC specialist and engineer, with the Electronic Research
&amp; Development Department of the Israeli Ministry of Defense. Mr. Eizenman
holds a B.Sc. degree, with honors, in Electrical Engineering from the Technion,
and an M.B.A. from Tel Aviv University. </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Shaike Orbach </I></B>has
been President and Chief Executive Officer of the company since April 2001. In
December, 2001, Mr. Orbach was named a Director, replacing Zohar Zisapel, who
resigned from the Board of Directors. Prior to that, for a period of four and a
half years, Mr. Orbach was President and CEO of Opgal Ltd., a high-tech
subsidiary of Israel&#146;s Rafael and El-Op corporations. Previously, he was
General Manager of Edusoft, an Israeli company the shares of which were traded
on the NASDAQ National Market, and Managing Director of Tecsys Ltd. He holds a
B.Sc degree in Mechanical Engineering from the Technion.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Yehuda Zisapel</I></B>
is a co-founder of the Company. He has served as a Director since its inception
and served as Chairman of the Board from 1999 until March 2001. Mr. Zisapel is
also a founder and a director of Rad Data Communications Ltd. (&#147;Rad&#148;), Bynet
Data Communications Ltd. (&#147;Bynet&#148;) and its subsidiaries and other companies in
the Rad Group. We have certain dealings with members of the Rad Group. See
&#147;Item 7. Major Shareholders and Related Party Transactions.&#148; In 1966 and 1968,
Mr. Zisapel received a B.Sc. and an M.Sc. degree, respectively, in Electrical
Engineering from the Technion. In 1975, Mr. Zisapel received an M.B.A. from Tel
Aviv University.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Einat Domb-Har</I></B>
has served as the CFO of Stage One Venture Capital, which focuses on seed
investment in the telecom industry, since April 2004. From 2000 to 2004 Ms.
Domb-Har served as a controller of Pitango Venture Capital, Israel&#146;s largest
pool of four Venture Capital Funds. From 1994 to 1999 Ms. Domb-Har served as a
senior manager at Kost, Forer and Gabbay, CPA, a member of Ernst &amp; Young
International. Ms. Domb-Har is an Israeli Certified Public Accountant and holds
a BA in Economics and Accounting from Tel Aviv University. She also holds an
MBA from the Israeli extension of Bradford University.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Ilan Kalmanovich</I></B>
has acted as an independent consultant since 2003. From 2001 to 2002, Mr.
Kalmanovich served as the vice president of Igud Hashkaot Ve&#146;yizum (A.S.I.)
Ltd. of the Igud Bank Group. From 1996 to 2000 he served as a senior consultant
at BDO Ziv Haft Consulting and Management Ltd. From 2003 to May 2004 Mr.
Kalmanovich served as a director on the board of Satcom Systems Ltd. and
previously served as a director on the board of Cukierman &amp; Co. Investment
House Ltd., and as an alternate director at Catalyst Investments L.P., the
general partner of the Catalyst Fund L.P. venture capital fund. Mr. Kalmanovich
holds a B.Sc degree (with honors) in Industrial Engineering from Ben-Gurion
University and an MBA from Tel Aviv University. He also serves as a
court-certified mediator and holds a license for investment consulting from the
Israeli Securities Authority.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">32</FONT></P>


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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Paul Bjorndahl</I></B>
has been Vice President of Sales of Silicom Connectivity Solutions, Inc. since
January 2003. From 1994 to 2002 he served as Field Sales Engineer, OEM Sales
Manager&nbsp;and a Regional Sales Manager at Adaptec, Inc., a U.S. company that
designs, manufactures and markets storage access solutions. From 1993 to 1994
Mr. Bjorndahl served as Regional Sales Manager at Electroson, a developer of
CD-R mastering software. From 1986 to 1993 he served as Field Engineer and a
Regional Sales Manager for Ricoh Corporation with their File Products Division.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>David Hendel</I></B> has been Vice President, Research and
Development of the Company since 1995. From 1991 to 1995, he served as a Senior
Hardware Engineer of the Company. Mr. Hendel previously served as an engineer
in the Intelligence Corps of the Israeli Defense Forces. He holds a B.Sc.
degree in Electrical Engineering from Ben-Gurion University.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Ilan Erez</I></B>
has been the Chief Financial Officer of the Company since June 1998. He has
also been VP Operations of the Company since May 2001. From 1996 to 1998 Mr.
Erez served as a Controller and assistant to the Chief Executive Officer at
Bio-Dar Ltd. From 1993 until 1996 Mr. Erez served as an Auditor at Kesselman
&amp; Kesselman accounting firm, a member of PriceWaterhouseCoopers. Mr. Erez
is a Certified Public Accountant in Israel and holds a B.A in Accounting and
Economics from the Hebrew University in Jerusalem.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Compensation</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The aggregate direct remuneration paid to all persons as a group who
served in the capacity of director or executive officer during the year ended
December 31, 2003 was $615,000. We do not pay cash compensation to Yehuda
Zisapel for serving on our board of directors. We do pay cash compensation to
Avi Eizenman who is an active Chairman of the Board, to Shaike Orbach, who is
the President and Chief Executive Officer, and to Ms. Einat Domb-Har and Mr.
Ilan Kalmanovich who are outside directors and receive compensation in
accordance with the regulations promulgated under the Israeli Companies
Law-1999. All our officers work full time for us. Certain of the compensation
paid to our directors is paid in the form of options under the Silicom
Directors Share Incentive Plan (1994). The Directors Share Incentive Plan was
adopted by the board of directors in August, 1994 in order to grant options to
members of the board of directors who have served on the board of directors for
at least three fiscal quarters. The Director Share Incentive Plan is
administered by the board of directors, which designates the optionees, dates
of grant and the exercise price of options. Under the Director Share Incentive
Plan, 500,000 of our ordinary shares have been reserved for issuance. The
options expire at the end of ten years from their date of grant and are
non-assignable except by the laws of descent. The grantee is responsible for
all personal tax consequences of the grant and the exercise thereof. We believe
that we will bear no tax consequences in connection with such grant or
exercise. Previously, 185,000 options (at an average exercise price of $4.34
and at termination dates that range from August 2004 to August 2010) were
granted pursuant to the Director Share Incentive Plan to Mr. Avi Eizenman,
95,000 options (at an average exercise price of $3.00 and a termination date
that ranges from August 2004 to April 2010) were granted to Mr. Yehuda Zisapel
and 240,000 options were granted to Mr. Shaike Orbach, 120,000 of which have an
exercise price of $4.25 and a termination date in January 2011, 60,000 of which
have an exercise price of $0.90 (only 2,000 of these options are currently
outstanding as 58,000 have been exercised) and a termination date in January
2012, and 60,000 of which have an exercise price of $2.38 and a termination
date in December 2012. See Note 9 to the Financial Statements.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">33</FONT></P>


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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">On October 24, 2000, the board of directors adopted the Silicom Ltd. US
Share Option Plan (2000). This Plan is intended to constitute a means of
providing additional incentive to officers, consultants and certain other
present and future employees and directors of the Company and its subsidiaries.
Pursuant to the Plan, the Company may grant both Incentive Stock Options (as
such term is defined in Section 422 of the Internal Revenue Code of 1986, as
amended; &#147;ISOs&#148;) and Nonqualified Stock Options (&#147;NSOs&#148;), provided, however,
that only our employees or employees of our subsidiaries can receive ISOs. The
Plan is administered by the board of directors, which has full authority to
grant options under the Plan. Under the terms of the Plan, up to a maximum of 200,000
of our ordinary shares are reserved for issuance, subject to certain
adjustments. The exercise price of the options granted under the Plan shall be
not less than the higher of 100 percent (or, in the case of a grant of ISO&#146;s to
a holder of more than 10% of the Company&#146;s outstanding shares, 110 percent) of
the Fair Market Value (as defined in the Plan) of the ordinary shares subject
to the option on the date the option is granted. The vesting period of the
options is subject to the discretion of the Board. The term of ISOs shall not
exceed 10 years from the date on which they are granted (or 5 years, in the
case of optionees who hold more than 10% of our outstanding shares). In total,
as of May 31, 2004, we have granted 15,600 options pursuant to the US Share
Option Plan (2000) to employees of our US subsidiary &#150; Silicom Connectivity
Solutions, Inc., 11,300 of which were returned to the company due to certain
employees who left their positions not exercising their options.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In addition to the Plans described above, the oldest of the Company&#146;s
share option plans was adopted in December 1993, and amended in 1997. Pursuant
to this plan, 500,000 ordinary shares are currently reserved for issuance upon
the exercise of options to be granted to employees and consultants of the
Company. This reserve was increased by the board of directors from 300,000
ordinary shares on April 23, 2001. The Share Option Plan is administered by the
board of directors, which designates the optionees, dates of grant, vesting
periods and the exercise price of options. The options expire after 10 years
from their date of grant and are non-assignable except by the laws of descent.
The grantee is responsible for all personal tax consequences of the grant and
the exercise thereof.&#160; In total, as of
May 31, 2004, we have granted 431,950 options pursuant to the Share Option Plan
to our various executive officers and employees. The options granted to Shaike
Orbach, as described above, are included in the total of 431,950 options
granted under this plan. </FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">34</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Board Practices</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Each of Yehuda Zisapel, Avi Eizenman, Shaike Orbach and our outside
directors Ms. Einat Domb-Har and Mr. Ilan Kalmanovich, was elected to the board
of directors most recently on June 30, 2004 to serve until the next Annual Shareholders&#146;
Meeting. Messrs. Yehuda Zisapel and Avi Eizenman are both Founders of the
Company, and have served as Directors since our inception in 1987. None of the
members of the board of directors is entitled to receive any severance or
similar benefits upon termination of his or her service with the board of
directors, except for Avi Eizenman, who also functions as the active Chairman
of the board. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Board of Directors</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our Articles of Association provide for a
board of directors of not less than two nor more than eight members. Each
director is elected to serve until the next annual general meeting of
shareholders and until his successor has been elected. Officers serve at the
discretion of the board of directors. The Articles of Association of the Company
provide that any director may, by written notice to the Company, appoint
another person to serve as a substitute director and may cancel such
appointment. Under the Israeli Companies Law-1999 which entered
into effect on February 1, 2000, a person who is already serving as a director
will not be permitted to act as a substitute director. Additionally, the
Israeli Companies Law-1999 also prohibits a person from serving as a substitute
director for more than one director. The
term of appointment of a substitute director may be for one meeting of the
board of directors or for a specified period or until notice is given of the
cancellation of the appointment. To our knowledge, no director currently
intends to appoint any other person as a substitute director, except if the
director is unable to attend a meeting of the board of directors.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Outside Directors;
Audit Committee</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Under the Israeli Companies Law-1999,
companies registered under the laws of Israel the shares of which have been
offered to the public in or outside of Israel are required to appoint two
outside directors. No person may be appointed as an outside
director if such person or the person&#146;s relative, partner, employer or any
entity under the person&#146;s control, has or had, on or within the two years preceding
the date of the person&#146;s appointment to serve as outside director, any
affiliation with the company or any entity controlling, controlled by or under
common control with the company. The term &#147;affiliation&#148; includes:</FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">an
  employment relationship;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">a business
  or professional relationship maintained on a regular basis;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">control; and</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">service as
  an office holder.</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">No person may serve as an outside director if the person&#146;s position or
other business activities create, or may create, a conflict of interest with
the person&#146;s responsibilities as an outside director or may otherwise interfere
with the person&#146;s ability to serve as an outside director. If, at the time
outside directors are to be appointed, all current members of the board of
directors are of the same gender, then at least one outside director must be of
the other gender.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">35</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Outside directors are to be elected by a majority vote at a
shareholders&#146; meeting, provided that either:</FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">the majority
  of shares voted at the meeting, including at least one-third of the shares
  held by non-controlling shareholders voted at the meeting, vote in favor of
  election of the director; or </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">the total
  number of shares held by non-controlling shareholders voted against the
  election of the director does not exceed one percent of the aggregate voting
  rights in the company.</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The initial term of an outside director is three years and may be
extended for one additional term of three years. Outside directors may be
removed only by the same percentage of shareholders as is required for their
election, or by a court, and then only if the outside directors cease to meet
the statutory qualifications for their appointment, violate their duty of
loyalty to the company or are found by a court to be unable to perform their
duties on a full time basis. Outside directors may also be removed by an
Israeli court if they are found guilty of bribery, fraud, administrative
offenses in a company or use of inside information. Each committee of a
company&#146;s board of directors must include at least one outside director.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">An outside director is entitled to compensation as provided in
regulations adopted under the Israeli Companies Law-1999 and is otherwise
prohibited from receiving any other compensation, directly or indirectly, in connection
with service provided as an outside director. Ms. Einat Domb-Har and Mr. Ilan
Kalmanovich were elected to the board of directors as outside directors on June
30, 2004. Pursuant to the listing
requirements of the Nasdaq National Market, we are required to have at least
two independent directors on our board of directors and to establish an audit
committee, at least a majority of whose members are independent of management.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Audit Committee</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Israeli Companies Law-1999 requires public companies to appoint an
audit committee. The responsibilities of the audit committee include
identifying irregularities in the management of our business and approving
related party transactions as required by law. An audit committee must consist
of at least three directors, including the outside directors of the company.
The chairman of the board of directors, any director employed by or otherwise
providing services to the company, and a controlling shareholder or any
relative of a controlling shareholder, may not be a member of the audit
committee. Currently, Ms. Einat Domb-Har, Mr. Ilan Kalmanovich and Mr. Yehuda
Zisapel serve as members of our audit committee.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">36</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Internal Auditor</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Under the Israeli Companies Law-1999, the board of directors must
appoint an internal auditor, nominated by the audit committee. The role of the
internal auditor is to examine, among other matters, whether our actions comply
with the law and orderly business procedure. Under the Israeli Companies
Law-1999, the internal auditor may be an employee of the company but not an
office holder (as defined in Item 10 below), or an affiliate, or a relative of
an office holder or affiliate, and he or she may not be our independent
accountant or its representative. Our board of directors appointed Gideon
Duvshani, CPA to be our internal auditor on April 23, 2001, according to the
recommendation of the audit committee.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><U>Employees</U></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The number of employees over the last three financial years is set
forth in the table below.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="500">
 <TR>
  <TD WIDTH="65%" VALIGN=BOTTOM>
  <P><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>As at December 31</B></FONT></P>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P>
  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P>
  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="65%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="65%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total
  Employees</FONT></P>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">47</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">41</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">42</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="65%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Marketing,
  Sales, Customer Services</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">8</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">6</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="65%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Research
  &amp; Development</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">19</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">19</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">19</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="65%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Manufacturing</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">13</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">11</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">12</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="65%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Corporate
  Operations and Administration</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">7</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">6</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">At May 31, 2004, we had 37 employees, including 4 in marketing, sales
and customer services, 17 in research and development, 11 in manufacturing, and
5 in corporate operations and administration. All such employees, except for 2
employees in the United States, are based in Israel. We consider our relations
with our employees excellent and have never experienced a labor dispute, strike
or work stoppage. None of our employees is represented by a labor union. We do
not employ a significant number of temporary employees, but we do use temporary
employees from time to time, as necessary.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Certain provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and the Coordination Bureau
of Economic Organizations including the Industrialists&#146; Associations are
applicable to our Israeli employees by order of the Israeli Ministry of
Labor.&#160; The laws principally concern the
length of the work day, minimum daily wages for professional workers,
contributions to a pension fund, insurance for work-related accidents,
procedures for dismissing employees, determination of severance pay and other
conditions of employment. We generally provide our employees with benefits and
working conditions beyond the required minimums. See Note 6 of Notes to our
Consolidated Financial Statements.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Israeli law generally requires severance pay, which may be funded by
Managers&#146; Insurance described below, upon the retirement or death of an
employee or termination of employment without cause (as defined in the law).
The payments thereto amount to approximately 8.33% of wages. Furthermore,
Israeli employees and employers are required to pay predetermined sums to the
National Insurance Institute, which is similar to the United States Social
Security Administration. Such amounts also include payments for national health
insurance. The payments to the National Insurance Institute are equal to
approximately 14.5% of the wages, of which the employee contributes
approximately 66% and the employer contributes approximately 34%. In the past,
National Insurance payments were made on salaries up to a specified ceiling,
but this ceiling was cancelled for the period between June 2002 and July 2003.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">37</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">A general practice followed by the Company, although not legally
required, is the contribution of funds on behalf of most of its employees to a
fund known as &#147;Managers&#146; Insurance&#148;. This fund provides a combination of
savings plan, insurance and severance pay benefits to the employee, giving the
employee a lump sum payment upon retirement and securing the severance pay, if
legally entitled, upon termination of employment. The Company decides whether
each employee is entitled to participate in the plan; each employee who agrees
to participate contributes an amount equal to 5% of his salary, and the
employer contributes between 13.3% and 15.8% of the employee&#146;s salary. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Share Ownership</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The following table sets forth, as of May 31, 2004, the number of
Shares owned by officers, directors and senior management of the Company:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="66%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Name and Address</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Number of<BR>
  Shares and<BR>
  Options<BR>
  Owned</B><B><SUP><FONT FACE="TIMES NEW ROMAN BOLD">1</FONT></SUP></B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="12%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Percent of<BR>
  Outstanding<BR>
  Shares</B></FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="66%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="12%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="66%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Yehuda
  Zisapel</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">933,723</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">21.68</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="66%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Avi
  Eizenmann</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">318,315</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">7.37</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="66%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Shaike
  Orbach</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">122,000</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2.90</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="66%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">David Hendel</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">*</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">*</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="66%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Ilan Erez</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">*</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">*</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="66%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">All
  directors and officers as a<BR>group</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,472,838</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">30.86&#160; </FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">* Denotes ownership of less than 1% of the outstanding shares.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The terms of the options granted to each of the shareholders in the
above table who hold more than 1% of the Company&#146;s shares are described above.
See &#147;Item 6. Directors and Senior Management &#150; Compensation.&#148; </FONT></P>

<HR SIZE=1 WIDTH="25%" NOSHADE COLOR=BLACK ALIGN=LEFT>


<FONT SIZE=2 FACE="TIMES NEW ROMAN"><SUP>1</SUP> The table above includes the number of shares and underlying options
that are exercisable within 60 days of May 31, 2004. Ordinary shares subject to
these options are deemed beneficially owned for the purpose of computing the
ownership percentage of the person or group holding these options, but are not
deemed outstanding for purposes of computing the ownership percentage of any
other person.&#160; To our knowledge, the
persons and entities named in the table have sole voting and dispositive power
with respect to all shares shown as beneficially owned by them.</FONT>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">38</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 7.&nbsp;&nbsp;<U>MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS</U></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Major Shareholders</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The shareholders of the Company who own over 5% or more of each class
of shares, as well as the number of shares owned and the percentage of
outstanding shares owned by each, and additional information, is set forth
below. The voting rights of our major shareholders do not differ from the
voting rights of other holders of our ordinary shares. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=570>
 <TR>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>Name of<BR>
  Shareholder</B></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>Number of<BR>
  Shares and<BR>
  Options<BR>
  Owned</B><B><SUP><FONT   SIZE=1 FACE="TIMES NEW ROMAN BOLD">2</FONT></SUP></B></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>Percentage of<BR>
  Outstanding<BR>
  Shares</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>Any<BR>
  Significant<BR>
  Change in<BR>
  Past 3 Years</B></FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Yehuda  Zisapel</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">933,723</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">21.68</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">No</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Zohar
  Zisapel</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">860,906</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">20.44</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">+110,520</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Avi Eizenman</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">318,315</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">7.37</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">No</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">As of May 31, 2004, there were approximately 17 record holders of
ordinary shares, including approximately 11 record holders in the United
States. Collectively, these record holders held approximately 46% of the
outstanding ordinary shares.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Related Party Transactions</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Messrs. Yehuda and Zohar Zisapel are brothers and are our founders. Mr.
Yehuda Zisapel currently serves as a Director on our board of directors.
Messrs. Yehuda and Zohar Zisapel are also founders, directors and principal
shareholders of several other corporations within the &#147;Rad Group&#148;, as described
above.<BR>The other members of the Rad Group are actively engaged in designing,
manufacturing, marketing and supporting data communications products, none of
which are currently the same as our products. Certain products of members of
the Rad Group are complementary to, and may be used in connection with, our
products. We and other members of the Rad Group also market certain of our
products through the same distribution channels. Such products may, to a
limited extent, compete with one another for the distributors&#146; time and
efforts. Rad Data Communications provided us until January 31, 2004 with
certain services pursuant to a sublease agreement for space in Mahwah, New
Jersey, for which we paid $924 per month in rent, and $410 for maintenance and
utilities. Commencing in February 2004, we began to sub-lease space in Paramus,
New Jersey, from Radcom Equipmet, Inc., an affiliated company. Currently, the
base monthly rent payments are $405, plus an additional $50 per month for
maintenance and utilities.</FONT></P>

<HR SIZE=1 WIDTH="25%" NOSHADE COLOR=BLACK ALIGN=LEFT>


<FONT SIZE=2 FACE="TIMES NEW ROMAN"><SUP>2</SUP> The table above includes the number of
shares and underlying options that are exercisable within 60 days of May 31,
2004. Ordinary shares subject to these options are deemed beneficially owned
for the purpose of computing the ownership percentage of the person or group
holding these options, but are not deemed outstanding for purposes of computing
the ownership percentage of any other person.&#160;
To our knowledge, the persons and entities named in the table have sole
voting and dispositive power with respect to all shares shown as beneficially
owned by them.</FONT>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">39</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Commencing in February 2004, we began to sub-lease space in Paramus, New Jersey, from Radcom Equipmet, Inc., an affiliated company.
Currently, the base monthly rent payments are $405, plus an additional $50 per month for maintenance and utilities.</FONT></P>


<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Finally, the Rad Group provides us with certain personnel and other
services, and is reimbursed by us for the costs of providing such services.
<BR>We believe that the terms of the transactions in which we have engaged
and are currently engaged with other members of the Rad Group are generally no
less favorable to us than terms which might be available to us from
unaffiliated third parties. All future related party transactions and
arrangements (or modifications of existing ones) with members of the Rad Group,
transactions in which office holders of the Company have a personal interest,
or transactions which raise issues of such office holders&#146; fiduciary duties,
may require audit committee, board of directors and shareholder approval under
the Israeli Companies Law-1999.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In addition to being a founder, director and principal shareholder of
each member of the Rad Group, Yehuda Zisapel is the founder and principal
shareholder of Bynet and its subsidiaries. Bynet acts as a distributor in
Israel for us and for other members of the Rad Group and also acts as a
distributor in Israel for numerous unaffiliated manufacturers of data
communications and other equipment. We believe that the terms of our
relationship with Bynet are generally no less favorable to us than terms which
might be available to us from unaffiliated third parties. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Except as indicated above, we do not currently compete with other
members of the Rad Group and do not currently contemplate engaging in
competition with any other member of the Rad Group in the future. However,
opportunities to develop, manufacture or sell new products (or otherwise enter
new fields) may arise in the future, which opportunities might be pursued by us
or by one or more other members of the Rad Group to the exclusion of (or in
competition with) other members of the Rad Group (including us). In the event
that any such opportunity arises, the directors then in office will determine
whether or not we should seek to pursue it. Any such determination will be
based upon such factors as the directors then deem relevant. However, in making
any such determination, the directors will be bound by their fiduciary duties
to the Company (and to any other corporation or other person to whom they then
owe a fiduciary duty).</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">On July 22, 2002, our audit committee and the Board of Directors
approved an Indemnification Agreement with our directors and officers. Our
shareholders approved the terms of this agreement in a General and
Extraordinary Meeting held on January 7, 2004. The Agreement provides that our
directors and officers will be exempt from liability in certain circumstances.
The Agreement also provides that the expenses of these directors and officers for
obligations that are connected to an act performed in their capacity as an
officer of the Company will be paid by us. This right to indemnification is
limited, and does not cover breaches of an officers&#146; duty of loyalty or care,
or reckless disregard for the consequences of such breach. The right to
indemnification also does not cover acts that are taken intentionally to
realize personal gain. The maximum amount of our liability under the
Indemnification Agreement is currently $3,000,000. On January 7, 2004 our
shareholders also approved the procurement of an insurance policy for our
directors and officers, including a 12 month discovery period and any further
extensions, renewals, extended discovery periods or increases to the policy,
from time to time, as our board of directors may deem necessary. All of our
directors are parties to our Indemnification Agreement and are covered by our
directors and officers insurance policy.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">40</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 8. <U>FINANCIAL INFORMATION</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our consolidated financial statements and other financial information
is incorporated herein by reference to pages F-1 through F- 30. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Legal Proceedings </B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In our annual report on Form 20-F for the year ending December 31,
2001, we reported that one of our Taiwanese suppliers, through its attorney,
sent us correspondence alleging that it was owed approximately $125,000 based
on our cancellation of certain supply orders. It was our belief that, under the
terms of the pertinent purchase orders, no money was owed. We responded as
such, and have not heard from this supplier regarding this issue since their
first letter in June of 2002.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are not a party to any material litigation
and we are not aware of any pending or threatened litigation that would have a
material adverse effect on us or our business.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 9. <U>THE OFFER AND LISTING</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Markets and Share Price History</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The primary trading market for our ordinary shares is the NASDAQ
Small-Cap Market, where our shares are listed and traded under the symbol
SILCF. Our ordinary shares are not listed on any other stock exchange and have
not been publicly traded outside the United States.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">41</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The table below sets forth the high and low bid prices in dollars of
our ordinary shares, as reported by NASDAQ during the indicated periods: </FONT></P>
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>PERIOD</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>HIGH</B></FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>LOW</B></FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">LAST 6 CALENDAR
  MONTHS</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">May, 2004</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2.59</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.82</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">April, 2004</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3.00</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2.25</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">March, 2004</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2.46</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2.07</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">February,
  2004</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2.15</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.9</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">January,
  2004</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3.21</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.67</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">December,
  2003</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.9</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.52</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">FINANCIAL
  QUARTERS DURING THE PAST<BR>
  TWO YEARS</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Fourth
  Quarter, 2003</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.97</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.81</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Third
  Quarter 2003</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.04</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.78</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Second
  Quarter 2003</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.07</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.30</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">First
  Quarter 2003</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.44</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.28</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Fourth
  Quarter, 2002</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.56</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.30</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Third
  Quarter 2002</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.69</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.32</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Second
  Quarter 2002</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.85</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.32</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">First
  Quarter 2002</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.01</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.80</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">FIVE MOST
  RECENT FULL FINANCIAL<BR>
  YEARS</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2003</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.97</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.28</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2002</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.01</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.30</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2001</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">5.44</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.56</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2000</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">23.375</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3.4375</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="78%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1999</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">7.375</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.375</FONT></P>  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 10.&#160;
<U>ADDITIONAL INFORMATION</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Memorandum and Articles of Association</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Articles of
Association</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our shareholders last approved the amendment of our Articles of
Association (&#147;Articles&#148;) on January 7, 2004. The objective stated in the
Articles is to engage in any business permitted under the law. </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We have currently outstanding only one class of securities, our
Ordinary Shares, having a nominal value of NIS 0.001 per share. Holders of
Ordinary Shares have one vote per share, and are entitled to participate
equally in the payment of dividends and share distributions and, in the event
of a liquidation of the Company, in the distribution of assets after
satisfaction of liabilities to creditors. No preferred shares are currently
authorized. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our Articles require that we hold our annual general meeting of
shareholders each year no later than 15 months from the last annual meeting, at
a time and place determined by the board of directors, upon at least 7 days&#146;
prior notice to our shareholders or, if a special resolution is to be proposed
at an extraordinary general meeting, upon at least 21 days&#146; prior notice to our
shareholders. No business may be commenced at a general meeting until a quorum
of two or more shareholders is present in person or by proxy. No business may
be commenced at an extraordinary general meeting, which is anything other than
an annual general meeting, until a quorum of two or more shareholders holding
at least 51% of the voting rights is present in person or by proxy.
Shareholders may vote in person or by proxy. </FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">42</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Israeli Companies Law-1999, provides that a simple majority is
required to amend the articles of association of a company unless such articles
provide otherwise. According to our Articles, as amended, any amendment of the
articles, any modification of the shareholders rights, and any increase or
reduction of our authorized share capital and alterations of our share capital,
must be decided upon in a special resolution, by a majority of 75% of the
shareholders who vote at the general meeting, without taking abstaining votes
into account.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Pursuant to the Israeli Companies Law-1999, resolutions regarding the
following matters must be passed at a general meeting of shareholders:</FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">appointment
  or termination of our auditors;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">appointment
  and dismissal of directors;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">approval of
  interested party acts and transactions requiring general meeting approval as
  provided in sections 255 and 268 to 275 of the Israeli Companies Law-1999; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">a merger as
  provided in section 320(a) of the Israeli Companies Law-1999; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">the exercise
  of the powers of the board of directors, if the board of directors is unable
  to exercise its powers and the exercise of any of its powers is vital for our
  proper management, as provided in section 52(a) of the Israeli Companies
  Law-1999. </FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">An extraordinary general meeting may be convened by demand of two
directors or by written request of one or more shareholders holding at least 5%
of our issued share capital and 1% of the voting rights or one or more
shareholders holding at least 5% of the voting rights. Shareholders requesting
a special meeting must submit their proposed resolution with their request.
Within 21 days of receipt of the request, the board of directors must convene a
special meeting and send out notices setting forth the date, time and place of
such meeting. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>The Israeli
Companies Law-1999</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are subject to the provisions of the Israeli Companies Law-1999,
which became effective on February 1, 2000. The Israeli Companies Law-1999
codifies the fiduciary duties that &#147;office holders,&#148; including directors and
executive officers, owe to a company. An office holder, as defined in the
Israeli Companies Law-1999, is a director, general manager, chief business
manager, deputy general manager, vice general manager, executive vice
president, vice president, another manager directly subordinate to the managing
director or any other person assuming the responsibilities of any of the
foregoing positions without regard to such person&#146;s title. Each person listed
in the table in &#147;Item 6. Directors, Senior Management and Employees&#148; above is
an office holder. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">43</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Israeli Companies Law-1999 requires that an office holder of a
company promptly disclose, no later than the first board meeting in which such
transaction is discussed, any personal interest that he or she may have and all
related material information known to him or her, in connection with any
existing or proposed transaction by the company. In addition, if the
transaction is an extraordinary transaction, the office holder must also
disclose any personal interest held by the office holder&#146;s relative, or by any
corporation in which the office holder is a 5% or greater shareholder, holder
of 5% or more of the voting power, director or general manager or in which he
or she has the right to appoint at least one director or the general manager.
An extraordinary transaction is defined as a transaction not in the ordinary
course of business, not on market terms, or that is likely to have a material
impact on the company&#146;s profitability, assets or liabilities.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In the case of a transaction that is not an extraordinary transaction,
after the office holder complies with the above disclosure requirement, only
board approval is required unless the articles of association of the company
provide otherwise. The transaction must not be adverse to the company&#146;s
interests. If the transaction is an extraordinary transaction, then, in
addition to any approval required by the articles of association, it must also
be approved by the audit committee and by the board of directors, and, under
specified circumstances, by a meeting of the shareholders, as well.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Subject to certain exceptions provided for in the regulations to the
Israeli Companies Law-1999, agreements regarding directors&#146; terms of
compensation require the approval of the audit committee, board of directors
and the shareholders of the company. In all matters in which a director has a
personal interest, including matters of his or her terms of compensation, he or
she shall not be permitted to vote on the matter or be present in the meeting
in which the matter is considered. However, if a majority of the audit
committee or of the board of directors has a personal interest in the matter
then:</FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">a)</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">all of the
  directors are permitted to vote on the matter and attend the meeting in which
  the matter is considered; and</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">b)</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">the matter
  requires approval of the shareholders at a general meeting.</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">According to the Israeli Companies Law-1999, the disclosure
requirements discussed above also apply to a controlling shareholder of a
public company. The term &#147;controlling shareholder&#148; is defined as a shareholder
who has the ability to direct the activities of a company, other than if this
power derives solely from the shareholder&#146;s position on the board of directors
or any other position with the company, and the definition for these purposes
also includes shareholders that hold 25% or more of the voting rights if no
other shareholder owns more than 50% of the voting rights in the company. In
general, extraordinary transactions with a controlling shareholder or in which
a controlling shareholder has a personal interest, and agreements relating to
employment and compensation terms of a controlling shareholder, require the
approval of the audit committee, the board of directors and the shareholders of
the company. The shareholder approval must either include at least one-third of
the shares held by disinterested shareholders who are present in person or by
proxy at the meeting (without taking abstaining votes into account), or,
alternatively, the total shareholdings of the disinterested shareholders who
vote against the transaction must not represent more than one percent of the
voting rights in the company. In addition, a private placement of securities
that will increase the relative holdings of a shareholder that holds five
percent or more of the company&#146;s outstanding share capital, assuming the
exercise of all of the securities convertible into shares held by that person,
or that will cause any person to become, as a result of the issuance, a holder
of more than five percent of the company&#146;s outstanding share capital, requires
approval by the board of directors and the shareholders of the company. The
regulations to the Israeli Companies Law-1999 provide certain exceptions. Any
placement of securities that does not fit the above description may be issued
at the discretion of the board of directors. </FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">44</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Under the Israeli Companies Law-1999, a shareholder has a duty to act
in good faith towards the company and other shareholders when exercising his or
her rights and refrain from abusing his power in the company, including, among
other things, voting in the general meeting of shareholders on the following
matters:</FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">any
  amendment to the articles of association;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">an increase
  of the company&#146;s authorized share capital;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">a merger; or</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&#149;</FONT></P>  </TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">approval of
  interested party acts and transactions that require general meeting approval
  as provided in sections 255 and 268 to 275 of the Israeli Companies Law-1999.</FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In addition, any controlling shareholder, any shareholder who knows
that it possesses power to determine the outcome of a shareholder vote and any
shareholder who has the power to appoint or prevent the appointment of an
office holder in the company is under a duty to act with fairness towards the
company. The Israeli Companies Law-1999 does not describe the substance of this
duty. The Israeli Companies Law-1999 requires that specified types of
transactions, actions and arrangements be approved as provided for in a
company&#146;s articles of association and in some circumstances by the audit
committee, by the board of directors and by the general meeting of the
shareholders. In general, the vote required by the audit committee and the
board of directors for approval of these matters, in each case, is a majority
of the disinterested directors participating in a duly convened meeting.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Material Contracts</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">All of our contracts over the past two years have been entered into in
the ordinary course of business, except for our real property leases, described
in &#147;Item 4. Information on the Company &#150; Property, Plants and Equipment&#148;.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">45</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Exchange Controls</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Under current Israeli regulations, any dividends or other distributions
paid in respect of our ordinary shares purchased by nonresidents of Israel with
certain non-Israeli currencies (including dollars) and any amounts payable upon
the dissolution, liquidation or winding up of our affairs, as well as the
proceeds of any sale in Israel of our securities to an Israeli resident, will
be freely repatriable in such non-Israeli currencies at the rate of exchange
prevailing at the time of conversion pursuant to the general permit issued
under the Israeli Currency Law, 1978, provided that Israeli income tax has been
paid on (or withheld from) such payments. Because exchange rates between the
NIS and the U.S. dollar fluctuate continuously, U.S. shareholders will be
subject to any such currency fluctuation during the period from when such
dividend is declared through the date payment is made in U.S. dollars.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Investments outside Israel by the Company no longer require specific
approval from the Controller of Foreign Currency at the Bank of Israel. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Taxation</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The following is a summary of some of the current tax law applicable to
companies in Israel, with special reference to its effect on us. The following
also contains a discussion of specified Israeli tax consequences to our
shareholders and government programs from which we benefit. To the extent that
the discussion is based on tax legislation (including the legislation passed as
part of the recent tax reform in Israel) that has not been subject to judicial
or administrative interpretation, there can be no assurance that the views
expressed in the discussion will be accepted by the tax authorities in
question.&nbsp;</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The discussion is not intended, and should not be construed, as legal
or professional tax advice and is not exhaustive of all possible tax
considerations.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Holders
of our ordinary shares should consult their own tax advisors as to the United
States, Israeli or other tax consequences of the purchase, ownership and
disposition of ordinary shares, including, in particular, the effect of any
foreign, state or local taxes.</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>General Corporate
Tax Structure</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Israeli companies are subject to &#147;Company
Tax&#148; at the rate of 36% of taxable income. According to a proposed
amendment to Israeli tax law, the company tax rate may be reduced in the near
future to 35%, and may be additionally reduced in subsequent tax years. However, the effective tax rate payable by a
company which derives income from an Approved Enterprise (as further discussed
below) may be considerably less.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Law for the
Encouragement of Capital Investments, 1959</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Certain of our facilities have been granted &#147;Approved Enterprise&#148;
status under the Law for the Encouragement of Capital Investments, 1959, as
amended (the &#147;Investment Law&#148;). The Investment Law provides that a capital
investment in eligible facilities may, upon application to the Israel
Investment Center of the Ministry of Industry and Trade of the State of Israel
(referred to as the Investment Center), be designated as an Approved
Enterprise. Each certificate of approval for an Approved Enterprise relates to
a specific investment program delineated both by its financial scope, including
its capital sources and its physical characteristics, for example, the
equipment to be purchased and utilized pursuant to the program. The tax
benefits derived from any such certificate of approval relate only to taxable
income attributable to the specific Approved Enterprise.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">46</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Taxable income of a company derived from an Approved Enterprise is
subject to Company Tax at the maximum rate of 25% (rather than 36% as stated
above) for a period of time termed the &#147;benefit period&#148;. The benefit period is
a period of seven years commencing with the year in which the Approved
Enterprise first generated taxable income. In any event, the benefit period is
limited to 12 years from the commencement of production or 14 years from the
year of receipt of approval, whichever is earlier. Under certain circumstances
(as further detailed below), the benefit period may extend to a maximum of ten
years from the commencement of the benefit period. In the event that a company
is operating under more than one approval or that only part of its capital
investments are approved (a &#147;Mixed Enterprise&#148;), its effective Company Tax rate
is the result of a weighted combination of the various applicable rates.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">A company which qualifies as a &#147;Foreign Investors&#146; Company&#148; is entitled
to an extended benefit period and further reductions in the tax rate normally
applicable to Approved Enterprises. Subject to certain conditions, a &#147;Foreign
Investors&#146; Company&#148; is a company which has more than 25% of its combined
shareholders&#146; investment in share capital (in terms of rights to profits,
voting and the appointment of directors) and in long term shareholders&#146; loans, as
defined in the Investment Law, made by persons who are not residents of Israel.
The percentage owned by nonresidents of Israel for any tax year will be
determined by the lowest percentage of any of the above rights held by
nonresidents during that year. Such a company will pay Company Tax at reduced
rates for an extended ten-year (rather than the otherwise applicable
seven-year) period as detailed below: </FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="68%">
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>Level of Foreign Investment</B></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>Company<BR>
  Tax Rate</B></FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>Benefit period<BR>
  (years)</B></FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Over 0% but
  less than 25%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">25%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">7</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Over 25% but
  less than 49%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">25%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">10</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">49% or more
  but less than 74%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">20%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">10</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">74% or more
  but less than 90%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">15%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">10</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="58%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">90% or more</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">10%</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="18%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">10</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">There can be no assurance that we will attain approval for additional
Approved Enterprises or that the above-mentioned shareholding proportion will
be reached for each subsequent year. Moreover, it has been recently announced
that significant changes in the Investment Law, including the tax benefits
therein, can be expected in the near future. Nonetheless, the Investment Law
provides that terms and benefits included in any certificate of approval
already granted will remain subject to the provisions of the law as they were
on the date of such approval. Therefore, any future changes in the Investment
Law are likely to apply only to applications approved after such changes are
legislated.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">47</FONT></P>


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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In addition, a company owning an Approved Enterprise approved after
April 1, 1986 (or prior thereto provided no government grants or loans had
previously been granted regarding such enterprise) may elect (as we have) to
forego certain Government grants extended to Approved Enterprises in return for
an &#147;alternative route&#148; of tax benefits (the &#147;Alternative Route&#148;). Under the
Alternative Route, a company&#146;s undistributed income derived from an Approved
Enterprise will be exempt from Company Tax for a period of between two and ten
years from the first year of taxable income, depending on the geographic
location of the Approved Enterprise within Israel, and such company will be
eligible for the reduced tax rates under the Investment Law for the remainder
of the benefit period as mentioned above.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our production facilities have been granted &#147;Approved Enterprise&#148;
status under the Alternative Route according to the Investment Law. The initial
Approved Enterprise status was granted in 1988 (&#147;Initial Approved Enterprise&#148;).
An extension program was granted Approved Enterprise status in 1995 (the
&#147;Extended Approved Enterprise&#148;). Income derived from our Approved Enterprises
is tax exempt during six years of the seven year tax benefit period and is
subject to a reduced tax rate of 25% in the seventh year. The seven year period
of benefits commences in the year the Approved Enterprise first earns taxable income
but is limited to twelve years from commencement of production or fourteen
years from date of approval, whichever is earlier. The period of tax benefits,
relating to our Initial Approved Enterprise, commenced in 1991 and expired in
1997. The period of tax benefits relating to our Extended Approved Enterprise
commenced in 1997 and will expire in 2006, as explained below.<BR>
In June 1995, we reached an agreement with the tax authorities
regarding our entitlement to benefits under the Investment Law. The agreement,
effective from tax year 1994 and thereafter, relates to the method of
determination of taxable income from our research and development activities.
Pursuant to the agreement, for the purpose of determining our tax liability,
our income will be allocated to our manufacturing plant and to our research and
development center, according to a formula based on the net costs plus
royalties of the research and development center and our profitability. Income
allocated to the expansion of the manufacturing plant will benefit from a
ten-year tax exemption, while income allocated to the research and development
center will benefit from a two-year exemption, and for a five-year period
immediately following will be taxed at a 25% rate.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our income to be attributed to our Extended Approved Enterprise in any
year will be computed as a ratio of the increase in our sales turnover, if any,
in that year to our turnover in the year before the Extended Approved
Enterprise commenced its tax benefits entitlement. The tax authorities have
reserved their right to reconsider our claim to such tax benefits in future
years.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The entitlement to the above benefits is conditional upon our
fulfillment of the conditions stipulated by the law, regulations published
thereunder and the instruments of approval for the specific investments in the
Approved Enterprise. In the event of failure to comply with these conditions,
the benefits may be canceled and we may be required to refund the amount of the
benefits, in whole or in part, with the addition of linkage differences,
interest and penalties. </FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">48</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Should we derive income from sources other than the Approved Enterprise
during the relevant periods of benefits, such income will be taxable at regular
corporate tax rates (36%).</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">A company that has elected the Alternative Route and that subsequently
pays a dividend out of income derived from the Approved Enterprise(s) during
the tax exemption period will be subject to Company Tax in the year the
dividend is distributed in respect of the amount distributed (including the
Company Tax thereon), at the rate that would have been applicable had the
company not elected the Alternative Route (10%-25%, depending on the extent of
foreign shareholders holding the company&#146;s ordinary shares). In addition, the dividend
recipient is taxed at the reduced rate applicable to dividends from Approved
Enterprises (15%), if the dividend is distributed during the tax exemption
period or within a specified period thereafter. (In the event, however, that
the company qualifies as a Foreign Investors&#146; Company, there is no such time
limitation). This tax must be withheld by the company at source, regardless of
whether the dividend is converted into foreign currency.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Subject to certain provisions concerning income subject to the
Alternative Route, all dividends are considered to be attributable to the
entire enterprise and the effective tax rate is the result of a weighted
combination of the various applicable tax rates.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Investment Law also provides that an Approved Enterprise is
entitled to accelerated depreciation on its property and equipment that are
included in an approved investment program. We have not utilized this benefit.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Grants and certain other incentives received by a company in accordance
with the Investment Law remain subject to final ratification by the Israel
Investment Center and final determination by the Israel Tax Authority. Such
ratification and determination are conditional upon fulfillment of all of the
terms of the approved program.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Law for the Encouragement
of Industrial Research and Development, 1984</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Under the Law for the Encouragement of Industrial Research and
Development (the &#147;Research Law&#148;), research and development programs approved by
the Research Committee (the &#147;Research Committee&#148;) of the Office of the Chief
Scientist (&#147;OCS&#148;) are eligible for grants or loans if they meet certain
criteria, in return for the payment of royalties from the sale of the product
developed in accordance with the program and subject to other restrictions.
Once a project is approved, the OCS will award grants of up to 50% of the
project&#146;s expenditures in return for royalties, usually at the rate of 2% to 5%
of sales of products developed with such grants, up to a dollar-linked amount
equal to 100% or 150% of such grants. For projects approved after January 1,
1999, the amount of royalties payable is up to a dollar-linked amount equal to
100% of such grants plus interest at LIBOR. There is no further liability for
payment.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">49</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The terms of these grants prohibit the manufacture outside of Israel
without the prior consent of the Research Committee of the OCS. Such approval,
if granted, is generally subject to an increase in the total amount to be
repaid to the OCS to between 120% and 300% of the amount granted, depending on the
extent of the manufacturing to be conducted outside of Israel. A recent
amendment to the Research Law has provided that the restriction on
manufacturing outside of Israel shall not apply to the extent that plans to so
manufacture were declared when applying for funding. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Research Law also provides that know-how from the research and
development, which is used to produce the product, may not be transferred to
Israeli third parties without the approval of the Research Committee, and may
not be transferred to non-Israeli third parties at all. A recent amendment to
the Research Law has stressed, that it is not just transfer of know-how that is
prohibited, but also transfer of any rights in such know-how. Such restriction
does not apply to exports from Israel of products developed with such
technologies. Approval of the transfer may be granted only if the transferee
undertakes to abide by all of the provisions of the Research Law and
regulations promulgated thereunder, including the restrictions on the transfer
of know-how and the obligation to pay royalties. </FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">There can be no assurance that such consent, if requested, will be
granted.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Tax Benefits and
Grants for Research and Development</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Israeli tax law allows, under certain conditions, a tax deduction in
the year incurred for expenditures (including capital expenditures) in
scientific research and development projects, if the expenditures are approved
by the relevant Israeli Government Ministry (determined by the field of
research) and the research and development is for the promotion of the
enterprise and is carried out by or on behalf of the company seeking such
deduction. Such expenditures not so approved are deductible over a three-year
period. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Law for the
Encouragement of Industry (Taxes), 1969</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Under the Law for the Encouragement of
Industry (Taxes), 1969 (the &#147;Industry Encouragement Law&#148;), Industrial Companies
(as defined below) are entitled to the following tax benefits:</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
of purchases of know-how and patents over eight years for tax purposes.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
right to elect, under specified conditions, to file a consolidated tax return
with other related Israeli Industrial Companies.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
of expenses incurred in connection with certain public securities issuances
over a three-year period.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax
exemption for shareholders who held shares before a public offering on capital
gains derived from the sale (as defined by law) of securities, if realized after
more than five years from the public issuance of additional securities of the
Company. (As of November 1994, this exemption was repealed, however, it applies
to some of our shareholders pursuant to a grand-fathering clause; the recent
tax reform repealed the grandfathered exemption for any gains accrued from
January 1, 2003.)</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">50</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accelerated
depreciation rates on equipment and buildings.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Eligibility for benefits under the Industry
Encouragement Law is not subject to receipt of prior approval from any
governmental authority. Under
the Industry Encouragement Law, an &#147;Industrial Company&#148; is defined as a company
resident in Israel, at least 90% of the income of which, in any tax year,
determined in Israeli currency, exclusive of income from government loans,
capital gains, interest and dividends, is derived from an &#147;Industrial
Enterprise&#148; owned by it. An
&#147;Industrial Enterprise&#148; is defined as an enterprise whose major activity in a
given tax year is industrial production activity.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We believe that we currently qualify as an Industrial
Company within the definition of the Industry Encouragement Law. No assurance
can be given that we will continue to qualify as an Industrial Company or that
the benefits described above will be available in the future.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Taxation under
Inflationary Conditions</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Income Tax Law (Inflationary Adjustments), 1985 (the &#147;Inflationary
Adjustments Law&#148;) represents an attempt to overcome the problems presented to a
traditional tax system by an economy undergoing rapid inflation. The
Inflationary Adjustments Law is characterized by a high degree of complexity
and its salient features can be described generally as follows:</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A special
tax adjustment for the preservation of equity whereby certain corporate assets
are classified broadly into Fixed (inflation resistant) Assets and Non-Fixed
(non-inflation resistant) Assets. Where a corporation&#146;s equity, as defined in
such law, exceeds the depreciated cost of Fixed Assets, a tax deduction which
takes into account the effect of the annual inflationary change on such excess
is allowed (up to a ceiling of 70% of taxable income in any single tax year,
with the unused portion permitted to be carried forward on a linked basis). If
the depreciated cost of Fixed Assets exceeds a corporation&#146;s equity, then such
excess multiplied by the annual inflation rate is added to taxable income.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
deductions on Fixed Assets and losses carried forward are adjusted for
inflation based on the increase in the Israeli Consumer Price Index.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains
from the sale of certain traded securities are fully taxable notwithstanding
the exemptions or reduced tax rates which might otherwise apply to those
securities.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">51</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Capital Gains Tax on
Sales of Our Ordinary Shares</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Until the end of the year 2002 and provided
we maintained our status as an industrial corporation, capital gains from the
sale of our securities were generally exempt from Israeli Capital Gains Tax.
This exemption did not apply to a shareholder whose taxable income is determined
pursuant to the Israeli Income Tax Law (Inflationary Adjustments) 1985, or to a
person whose gains from selling or otherwise disposing of our securities were
deemed to be business income.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">As a result of the recent tax reform
legislation in Israel, gains from the sale of our ordinary shares derived from
January 1, 2003 and on will in general be liable to capital gains tax of up to
15%. This will be the case so long as our securities remain listed for trading
on the NASDAQ or are listed on another designated foreign stock exchange or on
the Tel Aviv Stock Exchange. However, according to the tax reform legislation,
non-residents of Israel will be exempt from any capital gains tax from the sale
of our securities so long as the gains are not derived through a permanent
establishment that the non-resident maintains in Israel, and so long as our
securities remain listed for trading as described above. These provisions
dealing with capital gains are not applicable to a person whose gains from
selling or otherwise disposing of our securities are deemed to be business
income or whose taxable income is determined pursuant to the Israeli Income Tax
Law (Inflation Adjustments) 1985; the latter law would not normally be
applicable to non-resident shareholders who have no business activity in
Israel. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In any event, under the US-Israel Tax Treaty,
a US treaty resident may in general only be liable to Israeli capital gains tax
on the sale of our ordinary shares (subject to the provisions of Israeli
domestic law as described above) if that US treaty resident holds 10% or more
of the voting power in our company.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Taxation of
Non-Residents</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Non-residents of Israel are subject to income tax on income accrued or
derived from sources in Israel. Such sources of income include passive income
such as dividends, royalties and interest, as well as non-passive income from
services rendered in Israel. On distributions of dividends other than bonus
shares or stock dividends, income tax at the rate of 25% is withheld at source,
unless a different rate is provided in a treaty between Israel and the
shareholder&#146;s country of residence. Under the U.S.-Israel Tax Treaty, the
maximum tax on dividends paid to a holder of ordinary shares who is a U.S.
resident will be 25%; however, dividends generated by an Approved Enterprise as
defined in the Investment Law are taxed at the rate of 15%. Furthermore, dividends not generated by an
Approved Enterprise paid to a U.S. company holding 10% or more of our ordinary
shares for a certain period of time are taxed at a rate of 12.5%.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">52</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Passive Foreign
Investment Company Status under U.S. Federal Income Tax Law</I></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In general, a foreign corporation will be classified for U.S. tax
purposes as a passive foreign investment company (hereafter also referred to as
a &#147;PFIC&#148;) in any taxable year in which either (i) 75% or more of its gross
income (including the pro rata gross income of any company (U.S. or foreign) in
which it is considered to own 25% or more of the ordinary shares by value) for
the taxable year is passive income, or (ii) at least 50% of the average value
of all of its gross assets (including the pro rata fair market value of the
assets of any company in which it is considered to own 25% or more of the
ordinary shares by value) during the taxable year, calculated quarterly by
value, produce, or are held for the production of, passive income. Passive
income for these purposes includes items such as dividends, interest,
royalties, rents and gains from commodities and securities transactions.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>If we are classified as a passive foreign
investment company, highly complex rules will apply to our U.S. shareholders.
Accordingly, U.S. shareholders are urged to consult their tax advisors
regarding the application of such rules.</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">If a corporation is a passive foreign investment company, a U.S.
shareholder will be subject to one of three alternative taxing regimes:</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The simplest is the &#147;QEF&#148; regime. If the shareholder elects to treat
the PFIC as a &#147;qualified electing fund&#148; (&#147;QEF&#148;), then each year the shareholder
includes in its gross income a proportionate share of the PFIC&#146;s ordinary
income and net capital gain. A second regime may be elected if the PFIC stock
is &#147;marketable.&#148; The U.S. shareholder may elect to &#147;mark the stock to market&#148;
each year. At the end of each taxable year, the shareholder recognizes gain
equal to the excess of the fair market value of the PFIC stock over the
shareholder&#146;s tax basis in the stock. (Losses may also be recognized to the
extent of previously recognized gains.)</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">A U.S. shareholder making neither of these elections is subject to the
&#147;excess distribution&#148; regime. The tax is triggered when the shareholder
receives an &#147;excess distribution&#148; from the PFIC. An excess distribution is
either (1) a distribution with respect to stock that is greater than 125% of
the average of such distributions over the preceding three years, or (2) 100%
of the gain from the disposition of shares in the PFIC.<BR>An excess distribution is subject to special tax rules. In most cases,
only a portion of it is included in the gross income of the U.S. shareholder
and taxed at normal rates. The remainder is never so included, but is used as
the basis for calculating a &#147;deferred tax amount&#148;, which is simply added to the
shareholder&#146;s tax bill.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The deferred tax amount is computed as follows. The excess distribution
is first ratably allocated, share by share, to each day of the shareholder&#146;s
holding period. Portions allocated to the current year, and to any pre-PFIC
years (that is, years before 1987, when there were no PFICs, or years before
the first year in which the company was a PFIC with respect to that
shareholder), are included in ordinary income for the current year. Portions
allocated to prior PFIC years are hypothetically taxed at the highest marginal
rate in effect for those years (without regard to the shareholder&#146;s actual rate
or to any deductions or credits for those years). To this hypothetical tax is
added the interest that the shareholder would have paid if it were simply
paying that tax late for that year. The sum of the tax and the interest charge
is the deferred tax amount, which cannot be offset or otherwise affected by
current net operating losses or other deductions.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">53</FONT></P>


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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">A U.S. person who inherits shares in a foreign corporation that was a
PFIC in the hands of the decedent (who did not make either of the elections
described above), is denied the otherwise available step-up in the tax basis of
such shares to fair market value at the date of death. The U.S. person steps
into the shoes of the decedent and will be subject to the rules described
above.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Although a determination as to a corporation&#146;s PFIC status is made
annually, an initial determination that a corporation is a PFIC for any taxable
year generally will cause the above-described consequences to apply for all future
years as to U.S. shareholders who held shares in the corporation at any time
during the PFIC taxable year and who made neither a valid QEF election with
respect to such shares nor a valid election to mark such shares to market. This
will be true even if the corporation loses its PFIC status in later years.
However, with respect to a PFIC that does not make any distributions or deemed
distributions, the above tax treatment would apply only to gains realized on
the disposition of such shares by a U.S. shareholder.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">If we are classified as a PFIC, complicated rules will apply to our
U.S. shareholders. Our status in future years will depend on our assets and
activities in those years, although shareholders will be treated as continuing
to own an interest in a passive foreign investment company if we are a passive
foreign investment company in any year in which a shareholder owns our shares,
unless certain elections are made.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">This discussion does not address all aspects of U.S. federal income
taxation that may be relevant to a U.S. shareholder in light of his or her
particular circumstances or to a U.S. shareholder subject to special treatment
under U.S. federal income tax law. U.S. shareholders are urged to consult their
tax advisors about the U.S. federal income taxation rules to which they will be
subject, as well as the PFIC rules, including the advisability, procedure and
timing of making a mark-to-market election, in connection with their holding of
our shares, including warrants or rights to acquire our shares. </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><I>Tax Assessment</I></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd. received final tax assessments for all years up to and
including the tax year ended December 31st, 2000. Our U.S. subsidiary, Silicom
Connectivity Solutions, Inc., has not yet been assessed for tax purposes since
incorporation in 1993.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Documents on Display</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We are required to file reports and other information with the
Securities and Exchange Commission (the &#147;SEC&#148;) under the Securities Exchange
Act of 1934 (the &#147;Exchange Act&#148;) and the regulations thereunder applicable to
foreign private issuers. As a foreign private issuer we are not required to
file periodic information as frequently or as promptly as United States
companies. We are also exempt from the rules under the Exchange Act prescribing
the furnishing and content of proxy statements and our officers, directors and
principal shareholders are exempt from the reporting and other provisions in
Section 16 of the Exchange Act.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">54</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">You may review a copy of our filings with the SEC, including any
exhibits and schedules, at the SEC&#146;s public reference facilities in Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies
of such materials from the Public Reference Section of the SEC, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. You may call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. In addition, such information concerning our company
can be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850 and
at the offices of the Israel Securities Authority at 22 Kanfei Nesharim St.,
Jerusalem, Israel. As a foreign private issuer, all documents which were filed
after November 4, 2002 on the SEC&#146;s EDGAR system will be available for
retrieval on the SEC&#146;s website at www.sec.gov. You may read and copy any
reports, statements or other information that we file with the SEC at the SEC
facilities listed above. These SEC filings are also available to the public
from commercial document retrieval services.The documents referred to in this document
may be inspected at the Company&#146;s offices, located at 8 Hanagar Street, Kfar
Sava, Israel 44000.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 11.&#160;
<U>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</U></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Market risk represents the risk of changes in the value of a financial
instrument caused by fluctuations in interest rates, equity prices and foreign
exchange rates.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Interest Rate Risk </B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">At December 31, 2003 we did not have any short or long term interest
bearing loans or debts, hence there was no exposure to interest rate risk.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Equity Price Risk</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">At December 31, 2003 we did not have any marketable securities which
were recorded at a fair value, hence there was no exposure to equity price
risk.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Foreign Currency Exchange Risk</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">At December 31, 2003 we had cash and cash equivalents in New Israeli
Shekels (NIS) or in funds linked thereto in the amount of $81,000 (out of
$1,811,000 cash and cash equivalents that we had in total). Market risk was
estimated as the potential decrease in fair value resulting from a hypothetical
10% increase in the year-end Dollar exchange rate. Assuming such increase in
the Dollar exchange rate, the fair value of our cash and cash equivalents would
decrease immaterially by $7,000<B>.</B>
At December 31, 2003 we had accounts receivable in New Israeli Shekels (NIS) or
in funds linked thereto in the amount of $260,000. Market risk was estimated as
the potential decrease in fair value resulting from a hypothetical 10% increase
in the year-end Dollar exchange rate. Assuming such increase in the Dollar
exchange rate, the fair value of our accounts receivable would decrease by
$24,000. At December 31, 2003 we had accounts payable in New Israeli Shekels
(NIS) or in funds linked thereto in the amount of $1,191,000. Market risk was
estimated as the potential increase in fair value resulting from a hypothetical
10% decrease in the year-end Dollar exchange rate. Assuming such decrease in
the Dollar exchange rate, the fair value of our accounts payable would increase
by $133,000.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">55</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In 2003 there was a decrease of 7.60% in the Dollar exchange rate which
resulted in an aggregate increase in the fair value of our assets of $12,000
and an aggregate increase in the fair value of our liabilities of $69,000.&#160; </FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">As at December 31, 2003 we were not engaged in any hedging transactions.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 12.&#160;
<U>DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</U></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Not applicable.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>PART II.</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 13.&#160;
<U>DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</U></B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">None.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 14.&#160;
<U>MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS</U></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">None.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 15.&#160;
</B><B><U>CONTROLS AND PROCEDURES</U> </B></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have performed an evaluation of
the effectiveness of our disclosure controls and procedures that are designed to ensure
that the material financial and non-financial information required to be disclosed on Form
20-F and filed with the Securities and Exchange Commission is recorded, processed,
summarized and reported timely. Based on our evaluation, our management, including our
chief executive officer and chief financial officer, has concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this report are
effective. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>There have been no significant
changes in our internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation thereof. Therefore, no corrective
actions with regard to significant deficiencies and material weaknesses were taken. </FONT></P>



<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">56</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 16.&#160;
Reserved</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 16A. Audit committee financial expert.</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our board of directors has determined that Ms. Einat Domb-Har is our
audit committee financial expert.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 16B. Code of Ethics.</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Our company has recently adopted a code of ethics, which applies to all
of our employees, officers and directors, including our chief executive
officer, our chief financial officer and our principal accountant. A copy of
the code of ethics will provided to any person upon request.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 16C. Principal Accountant Fees and
Services.</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The following table presents fees for professional audit services
rendered by Somekh Chaikin for the audit of the Company&#146;s consolidated annual
financial statements for the years ended December&nbsp;31, 2003 and 2002, and
fees billed for other services rendered by Somekh Chaikin.</FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=300>
 <TR>
  <TD WIDTH="61%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="12%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="13%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1   FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="61%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="61%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Audit Fees(1)</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$&nbsp;</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">18,000</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$&nbsp;</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">23,000</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="61%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Audit-Related
  Fees(2)</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="61%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Tax Fees(3)</FONT></P>  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,000</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P>  </TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">2,000</FONT></P>  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
</TABLE>




<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1)</FONT></P>
  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Audit fees
  consist of fees for professional services rendered for the audit of the
  Company&#146;s consolidated financial statements and review of financial
  statements included in the Company&#146;s quarterly reports and services normally
  provided by the independent auditor in connection with statutory and
  regulatory filings or engagements. </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(2)</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Audit-related
  fees are fees principally for professional services. </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(3)</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Tax services
  fees consist of compliance fees for the preparation of original and amended
  tax returns, claims for refunds and tax payment-planning services for tax
  compliance, tax planning and tax advice. Tax service fees also include fees
  relating to other tax advices, tax consulting and planning other than for tax
  compliance and preparation.</FONT></P>  </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">57</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 16D. Exemptions from the Listing
Standards for Audit Committees.</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">As a foreign private issuer we remain exempt, until July 31, 2005, from
NASDAQ audit committee related listing standards that have come into effect
following December 13, 1999.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 16E. Purchases of Equity Securities by
the Issuer and Affiliated Purchasers</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Not applicable.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>PART III.</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 17.&#160;
<U>FINANCIAL STATEMENTS.</U></B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Not applicable</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 18.&#160;
FINANCIAL STATEMENTS&#160; </B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">See pages F-1 to F- 30</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">58</FONT></P>

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<PAGE>



<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Item 19.&#160;
<U>EXHIBITS</U></B></FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Articles of
  Association, adopted on February 1, 1994, filed by us as an Exhibit to our
  annual report on Form 20-F for the fiscal year ended December 31, 2000, as
  filed with the Securities and Exchange Commission on June 30, 2001, and
  incorporated herein by reference (other than Article 122). Article 122 of our
  Articles of Association was amended on January 7, 2004. The current Article
  122 is attached as an exhibit hereto.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">4.1.</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Lease
  between the Company and Yaakov Metzkin and Dov Segev, for premises in Kfar
  Sava, Israel, dated November 1, 1994, and amendment dated March 17, 2002,
  filed by us as an Exhibit to our annual report on Form 20-F for the fiscal
  year ended December 31, 2001, as filed with the Securities and Exchange
  Commission on June 27, 2002, and incorporated herein by reference. As this
  lease and the amendment are written in Hebrew, a summary of each was included
  in the Exhibit.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">4.2</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Lease
  between the Company and Ground A.S. Ltd., for manufacturing facility in
  Yokneam, Israel, dated June 27, 2000. As this lease is written in Hebrew, a
  summary was filed by us as an Exhibit to our annual report on Form 20-F for
  the fiscal year ended December 31, 2000, as filed with the Securities and
  Exchange Commission on June 30, 2001. It is incorporated herein by reference.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">4.3</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Lease
  between Silicom Connectivity Solutions, Inc. and RAD Data Communications
  Inc., for space in Mahwah, New Jersey, dated as of September 1, 1997, filed
  by us as an Exhibit to our annual report on Form 20-F for the fiscal year
  ended December 31, 2000, as filed with the Securities and Exchange Commission
  on June 30, 2001, and incorporated herein by reference.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">4.4</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Sublease
  Agreement between Silicom Connectivity Solutions, Inc. and Radcom Equipmet,
  Inc., for space in Paramus, New Jersey, dated as of February 1, 2004.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">8.</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">List of
  subsidiaries, filed by us as an Exhibit to our annual report on Form 20-F for
  the fiscal year ended December 31, 2000, as filed with the Securities and
  Exchange Commission on June 30, 2001, and incorporated herein by reference.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">12.1</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Certification by Chief Executive Officer pursuant to section 302 of
  the Sarbanes-Oxley Act of 2002.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">12.2</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Certification by Chief Financial Officer pursuant to section 302 of
  the Sarbanes-Oxley Act of 2002.</FONT></P>  </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">59</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">13.1</FONT></P>
  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Certification
  by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
  of 2002.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">13.2</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Certification
  by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
  of 2002.</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2   FACE="TIMES NEW ROMAN">14.1</FONT></P>  </TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Opinion of
  McGladrey &amp; Pullen, LLP, dated January 6, 2003, on the financial
  statements of Silicom Connectivity Solutions, Inc., for the two years ended
  December 31, 2001 and 2002.</FONT></P>  </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">60</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>SIGNATURES</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to
the requirements of Section 12 of the Securities Exchange Act of 1934, the
Registrant certifies that it meets all of the requirements for filing on Form
20-F and has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kfar Sava, State of
Israel, on the 30<SUP>th</SUP> day of June, 2004.</FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="25%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>SILICOM LIMITED</B></FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="25%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">By: </FONT></P>  </TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">/s/ Shaike
  Orbach</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Shaike
  Orbach</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Chief
  Executive Officer</FONT></P>  </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">61</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Silicom Ltd.</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Financial Statements</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>December 31, 2003</B></FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Consolidated Financial Statements as of December 31, 2003</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Contents</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Page</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B><A HREF="#A001">Report of Independent Auditors</A></B></FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">2</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Consolidated Financial Statements:</B></FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><A HREF="#A002">Consolidated Balance Sheets</A></FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">3</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><A HREF="#A003">Consolidated Statements of Income</A></FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">4</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><A HREF="#A004">Consolidated Statements of Changes in Shareholders&#146; Equity</A></FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">5</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><A HREF="#A005">Consolidated Statements of Cash Flows</A></FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">6</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="94%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><A HREF="#A006">Notes to
  Consolidated Financial Statements</A></FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">7</FONT></P></TD>
 </TR>
</TABLE>

<BR>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P ALIGN=CENTER><A NAME=A001></A><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Report of
Independent Public Accounting Firm<BR>
To the Board of Directors and Shareholders of Silicom Ltd. and its Subsidiary</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We have audited the accompanying consolidated balance sheets of Silicom
Ltd. (&#147;Silicom&#148;) and its subsidiary as of December 31, 2003 and 2002 and the
related consolidated statements of income, changes in shareholders&#146; equity and
cash flows for each of the years in the three-year period ended December 31,
2003.&#160; These consolidated financial
statements are the responsibility of Silicom&#146;s board of directors and
management.&#160; Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We did not audit the financial statements of a consolidated subsidiary
whose assets constitute approximately 8.6% of total consolidated assets at
December 31, 2002, and whose revenues constitute approximately 63.9% and 43.7%
of total consolidated revenues for the years ended December 31, 2002 and 2001,
respectively. Those financial statements were audited by other auditors whose
reports thereon have been furnished to us and our opinion expressed herein,
insofar as it relates to the amounts included for the abovementioned
subsidiary, is based solely upon the reports of the other auditors.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States).&#160; Those standards require that we plan and perform the audit to
obtain reasonable assurance that the financial statements are free of material
misstatement.&#160; An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.&#160; An audit also
includes assessing the accounting principles used and significant estimates
made by the board of directors and management, as well as evaluating the
overall financial statements presentation.&#160;
We believe that our audits and the report of the other auditors provide
a reasonable basis for our opinion.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In our opinion, based upon our audits and the report of the other
auditors, the aforementioned consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial position
of Silicom and its subsidiary as of December 31, 2003 and 2002 and the
consolidated results of their operations, and their cash flows for each of the
years in the three-year period ended December 31, 2003, in conformity with
generally accepted accounting principles in the United States of America.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Somekh Chaikin<BR>
Certified Public Accountants (Isr.)<BR>
A member of KPMG International</FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Tel Aviv, Israel, January 26, 2004</FONT></P>

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<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Consolidated Balance Sheets at December 31<A NAME=A002></A></B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Note</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars<BR>
  in&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars<BR>
  in&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Assets</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">11E</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Current assets</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Cash and
  cash equivalents</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2D; 3</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,811</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">861</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Investment securities</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2E; 4</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>767</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">3,799</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Receivables:</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Trade</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2F;
  11A</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>628</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">504</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Other</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">11B</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>290</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">277</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Inventories</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2G; 11C</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,225</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,221</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total
  current assets</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>4,721</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">6,662</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Investment securities</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2E; 4</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>549</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Assets held for severance benefits</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2H 6</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>504</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">408</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Property, plant and equipment</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2I; 5</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Cost</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,574</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,411</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Less -
  accumulated depreciation</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,297</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,154</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net property
  and equipment</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>277</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">257</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Other assets</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2J; 7</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>67</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">77</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Total assets</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>6,118</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">7,404</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH=241 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">By /s/ Avi Eizenman</FONT></P></TD>
  <TD WIDTH=23 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH=226 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">By /s/ Shaike Orbach</FONT></P></TD>
  <TD WIDTH=23 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH=208 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">By /s/ Ilan Erez</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH=241 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH=23 VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH=226 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH=23 VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH=208 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
 </TR>
 <TR>
  <TD WIDTH=241 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">Avi Eizenman<BR>
  Chairman of the Board of Directors</FONT></P></TD>
  <TD WIDTH=23 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH=226 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">Shaike Orbach<BR>
  Chief Executive Officer</FONT></P></TD>
  <TD WIDTH=23 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH=208 VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">Ilan Erez<BR>
  Chief Financial Officer</FONT></P></TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Kfar-Saba, Israel:&#160; January 26,
2004</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Note</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars<BR>
  in&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars<BR>
  in&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Liabilities and shareholders&#146; equity</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">11E</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Current liabilities</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Trade
  accounts payable</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>558</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">561</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Other
  accounts payable and accrued expenses</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">11D</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>488</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">415</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total
  current liabilities</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,046</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">976</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Long-term liability</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Liability
  for employees severance benefits</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">6</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>895</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">743</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total
  liabilities</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,941</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,719</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Commitments and contingencies</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">8</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Shareholders&#146; equity</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">9</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Ordinary
  shares, NIS 0.001 par value;<BR>
  &nbsp;&nbsp;authorized 10,000,000 shares;<BR>
  &nbsp;&nbsp;issued and outstanding 4,126,800 shares as of<BR>
  &nbsp;&nbsp;December 31, 2003 and 4,125,300 as of December 31, 2002</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>14</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">14</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Additional
  paid in capital</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>5,537</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">5,536</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Treasury
  shares (at cost) - 14,971 ordinary shares as at<BR>
  &nbsp;&nbsp;December 31, 2003 and 2002</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2O</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(38</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(38</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Retained
  earnings (deficit)</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">9C</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,336</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">173</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total
  shareholders&#146; equity</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>4,177</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">5,685</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Total liabilities and shareholders&#146; equity</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>6,118</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">7,404</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The accompanying notes are an integral part of the consolidated
financial statements.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-3</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Consolidated Statements of Income for the Year Ended December 31,<A   NAME=A003></A></B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Note</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="39%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.&nbsp;dollars&nbsp;in&nbsp;thousands<BR>
  except for per share data</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="39%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Sales</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2K; 12A</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>3,725</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2,726</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">4,530</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cost of sales</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">12B</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>2,160</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2,091</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">3,635</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Gross profit</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,565</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">635</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">895</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Research and development costs</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2L; 12C</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Total costs</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,647</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,523</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,333</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Less:
  royalty-bearing participations, net</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2M; 8A</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(150</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">15</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(469</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Research and
  development costs, net</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,497</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,538</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">864</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Selling, marketing, general and<BR>
  &nbsp;&nbsp;administrative expenses</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Selling and
  marketing expenses</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">12D</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,006</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,022</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,113</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">General and
  administrative expenses</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>598</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">712</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">625</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,604</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,734</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,738</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Operating loss</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,536</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(2,637</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,707</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Financial income, net</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">12E</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>27</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">152</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">254</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Loss before taxes on income</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,453</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Taxes on income</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2P; 10</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">33</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Net loss for the year</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,486</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Loss per share</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2S; 9D</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Basic and
  diluted losses per ordinary share</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(0.367</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(0.605</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(0.362</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Weighted
  average number of ordinary<BR>
  &nbsp;&nbsp;shares used to compute basic and diluted<BR>
  &nbsp;&nbsp;losses per share (in thousands)</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>4,112</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">4,110</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">4,110</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="42%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The accompanying notes are an integral part of the financial
statements.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-4</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Statements of Changes in Shareholders&#146; Equity<A NAME=A004></A></B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="600">
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Ordinary<BR>
  shares</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Share<BR>
  capital</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Additional<BR>
  paid-in<BR>
  capital</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Cost of<BR>
  Silicom<BR>
  shares held<BR>
  by its<BR>
  subsidiary**</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Retained<BR>
  earnings*</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Total</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Numbers**</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="56%" COLSPAN="14" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="56%" COLSPAN="14" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Balance at<BR>
  &nbsp;&nbsp;January 1, 2001</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">4,110,329</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">14</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">5,536</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(38</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">4,144</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">9,656</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Changes during 2001:</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Net
  loss for the year</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,486</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,486</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Balance at<BR>
  &nbsp;&nbsp;December 31, 2001</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">4,110,329</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">14</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">5,536</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(38</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2,658</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">8,170</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Changes during 2002:</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net loss for
  the year</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Balance at<BR>
  &nbsp;&nbsp;December 31, 2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">4,110,329</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">14</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">5,536</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(38</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">173</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">5,685</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Changes during 2003:</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Ordinary
  shares issued<BR>
  &nbsp;&nbsp;in connection with the<BR>
  &nbsp;&nbsp;exercise of stock<BR>
  &nbsp;&nbsp;options</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,500</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net loss for
  the year</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Balance at<BR>
  &nbsp;&nbsp;December 31, 2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>4,111,829</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>14</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>5,537</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(38</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,336</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>4,177</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="26%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">*</FONT></P>
  </TD>
  <TD WIDTH="94%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">See Note 9C.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">**</FONT></P></TD>
  <TD WIDTH="94%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net of
  14,971 shares held by subsidiary.</FONT></P></TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The accompanying notes are an integral part of the financial statements.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-5</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Statements of Cash Flows for the Year Ended December 31,<A NAME=A005></A></B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars<BR>
  in&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars<BR>
  in&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars<BR>
  in&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cash flows from operating activities</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net loss</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,486</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Adjustments
  to reconcile net income to net cash<BR>
  &nbsp;&nbsp;provided by operating activities:</U></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Depreciation
  and amortization of property, plant and<BR>
  &nbsp;&nbsp;Equipment</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>153</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">200</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">147</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Severance,
  net</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>56</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(32</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Amortization
  of discounts or premium of<BR>
  &nbsp;&nbsp;investment security and interest</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(43</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(165</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(29</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Changes in
  operating assets and liabilities</U></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Decrease
  (increase) in trade receivables</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(124</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">728</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,089</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Decrease
  (increase) in other receivables</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(13</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">78</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">184</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Decrease
  (increase) in inventories</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(4</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">504</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,152</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Increase
  (decrease) in trade payables and accruals</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(3</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">251</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(819</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Increase
  (decrease) in other payables and accruals</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>73</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(35</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(233</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net cash
  provided by (used in) operating activities</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,414</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(956</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">7</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cash flows from investing activities</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Acquisition
  of property and equipment</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(163</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(78</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(90</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Acquisition of other assets</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(150</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Proceeds from maturity of investment securities and deposits</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>8,382</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,345</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">3,009</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Purchase of
  investment securities and deposits</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(5,856</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,216</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(3,139</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net cash
  provided by (used in) investing activities</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>2,363</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(99</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(220</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cash flows from financing activities</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Issuance of
  ordinary shares in connection with the<BR>
  &nbsp;&nbsp;exercise of stock options</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net cash
  provided by financing activities</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Net increase (decrease) in cash and cash equivalents</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>950</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,055</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(213</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cash and cash equivalents at beginning of year</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>861</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,916</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2,129</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cash and cash equivalents at end of year</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,811</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">861</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,916</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Supplementary disclosure of cash flow information:</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Cash
  paid during the year for:</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Financing
  expenses</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>17</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">13</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">13</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Taxes on
  income</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>17</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">23</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">19</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="56%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The accompanying notes are an integral part of the financial
statements.</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-6</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>
<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><A NAME=A006></A><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 1 -
General</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd.
  (&#147;Silicom&#148;) is an Israeli corporation engaged in designing, manufacturing,
  marketing and supporting communications connectivity solutions and enabling
  technologies for manufacturers of storage systems, internet traffic
  management systems, security systems and other manufacturers providing a
  variety of server-based systems.&#160; It
  also offers an extensive range of connectivity solutions for broadband
  Internet access, Multi Tenant Unit (MTU), home networking, and other hardware
  manufacturers.&#160; Silicom&#146;s products and
  technologies combine hardware and software.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom
  markets its products directly, through (i) its US-based subsidiary, (ii) a
  worldwide network of independent distributors and (iii) OEMs which sell the
  Company&#146;s connectivity products under their own private labels or incorporate
  the Company&#146;s products into their products.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Most of the
  Company&#146;s raw materials are readily available, but certain key components are
  currently available from only one source, and others are available from a
  limited number of sources.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In these
  financial statements the term &#147;Company&#148; refers to the Silicom Ltd. and its
  wholly owned subsidiary, Silicom Connectivity Solutions, Inc. whereas the
  term &#147;subsidiary&#148; refers to Silicom Connectivity Solutions, Inc., a wholly
  owned subsidiary of Silicom Ltd., that is engaged in marketing the products
  of Silicom Ltd. in North America.</FONT></P></TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 2 - Significant Accounting Policies</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  significant accounting policies, applied on a consistent basis, are as
  follows:</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Financial statements in U.S. dollars</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Substantially
  all sales of the Company are made outside of Israel (see note 12A regarding
  geographical destination), in U.S. dollars (&#147;dollars&#148;).&#160; Most purchases of materials and supplies
  and marketing costs are made or incurred outside Israel, primarily in
  dollars.&#160; Thus, the functional
  currency of the Company is the dollar.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Transactions
  and balances in other currencies are remeasured into dollars in accordance
  with the principles set forth in Statement No. 52 of the Financial Accounting
  Standards Board of the United States (&#147;FASB&#148;).</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">All exchange
  gains and losses from remeasurement of monetary balance sheet items
  denominated in non-dollar currencies are reflected in the statement of income
  (loss) when they arise.</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-7</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<BR>


<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 2 -
Significant Accounting Policies (cont&#146;d)</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Principles of consolidation</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  consolidated financial statements include the accounts of Silicom Ltd. and
  its wholly owned subsidiary.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">All
  significant intercompany balances and transactions have been eliminated in
  consolidation.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>C.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Use of estimates in the preparation of financial statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Management
  of the Company has made a number of estimates and assumptions relating to the
  reporting of assets and liabilities and the disclosure of contingent assets
  and liabilities and prepared these financial statements in conformity with
  generally accepted accounting principles.&#160;
  Actual results could differ from those estimates.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>D.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cash and cash equivalents</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  considers all highly liquid debt instruments with original maturities of
  three months or less at date of purchase, to be cash equivalents.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>E.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Investment securities</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Investments
  which the Company has the intent and ability to hold to maturity are
  classified as held-to-maturity investments as defined in Statement of
  Financial Standards No. 115 &#147;Accounting for Certain Investments in Debt and
  Equity Securities&#148; and are recorded at amortized cost adjusted for the
  amortization or accretion of premiums or discounts.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">A decline in
  the market value of any held-to-maturity security below cost, that is deemed
  to be other than temporary, results in a reduction in carrying amount to fair
  value.&#160; The impairment is charged to
  the statement of income and a new carrying basis is established.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Interest
  income is accrued as earned.&#160; Premiums
  and discounts are amortized over the life of the related held-to-maturity
  security as an adjustment to yield using the effective interest method.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>F.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Trade receivables</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Accounts
  receivable are recorded at cost, less the related allowance for doubtful
  accounts receivable.&#160; Management
  considers current information and events regarding the customers&#146; ability to
  repay their obligation and judges accounts receivable to be impaired when it
  is probably that the Company will be unable to collect all amounts due.</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-8</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>



<BR>


<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 2 -
Significant Accounting Policies (cont&#146;d)</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>G.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Inventories</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Inventories
  are stated at the lower of cost or market.&#160;
  Cost is determined using the &#147;first-in, first-out&#148; method for raw
  materials.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The cost of
  the work in process and finished goods is determined based on the allocation
  of labor and overhead, which are allocated on the basis of raw materials
  consumption.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  writes down obsolete or slow moving inventory to its lower of cost or market.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>H.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Assets held for severance benefits</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Assets held
  for employee severance benefits represent contributions to severance pay
  funds and cash surrender life insurance policies that are recorded at their
  current redemption value.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>I.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Property plant and equipment</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Property
  plant and equipment are stated at cost.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Depreciation
  is calculated on the straight-line method on the basis over the estimated
  useful life of the assets.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Annual rates
  of depreciation are as follows:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>%</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Research and
  development equipment, having alternative<BR>
  &nbsp;&nbsp;future use</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">20-33</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Manufacturing
  equipment</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">20-33</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Motor
  vehicles</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">15</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Office
  furniture and equipment</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">6-20</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Leasehold
  improvements</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><SUP>(*)</SUP></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="76%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><SUP>(*)</SUP></FONT></P></TD>
  <TD WIDTH="86%" COLSPAN="5" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Leasehold
  improvements are amortized by the straight-line method over the term of the
  lease or the estimated useful life of the improvements, whichever is shorter.</FONT></P></TD>
 </TR>
 <TR>

  <TD WIDTH=74></TD>
  <TD WIDTH=25></TD>
  <TD WIDTH=525></TD>
  <TD WIDTH=22></TD>
  <TD WIDTH=7></TD>
  <TD WIDTH=51></TD>
  <TD WIDTH=17></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-9</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>


<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 2 -
Significant Accounting Policies (cont&#146;d)</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>J.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Other assets</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Other assets
  consist of patents.&#160; The cost of
  patents is amortized by the straight-line method over the estimated useful
  lives of the respective assets.&#160; The
  remaining weighted average life of patents at December 31, 2003 is eight
  years.&#160; </FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  reviews its other assets for impairment whenever events or circumstances
  indicate that the carrying amount of an asset may not be recoverable. If the
  sum of expected cash flows, undiscounted and without interest is less than
  the carrying amount of asset, an impairment loss is recognized as the amount
  by which the carrying amount of the asset exceeds its fair value.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>K.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Revenue recognition</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  recognizes revenue on sales when products are shipped, the collectibility of
  debts is probable and the customer takes ownership and assumes risk of
  loss.&#160; </FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>L.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Research and development costs</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Research and
  development costs are expensed as incurred.&#160;
  </FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>M.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Royalty bearing participations</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Royalty
  bearing participations from the Government of Israel for funding research and
  development activities are recognized at the time the Company is entitled to
  such grants based on the related cost incurred.&#160; See Note 8A.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>N.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Service warranty</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  grants service warranties related to certain products to end-users.&#160; The Company estimates its obligation for
  such warranties to be immaterial on the basis of historical experience.&#160; Accordingly, these financial statements do
  not include an accrual for the subject warranty obligations.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>O.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Treasury shares</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Treasury
  shares are recorded at cost and presented as a reduction of shareholders&#146;
  equity.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>P.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Taxes on income</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  accounts for income taxes in accordance with Statement of Financial
  Accounting Standards No. 109 &#147;Accounting for Income Taxes&#148;.&#160; The statement prescribes the use of the
  liability method whereby deferred tax assets and liability account balances
  are determined based on differences between financial reporting and tax bases
  of assets and liabilities and are measured using the enacted tax rates and
  laws that will be in effect when the differences are expected to reverse. See
  also Note 10G.</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-10</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>


<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 2 - Significant Accounting Policies (cont&#146;d)</B></FONT></P>





<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Q.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Stock option plans</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  applies the intrinsic value-based method of accounting prescribed by
  Accounting Principles Board (&#147;APB&#148;) Opinion No. 25 &#147;Accounting for Stock
  Issued to Employees&#148;, and related interpretations including FASB
  Interpretation No.44 &#147;Accounting for certain transactions involving stock
  compensation an interpretation of APB Opinion No. 25&#148; issued in March 2000,
  to account for its fixed plan stock options.&#160;
  Under this method, compensation expense is recorded on the date of
  grant only if the current market price of the underlying stock exceeded the
  exercise price.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  applies SFAS No. 123 with respect to options issued to persons other than
  employees.&#160; SFAS No. 123, &#147;Accounting
  for Stock-Based Compensation,&#148; established accounting and disclosure
  requirements using a fair value-based method of accounting for stock-based
  employee compensation plans.&#160; As
  allowed by SFAS No. 123, the Company has elected to continue to apply the
  intrinsic value-based method of accounting for grants to employees as
  described above, and has adopted the disclosure requirements of SFAS
  No.&nbsp;123.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Pro forma
  information regarding net income and earnings per share is required by SFAS
  123, and has been determined as if the Company had accounted for its employee
  stock options under the fair value method of this statement.&#160; </FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Had
  compensation expense for stock option grants issued been determined under the
  fair value method of SFAS No. 123, the Company&#146;s net loss and loss per share
  for the fiscal years ended December 31, 2002 and 2001 would have been:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net loss</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">As reported</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,486</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">US dollars
  in thousands</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">Pro forma</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,641</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(2,543</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,950</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Basic and
  diluted losses per share</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">As reported</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(0.367</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.605</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.362</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">US dollars</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">Pro forma</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(0.399</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.619</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.474</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Compensation
  cost</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">As reported</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">U.S. dollars
  in thousands</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">Pro forma</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(132</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(58</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(464</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>R.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Impairment or
  disposal of long-lived assets</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  accounts for long-lived assets in accordance with the provisions of SFAS No.
  144, &#147;Accounting for the Impairment or Disposal of Long-Lived Assets&#148;.&#160; This Statement requires that long-lived
  assets be reviewed for impairment whenever events or changes in circumstances
  indicate that the carrying amount of an asset may not be recoverable.&#160; Recoverability of assets to be held and
  used is measured by a comparison of the carrying amount of an asset to future
  net cash flows expected to be generated by the asset.&#160; If the carrying amount of an asset exceeds
  its estimated future cash flows, an impairment charge is recognized by the
  amount by which the carrying amount of the asset exceeds the fair value of
  the asset.&#160; Assets to be disposed of
  are reported at the lower of the carrying amount or fair value less costs to
  sell.</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-11</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>


<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 2 - Significant Accounting Policies (cont&#146;d)</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>S.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Earnings per share (EPS)</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Basic
  earnings (loss) per ordinary shares (&#147;EPS&#148;) are calculated by dividing net
  income (loss) available to ordinary shareholders by the weighted average
  number of ordinary shares outstanding during the period according to SFAS 128
  &#147;Earnings per Share&#148;.&#160; The computation
  of diluted EPS assumes the issuance of ordinary shares for all
  dilutive-potential ordinary shares outstanding during the reporting period.&#160; The dilutive effect of stock options is
  considered in earnings per ordinary share calculations, if dilutive, using
  the treasury stock method.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>T.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Goodwill and other intangible assets</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  has adopted SFAS No. 142, <I>Goodwill and
  Other Intangible Assets </I>(hereinafter SFAS 142), issued in July
  2002.&#160; According to SFAS No. 142,
  goodwill and intangible assets that have indefinite useful lives will not be
  subject to amortization, but rather will be tested at least annually for
  impairment.&#160; In addition, the Standard
  provides specific guidance on how to determine and measure goodwill
  impairment.&#160; Intangible assets that
  have finite useful lives will continue to be amortized over their useful
  lives, but without the constraint of an arbitrary ceiling (as was set before
  by APB Opinion No. 17, Intangible Assets).&#160;
  SFAS No. 142 requires additional disclosures including information
  about carrying amounts of goodwill and other intangible assets, and estimates
  as to future intangibles asset amortization expense.</FONT></P></TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 3 -
Cash and Cash Equivalent</B></FONT></P>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>December
  31<BR>
  2003</B></FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>December
  31<BR>
  2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>US$ in
  thousands</B></FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>US$ in
  thousands</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Cash</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>266</B></FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">407</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Cash
  equivalent*</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>1,545</B></FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">454</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>**1,811</B></FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">**861</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">*</FONT></P></TD>
  <TD WIDTH="86%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Cash
  deposits in bank as at December 31, 2003 carrying interest of 0.63% - 5.06%.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">**</FONT></P></TD>
  <TD WIDTH="86%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">See Note 8C.</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-12</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>


<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 4 -
Investment Securities</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  amortized cost, gross unrealized holding losses and fair value of
  held-to-maturity securities at December 31, 2003 and 2002, were as follows:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Amortized
  cost</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Gross<BR>
  unrealized<BR>
  holding losses</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Fair value</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="37%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="37%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="37%" COLSPAN="5" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>At December 31, 2003</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Corporate
  debt securities and certificates of deposits</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>1,316</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>(20</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>1,296</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>At December 31, 2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="47%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Corporate
  debt securities and certificates of deposits</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,799</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(64</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">3,735</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Maturities
  of debt securities classified as held-to-maturity and certificates of
  deposits were as follows at December 31, 2003:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Amortized
  cost</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Fair value</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="26%" COLSPAN="7" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>
  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER></TD>
  <TD WIDTH="9%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Investment
  securities due within one year</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>767</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>762</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Investment
  securities due within two years</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>549</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>534</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Proceeds
  from redemption of investment securities held-to-maturity are $ 4,676
  thousand, $1,345 thousand and $ 2,359 thousand in fiscal years 2003, 2002 and
  2001, respectively.</FONT></P></TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 5 - Property
Plant and Equipment</B></FONT></P>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Cost</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>Accumulated depreciation<BR>
  and amortization</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>December 31</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.$ in thousands</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S $ in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="21%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Research and
  development<BR>
  &nbsp;&nbsp;equipment</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>1,013</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">857</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>799</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">679</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Manufacturing
  equipment</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>109</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">109</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>106</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">105</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Motor
  vehicles</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>46</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">46</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>40</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">33</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Office
  furniture and equipment</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>255</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">248</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>202</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">191</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Leasehold
  improvements</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>151</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">151</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>150</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">146</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>1,574</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,411</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>1,297</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1,154</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="35%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Depreciation
  expense amounted to $ 145, $ 137 and $ 147 thousand for the years ended
  December 31, 2003, 2002 and 2001 respectively.</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-13</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>




<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 6 -
Assets Held for Severance Benefits</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Under
  Israeli law and labor agreements, Silicom is required to make severance
  payments to dismissed employees and employees leaving employment in certain
  other circumstances. Silicom&#146;s severance pay liability to its employees,
  based upon length of service and latest monthly salary (one month&#146;s salary
  for each year worked), is reflected by the balance sheet accrual and is
  partly covered by pension funds and insurance policies in the name of
  Silicom.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The balances
  accrued and funded at balance sheet dates are as follows:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="23%" COLSPAN="7" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>December
  31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="23%" COLSPAN="7" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="23%" COLSPAN="7" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="23%" COLSPAN="7" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="23%" COLSPAN="7" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Liability
  for employees severance pay</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>895</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">743</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>

 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Severance
  pay fund</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN"><B>504</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">408</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="53%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=3 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The net
  severance pay expense was $ 168 thousand, $ 98 thousand and $ 100 thousand in
  the years ended December 31, 2003, 2002 and 2001 respectively.</FONT></P></TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 7 -
Other Assets</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Subsidiary
  entered into a &#147;Non-Exclusive Limited Patent License Agreement&#148; in April
  2002. The agreement included a one-time license fee of $150 thousand which
  represented a licensing fee for both past (six years) and future (ten years)
  sales of certain connectors and PC cards under patents of the licensor.&#160; The total amortization expense for 2003
  was approximately $ 9,375.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  maturities of other assets were as follows at December 31, 2003:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars<BR>
  In thousands</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Due within
  one year</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">10</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Due within
  two years</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">9</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Due within
  three years and more</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">58</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">77</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>


  </TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-14</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>





<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 8 -
Commitments and Contingencies</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Royalty commitments</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  is obligated to pay royalties to the Government of Israel on revenues from
  product sales related to research and development, which was undertaken with
  Government grants. Since January 1, 1997, royalty rates are 2% to 5% (prior
  to January 1, 1997, royalty rates were 2% to 3%).&#160; The royalty rates applicable for the Company&#146;s Research and
  Development projects are 2% - 3.5%, except for one project that took place in
  the period July 1, 1997 - January 31, 2000, where the royalty rate is 4%.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Royalties
  are payable from the commencement of sales of each of these products until
  the cumulative amount of the royalties paid equals 100% of the dollar linked
  amounts of the grants received, without interest for projects approved prior
  to December 31, 2000 and with Libor interest for amounts received after that
  date.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  Company&#146;s total outstanding obligation in respect of royalty-bearing
  Government participations received or accrued, net of royalties paid or
  accrued, amounted to approximately $3,048 thousand as of December 31, 2003
  ($2,958 thousand as of December 31, 2002).</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Lease commitments</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The premises
  and facilities occupied by the Company and its subsidiary are leased under
  various lease agreements.&#160; Furthermore,
  the Company has entered into several operating lease agreements for motor
  vehicles in Israel.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The agreements are in local
  currencies or linked to the dollar or to the Israeli Consumer Price Index.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The minimum
  projected rental payments under the above leases in effect as of December 31,
  2003 are as follows:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars<BR>
  in thousands</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="12%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Year ending
  December 31,</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2004</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">181</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2005</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">46</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2006</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">13</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Thereafter</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>C.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Guarantees</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  has a guarantee in the bank to insure its rent payments in the amount of $
  29,985.</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-15</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>





<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 9 -
Shareholders&#146; Equity</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Share capital</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom&#146;s
  Ordinary Shares are traded in the United States on the National Association
  of Securities Dealers Automated Quotation System (&#147;NASDAQ&#148;) small cap market,
  since February 1994.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Stock compensation plans</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">At December
  31, 2003, Silicom had three stock-based compensation plans, which are
  described below.&#160; Silicom applies APB
  Opinion 25 and related interpretations in accounting for its plans.&#160; Accordingly, no compensation cost has been
  recognized for its fixed stock option plans.&#160;
  </FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The fair
  value for option grant is estimated on the date of grant using the
  Black-Scholes option pricing model with the following weighted average
  assumptions for 2002 and 2001*:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Risk-free
  interest rate</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">1.5</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">4.5</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Dividend
  yield</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.0</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">0.0</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Volatility
  factor</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">22.13</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">66.18</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Weighted
  average expected life</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">8 years</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">8 years</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">*&#160; No options were granted in 2003.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Had
  compensation cost for Silicom&#146;s three stock-based compensation plans been
  determined based on the fair value at the grant dates for awards under those
  plans consistent with the method of Statement 123, Silicom&#146;s net income and
  earnings per share would have been reduced to the pro forma amounts indicated
  below:</FONT></P></TD>
 </TR>
</TABLE>




<BR>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net loss</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">As reported</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,486</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">US dollars
  in thousands</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">Pro forma</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,641</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(2,543</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(1,950</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Basic and
  diluted losses per share</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">As reported</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>(0.367</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.605</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.362</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">US dollars</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">Pro forma</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>(0.399</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.619</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(0.474</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Compensation
  cost</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">As reported</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="36%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">U.S. dollars
  in thousands</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="14%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT   SIZE=2 FACE="TIMES NEW ROMAN">Pro forma</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT   SIZE=2 FACE="TIMES NEW ROMAN"><B>(132</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(58</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">(464</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-16</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>





<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2   FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
</TABLE>




<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 9 -
Shareholders&#146; Equity (cont&#146;d)</B></FONT></P>



<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Stock compensation plans (cont&#146;d)</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Fixed Stock
  Option Plans</U></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In 1993 the
  Board of Directors of Silicom adopted a share option plan (the &#147;Share Option
  Plan&#148;) covering up to 88,676 options at a conversion rate of 1:1, to be
  granted to certain employees and consultants of Silicom.&#160; In June 1997, the Board of Directors of
  Silicom expanded the number of options covered by this plan by 211,324
  options to 300,000 options.&#160; In April
  2002, the Board of Directors expanded the number of options covered by this
  plan by 200,000 options to 500,000 options.&#160;
  The Share Option Plan is administered by the Board of Directors, which
  designates the options and dates of grant.&#160;
  The price of shares to be issued under this plan is equal to the
  market price of Silicom shares on the date upon which the options were
  granted.&#160; The options are for a
  10-year term and are non-assignable except by the laws of succession.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In 1994 the
  Board of Directors of Silicom approved a Directors Share Incentive Option
  Plan (1994) (the &#147;Directors Plan&#148;) covering up to 200,000 options at a
  conversion rate of 1:1.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In June
  1999, the Board of Directors of Silicom expanded the number of options
  covered by this plan by 120,000 options to 320,000 options.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In January
  2001, the Board of Directors of Silicom expanded again the number of options
  covered by this plan by 180,000 options to 500,000 options.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The price of
  shares to be issued to the directors under the Directors Plan is equal to the
  market price of Silicom shares on the dates upon which the options were
  granted.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">3.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In October
  2000, the Board of Directors of Silicom adopted the Silicom Ltd. US Share
  Option Plan (2000) (US Plan).&#160; The US
  Plan provides that options may be granted to any officer, consultants and
  certain other present and future employees and directors of Silicom and its
  subsidiary.&#160; Under the terms of the US
  Plan, up to a maximum of 200,000 ordinary shares of Silicom are reserved for
  issuance, subject to certain adjustments.&#160;
  The exercise price of the options granted under the US Plan shall be
  not less than 100 percent (or, in the case of a grant to a holder of more
  than 10% of Silicom&#146;s outstanding shares, 110 percent) of the fair market
  value of the ordinary shares subject to the option on the date the option is
  granted.&#160; The vesting period of the
  options is subject to the discretion of the Board.&#160; The term of the option shall not exceed 10 years from the date
  that the option was granted (or 5 years, in the case of optionees who hold
  more than 10% of Silicom&#146;s outstanding shares).</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">4.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">No options
  have been granted other than to employees and directors.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">5.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The fair
  value of each option grant is estimated on the date of grant using the
  Black-Scholes option-pricing model with the following weighted-average
  assumptions used for grants in 2002, and 2001, respectively:&#160; No dividend yield for all years; expected
  volatility of 22.13% and 66.18% risk-free interest rates of 1.5% and 4.5% and
  expected lives of eight years for each plan options.</FONT></P></TD>
 </TR>
</TABLE>




<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-17</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 9 - Shareholders&#146; Equity (cont&#146;d)</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Stock compensation plans (cont&#146;d)</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Fixed Stock
  Option Plans</U> (cont&#146;d)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">A summary of
  the status of Silicom&#146;s three fixed stock option plans as of December 31,
  2003, 2002 and 2001 and changes during the years ending on those dates, is
  presented below:</FONT></P></TD>
 </TR>
</TABLE>
<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Shares<BR>
  (in&nbsp;thousands)</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Weighted<BR>
  Average<BR>
  Exercise&nbsp;Price</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Shares<BR>
  (in&nbsp;thousands)</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Weighted<BR>
  Average<BR>
  Exercise&nbsp;Price</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Shares<BR>
  (in&nbsp;thousands)</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Weighted<BR>
  Average<BR>
  Exercise&nbsp;Price</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Outstanding at<BR>
  &nbsp;&nbsp;beginning of year</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>794,500</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">640,500</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">530,300</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Granted</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">187,500</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">0.55
  - 0.9</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">134,600</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">0.60-5.37</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Exercised</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,500</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>0.6</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Forfeited</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(25,250</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>0.9-5.75</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(33,500</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">0.55
  -5.75</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(24,400</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.62-2.50</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Outstanding at<BR>
  &nbsp;&nbsp;end of year</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>767,750</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">794,500</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">640,500</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Options<BR>
  &nbsp;&nbsp;exercisable at<BR>
  &nbsp;&nbsp;year-end</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>654,200</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">573,700</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">486,500</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
  <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
<TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Weighted
  average<BR>
  &nbsp;&nbsp;fair value of<BR>
  &nbsp;&nbsp;options granted<BR>
  &nbsp;&nbsp;during the year</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>$</B></FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">0.29</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">3.22</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="8%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>C.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Retained earnings:</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In the event
  of distribution by the Company of cash dividends out of retained earnings
  which were tax exempt due to the &#147;Approved Enterprises&#148; status, the Company
  would be subject to a 25% corporate tax on the amount distributed, and
  further 15% withholding tax would be deducted from the amounts distributed to
  the recipients.&#160; The Company has
  decided not to distribute the said tax-exempt income as dividends.&#160; In the event of dividend distribution as
  above, the said tax amount would be charged as an expense in the statement of
  income.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In the event
  that cash dividends are declared by the Company, such dividends will be
  declared and paid in Israeli currency.&#160;
  Under current Israeli regulations, any cash dividend in Israeli
  currency paid in respect of Ordinary Shares purchased by non-residents of
  Israel with non-Israeli currency may be freely repatriated in such
  non-Israeli currency, at the rate of exchange prevailing at the time of
  conversion.</FONT></P></TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-18</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd. (An Israeli Corporation) and Subsidiary</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Notes to the Consolidated Financial Statements</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 9 - Shareholders&#146; Equity (cont&#146;d)</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>D.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Earnings (loss) per share</B></FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="9%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" COLSPAN="26" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended
  December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" COLSPAN="26" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Net<BR>
  loss</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>No. of<BR>
  shares</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Per&nbsp;share<BR>
  amount</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Net<BR>
  loss</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>No.&nbsp;of<BR>
  shares</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Per&nbsp;share<BR>
  amount</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Net<BR>
  income</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>No. of<BR>
  shares</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Per&nbsp;share<BR>
  amount</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" COLSPAN="26" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars and No. of shares in thousands - except per share amounts</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="63%" COLSPAN="26" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Basic EPS</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">Loss available to<BR>
  &nbsp;&nbsp;common shareholders</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>$</B></FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>4,112</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>(0.367</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">4,110</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">(0.605</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">(1,486</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">4,110</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">(0.362</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Effect of
  Dilutive Securities</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">Warrants and options</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Dilutive
  EPS</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="25%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">Loss available to common<BR>
  &nbsp;&nbsp;shareholders and assumed conversion</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>$</B></FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>4,112</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>(0.367</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">4,110</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">(0.605</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">(1,486</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">4,110</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">$</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN">(0.362</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-19</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 10 - Taxes on Income</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P>
  </TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Israel Tax Reform</B></FONT></P>
  </TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="89%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="89%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">During 2003,
  tax reform legislation was enacted with effect from January 1, 2003, which
  significantly changed the taxation basis of corporate and individual
  taxpayers from a territorial basis to a worldwide basis. From such date, an
  Israeli resident taxpayer will be taxed on income produced and derived both
  in and out of Israel.&#160; The main
  provisions of the tax reform that may affect the Company are as follows:</FONT></P>
  </TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Transfer
  pricing of international transactions with related parties</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Income
  Tax Ordinance was amended to include provisions concerning transfer pricing
  between related parties, where one of the parties is situated abroad.&#160; Detailed provisions are to be included in
  Income Tax Regulations that have yet to be issued.&#160; Although the Company considers that the transfer pricing policy
  adopted with foreign affiliates is economically fair, an adjustment may be
  required following the issue of the said Regulations.</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2.</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Employee
  stock incentive plans</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The tax
  reform codified past practice and determined three alternative tracks for
  taxing employee stock option plans.&#160;
  Where a trustee arrangement is in place, the employer can either claim
  a deduction for tax purposes while the employee will be fully taxed up to the
  maximum marginal tax rate of 50% or the Company can waive the tax deduction
  and the employee will pay a reduced tax rate of 25%.&#160; Where there is no trustee arrangement, the
  employee is fully taxable and no deduction is allowed to the Company.&#160; There are detailed provisions for implementing
  these tracks.&#160; The Company is
  considering the alternatives.&#160; The tax
  reform&#146;s new practice is not in effect for options granted before December
  31, 2002 under plans adopted before December 31, 2002. All current options
  granted by the Company were granted before December 31, 2002.</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">3.</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Controlled
  foreign company (CFC)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  amendment to the law introduced Controlled Foreign Company (CFC) provisions,
  which, in certain circumstances, will lead to the Israeli company being
  charged tax on passive income of foreign affiliates as if it had received a
  dividend from such companies.&#160; </FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">4.</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Capital
  gains tax is reduced to 25% from 36%, except with respect to capital gains
  from marketable securities, with transitional provisions for assets acquired
  prior to January 1, 2003.</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="9%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">5.</FONT></P></TD>
  <TD WIDTH="84%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The seven
  year limit for carrying forward of capital losses has been removed with
  respect to capital losses arising from 1996 and thereafter.</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-20</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 10 - Taxes on Income (cont&#146;d)</B></FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P>
  </TD>
  <TD WIDTH="85%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Tax benefits under the Law for the Encouragement of Capital
  Investments, 1959 (hereinafter the &#147;Law&#148;)</B></FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.</FONT></P>
  </TD>
  <TD WIDTH="85%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Rates</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">a.</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  Company&#146;s first investment program has been granted &#147;Approved Enterprise&#148;
  status under the Law.&#160; For this
  program, the Company has elected to be taxed under the alternative benefits
  method, whereby the Company waives grants in return for tax exemptions.&#160; Pursuant thereto, the income of the
  Company derived from the first investment program was tax-exempt until 1997.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">b.</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  Company&#146;s program for expansion of its approved enterprise in Yokneam was
  approved in September 1995.&#160; As the
  Company has elected to apply the alternative benefits method for this
  program, the company is entitled to a tax exemption with respect to the
  additional income derived from that expansion for ten years.&#160; In June 1995 the Israeli tax authorities
  and the Company have agreed that for the purpose of determining the Company&#146;s
  tax liability, the Company&#146;s income will be allocated to its manufacturing
  plant and to its research and development center, according to a formula
  based on the net costs plus royalties of the research and development center
  and the Company&#146;s profitability.&#160;
  Income allocated to the expansion of the manufacturing plant will
  benefit from a ten-year tax exemption, commenced in 1997 to be expired in 2006,
  while income allocated to the research and development center will benefit
  from a two-year exemption and for a five-year period immediately following to
  be expired in 2004 will be taxed at a 25% rate.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The final
  report as to the completion of investments under this program has been submitted
  to the Investment Center.&#160; The final
  approval has been received in October 2001.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">c.</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In the event
  of distribution by the Company of cash dividends out of retained earnings
  which were tax exempt due to the &#147;Approved Enterprise&#148; status, the Company
  would be subject to a 25% corporate tax on the amount distributed, and a
  further 15% withholding tax would be deducted from the amounts distributed to
  the recipients.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">d.</FONT></P></TD>
  <TD WIDTH="80%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Should the
  Company derive income from sources other than the &#147;Approved Enterprise&#148;
  during the relevant period of benefits, such income will be taxable at
  regular corporate tax rates - 36%.</FONT></P></TD>
 </TR>
</TABLE>

<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-21</FONT></P>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 10 - Taxes on Income (cont&#146;d)</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P>
  </TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Tax benefits under the Law for the Encouragement of Capital
  Investments, 1959 (hereinafter the &#147;Law&#148;) (cont&#146;d)</B></FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2.</FONT></P>
  </TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Accelerated
  depreciation</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  is entitled to claim accelerated depreciation for a period of five years in
  respect of property and equipment of an &#147;Approved Enterprise&#148;.&#160; The Company has not utilized this benefit
  to date.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">3.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Conditions
  for entitlement to the benefits</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Entitlement
  to the benefits of the Company&#146;s &#147;Approved Enterprise&#148; is dependent upon the
  Company fulfilling the conditions stipulated by the Law and the regulations
  published thereunder, as well as the criteria set forth in the approval for
  the specific investment in the Company&#146;s &#147;Approved Enterprise&#148;.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In the event
  of failure to comply with these conditions, the tax benefits may be canceled,
  and the Company may be required to refund the amount of the cancelled
  benefits, with the addition of linkage differences and interest.&#160; As of the date of these financial
  statements, the Company believes it complies with these conditions.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>C.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Measurement of results for tax purposes under the Income Tax
  Regulations (Rules for Maintaining Accounting Records of Foreign Investment
  Companies and Certain Partnerships and Determining Their Taxable Income) -
  1986</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">As a
  &#147;foreign invested company&#148; (as defined in the Law for the Encouragement of
  Capital Investments - 1959), the Company&#146;s management has elected to apply
  Income Tax Regulations (Rules for Maintaining Accounting Records of Foreign
  Investment Companies and Certain Partnerships and Determining Their Taxable
  Income) - 1986 from January 1, 2002.&#160; Accordingly,
  its taxable income or loss is calculated in U.S. Dollars.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>D.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Tax benefits under the Law for Encouragement of Industry (Taxes),
  1969</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  currently qualifies as an &#147;Industrial Company&#148; under the above Law.&#160; As such it is entitled to certain tax
  benefits, mainly the right to deduct share issuance costs for tax purposes in
  the event of a public offering, and to amortize know-how acquired from
  third&nbsp;parties.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>E.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Tax assessments of Silicom Ltd.</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom
  received final tax assessments for all years up to and including the tax year
  ended December 31, 2000.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom&#146;s
  carryforward tax losses are approximately $4,231 thousand and $2,686 thousand
  as of December 31, 2003 and 2002, respectively.&#160; The amount of Silicom&#146;s tax losses will be reduced by any
  future income of the Company.</FONT></P></TD>
 </TR>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-22</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 10 - Taxes on Income (cont&#146;d)</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>F.</B></FONT></P>
  </TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Taxation of the subsidiary</B></FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">At December
  31, 2003, the subsidiary had approximately $544 thousand net operating loss
  carryforwards for U.S. federal income tax reporting purposes expiring $74
  thousand in 2018, $265 thousand in 2021, $188 thousand in 2022 and $17
  thousand in 2023.</FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">At December
  31, 2003, the subsidiary had approximately $452 thousand net operating loss
  carryforwards for New Jersey state income tax reporting purposes expiring
  $265 thousand in 2010 and $187 thousand in 2011.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  subsidiary has not yet been assessed for tax purposes since incorporation
  (1993).</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>G.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Deferred income taxes:</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Most of
  Silicom&#146;s income is tax exempt due to the &#147;Approved Enterprise&#148; status
  granted to its production facilities.&#160;
  Silicom has decided to permanently reinvest the amount of the said
  tax-exempt income, and not to distribute such income as dividends.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The amount
  of tax that would be payable had such tax-exempt income been distributed as
  dividends is approximately $0 thousand at December 31, 2003 (December 31,
  2002 - $0 thousand).</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2.</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  components of deferred tax assets and liabilities, assuming taxation at
  maximum rates, are as follows:</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>December
  31</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>December
  31</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>US$&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>US$&nbsp;thousands</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="11%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Employees&#146;
  rights liabilities</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>223</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">189</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Allowance
  for doubtful debts</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>7</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">7</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Deferred
  research and development costs</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>320</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">78</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Loss for tax
  purposes</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,686</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,448</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=3 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%"  colspan=3 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>2,236</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,722</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Valuation
  allowance</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(2,236</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,722</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=3 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=3 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=3 VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=3 VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Statutory
  tax rate</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>36</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>%</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">36</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">%</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="50%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=3 VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>

  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" colspan=3 VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="15%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company
  has recognized a recalculation allowance for its deferred tax assets that
  will more likely than not be realized.</FONT></P></TD>
 </TR>
</TABLE>
<BR>


<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-23</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 10 - Taxes on Income (cont&#146;d)</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>H.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Taxes on income</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Taxes on
  income comprise of:</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="28%" COLSPAN="11" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended
  December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="28%" COLSPAN="11" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="3" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="3" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="28%" COLSPAN="11" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="28%" COLSPAN="11" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Silicom Ltd.</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">33</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">U.S.
  subsidiary</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=3 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=3 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=3 VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">33</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="17%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="49%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=3 VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=3 VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%"  colspan=3 VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>J.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Reconciliation of the statutory tax expense to actual tax expense</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN=2 VALIGN=TOP>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN=2 VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">A
  reconciliation of the statutory tax expense, assuming all income is taxed at
  the statutory rate of 36% applicable to income of companies in Israel, and
  the actual tax expense, are as follows:</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="28%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended
  December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="28%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="28%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="28%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Income (Loss) before taxes
  on income, as reported<BR>
  &nbsp;&nbsp;in the statements of income</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(1,509</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(2,485</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(1,453</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Theoretical tax on the
  above amount</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(543</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(895</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(523</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><U>Increase (decrease) in
  taxes resulting from</U><BR>
  &nbsp;&nbsp;<U>permanent differences:</U></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Non-deductible operating
  expenses</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>14</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">23</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">12</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Tax exempt income</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(64</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(112</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Valuation allowance</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>514</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">911</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">591</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Adjustments arising from
  differences in the basis of<BR>
  &nbsp;&nbsp;measurement for tax purposes and for financial<BR>
  &nbsp;&nbsp;reporting purposes and other</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>15</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">25</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">*
  65</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Tax on income</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>-</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">33</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">*</FONT></P></TD>
  <TD WIDTH="87%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Resulting
  from the difference between the changes in the Israeli CPI (the basis for
  computation of taxable income of the Company) and the exchange rate of the
  Israeli currency relative to the dollar.</FONT></P></TD>
 </TR>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-24</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 11 - Supplementary Balance Sheet Information</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>December
  31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.&nbsp;dollars&nbsp;in&nbsp;thousands
  </B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="20%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Receivables - trade:</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;In
  Israel</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>51</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">23</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Abroad:</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;The
  United States</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>573</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">307</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;Europe</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>3</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">150</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;Other</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">24</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>628</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">504</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Net of
  allowance for doubtful accounts<BR>
  &nbsp;&nbsp;in the amount of</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>20</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">20</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Receivables - other:</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Government
  of Israel</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>143</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">107</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Prepaid
  expenses</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>25</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">25</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Income
  receivable</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>11</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">44</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Advanced
  to suppliers</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>61</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">73</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;Sundry</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>50</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">28</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>290</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">277</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>C.</B></FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Inventories:</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Raw
  materials and components</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>365</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">280</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Products in
  process</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>792</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">888</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Finished
  products</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>66</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">53</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,225</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,221</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>D.</B></FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Other accounts payable<BR>
  &nbsp;&nbsp;and accrued expenses</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Employees
  and employee institutions</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>154</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">150</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Provision
  for vacation pay</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>222</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">184</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Government
  royalties</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>53</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">51</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Sundry</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>59</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">30</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>488</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">415</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="57%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>E.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Balances in Currencies other than the U.S. dollar</B></FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="64%" COLSPAN="17" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>December
  31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="64%" COLSPAN="17" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Israeli
  currency</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Other<BR>
  Foreign<BR>
  currencies</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Israeli
  currency</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Other<BR>
  Foreign<BR>
  Currencies</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Linked*</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Unlinked</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Linked*</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Unlinked</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="64%" COLSPAN="17" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="64%" COLSPAN="17" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Assets</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>47</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>798</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>9</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">13</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">789</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="19%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Liabilities</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>16</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,679</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>2</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,519</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="4%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">*</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Linked to the Israeli
  Consumer Price Index</FONT></P></TD>
 </TR>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-25</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 12 - Supplementary Income Statement Data</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended
  December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Sales* - classified by geographical<BR>
  destination:</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In Israel</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>139</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">369</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">814</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Abroad:</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;United
  States</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>3,194</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,770</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2,033</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;Europe</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>348</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">562</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,677</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;&nbsp;&nbsp;&nbsp;Other</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>44</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">25</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">6</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>3,725</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2,726</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">4,530</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">*</FONT></P></TD>
  <TD WIDTH="40%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Including -
  sales to single customers<BR>
  &nbsp;&nbsp;exceeding 10% of sales</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="40%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Customer &#147;A&#148;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>2,126</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">990</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,387</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="40%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Customer &#147;B&#148;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>**</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">414</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">565</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="40%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Customer &#147;C&#148;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>**</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">770</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="40%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">**</FONT></P></TD>
  <TD WIDTH="40%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Less than
  10% of sales.</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended
  December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Cost of sales:</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Materials
  consumed and subcontracted<BR>
  &nbsp;&nbsp;work</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,898</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,404</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2,046</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Payroll and
  related expenses</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>213</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">211</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">312</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Royalties</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>66</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">70</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">149</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Other costs</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>158</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">166</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">253</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Written off
  inventory</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>27</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">-</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,023</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>2,362</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,851</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">3,783</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(Increase)
  decrease in products in<BR>
  &nbsp;&nbsp;process and finished products<BR>
  &nbsp;&nbsp;inventories</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(202</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">240</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(148</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>2,160</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2,091</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">3,635</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-26</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 12 - Supplementary Income Statement Data (cont&#146;d)</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended
  December 31</B></FONT></P>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P>
  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P>
  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S.
  dollars in thousands</B></FONT></P>
  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>C.</B></FONT></P>
  </TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Research and development costs, net</B></FONT></P>
  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Payroll and
  related expenses</FONT></P>
  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,111</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,042</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">978</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Materials
  consumed and subcontracted<BR>
  &nbsp;&nbsp;Work</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>232</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">127</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">63</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Other costs</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>304</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">354</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">292</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,647</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,523</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,333</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Less:
  royalty-bearing participations<BR>
  &nbsp;&nbsp;from the Government of Israel</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(150</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">15</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(469</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Research and
  development costs, net</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,497</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,538</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">864</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>D.</B></FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Selling and marketing expenses:</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Payroll and
  related expenses</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>644</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">749</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">773</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Commissions</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>37</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">36</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">93</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Advertising</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>13</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">22</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">24</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Trade shows
  and travel</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>140</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">112</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">105</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Other
  expenses</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>172</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">103</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">118</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>1,006</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,022</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">1,113</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="31%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>E.</B></FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Financial income, net</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Interest
  income</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>80</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">188</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">285</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Translation
  loss, net</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(31</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(21</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(17</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Interest
  expenses on short-term bank credit<BR>
  &nbsp;&nbsp;and bank charges</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(22</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(15</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(14</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>27</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">152</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">254</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="46%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="7%" VALIGN=TOP>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>
<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-27</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 13 - Related Party Balances and Transactions</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Balances with related parties:</B></FONT></P></TD>
 </TR>
</TABLE>

<BR>
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" COLSPAN="5" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="22%" COLSPAN="5" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
  <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="61%" COLSPAN=2 VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Trade
  receivables*</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>4</B></FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">2</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="55%" VALIGN=BOTTOM>
  <P><FONT SIZE=1 FACE="TIMES NEW ROMAN">&nbsp;</FONT></P></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN=2 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER></TD>
  <TD WIDTH="3%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="9%" COLSPAN=2 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Expenses to (income from) related parties:</B></FONT></P></TD>
 </TR>
</TABLE>
<BR>
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=600>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="48%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="30%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>Year ended December 31</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="48%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="30%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="48%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2003</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2002</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>2001</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="48%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="8%" COLSPAN="2" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="48%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="30%" COLSPAN="8" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1 FACE="TIMES NEW ROMAN"><B>U.S. dollars in thousands</B></FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="48%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="30%" COLSPAN="8" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>

  </TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="54%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Sales*</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>(18</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>)</B></FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(15</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">(69</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">)</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="48%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="11%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="54%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Costs and
  expenses**</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>30</B></FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">21</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">13</FONT></P></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="12%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="6%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="48%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER></TD>
  <TD WIDTH="2%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="7%" COLSPAN=2 VALIGN=BOTTOM>
  <HR SIZE=3 WIDTH="100%" NOSHADE COLOR=GRAY ALIGN=CENTER></TD>
  <TD WIDTH="1%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
</TABLE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">*</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Most of the transactions
  are sales to a related party, which is a distributor of the Company&#146;s
  products in Israel.&#160; The terms of the
  transactions are not different from regular market terms.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">**</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Mainly participation in
  insurance, recruiting expenses and public relations expenses.</FONT></P></TD>
 </TR>
</TABLE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 14 - Financial Instruments and Risk Management</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Concentrations of credit risk</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Financial
  instruments, which potentially subject Silicom to significant concentrations
  of credit risk, consist principally of cash and cash equivalents, short term
  and long-term investments and trade receivables.&#160; Cash and cash equivalents balances of Silicom, which are
  subject to credit risk, consist of cash accounts held with major financial
  institutions.&#160; Short-term investments,
  which consist of debentures and commercial paper, are invested at December
  31, 2003 in several highly rated corporations.&#160; Concentrations of credit risk with respect to trade receivables
  are limited due to the Company&#146;s diverse customer base and their wide
  geographical dispersion.&#160; The Company
  closely monitors extensions of credit and has never experienced significant
  credit losses. </FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Concentrations of business risk</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Although the
  Company generally uses standard parts and components for products, certain
  key components used in the products are currently available from only one
  source, and others are available from a limited number of sources.&#160; Components currently available from one
  source include a proprietary LAN (Fast Ethernet and Ethernet) chipset, modem
  chipsets and other components, including other semiconductor devices,
  transformers and plastic and metal product housings.&#160; The Company believes that it maintains a
  sufficient inventory of these components to protect against delays in
  deliveries.&#160; There can be no assurance
  that it will not experience delays in the supply of critical components in
  the future or that it will have a sufficient inventory of critical components
  at such time to produce products at full capacity.&#160; If the Company experiences such delays and there is an
  insufficient inventory of critical components at that time, the Company&#146;s
  operations and financial results would be adversely affected.</FONT></P></TD>
 </TR>
</TABLE>

<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-28</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 14 - Financial Instruments and Risk Management (cont&#146;d)</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P>
  </TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Concentrations of business risk (cont&#146;d)</B></FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  Company&#146;s OEMs, distributors and resellers are not within the Company&#146;s
  control.&#160; They are not obligated to
  purchase products from the Company and may represent other lines of
  products.&#160; A reduction in sales effort
  or discontinuance of sales of products by OEMs, distributors and resellers
  could lead to reduced sales and could materially adversely affect our operating
  results.&#160; Use of distributors and OEMs
  also entails the risk that distributors or OEMs will build up inventories in
  anticipation of a growth.&#160; If such
  growth does not occur as anticipated, these distributors or OEMs may
  substantially decrease the amount of products ordered in subsequent quarters,
  discontinue product orders or even attempt to return unsold products.&#160; The distribution industry has been
  characterized by rapid change, including consolidations and financial
  difficulties of distributors and the emergence of alternative distribution
  channels.&#160; In addition, an increasing
  number of companies are competing for access to these channels.&#160; The loss or ineffectiveness of any of the
  major distributors or OEMs (see Note 12A) could have a material adverse
  effect on the operating results. &#160;The
  Company believes that no termination of a single distributor is likely to
  have a material adverse effect.&#160;
  However, the termination or loss of several distributors at approximately
  the same time might have a temporary material adverse effect.</FONT></P>
  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 15 - Fair Value of Financial Instruments</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  Company&#146;s financial instruments consist of cash and cash equivalents,
  investment securities, trade and other receivables, assets held for severance
  benefits and trade accounts payable.&#160;
  The carrying amounts of these financial instruments, except for
  investment securities, approximate fair value because of the short maturity
  of these investments.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The fair
  value of investment securities is presented in Note 4 to these consolidated
  financial statements.</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="3" VALIGN=TOP>
  <P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 16 -
  Recently Enacted Accounting Pronouncement</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>A.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>FASB Statement No. 149, Amendment of Statement 133 on Derivative
  instruments and Hedging Activities</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">On April 30,
  2003, the FASB issued FASB Statement No. 149, Amendment of Statement 133 on
  Derivative Instruments and Hedging Activities, which amends FASB Statement
  No. 133, Accounting for Derivative Instruments and Hedging Activities, to
  address (1) decisions reached by the Derivatives Implementation Group, (2)
  developments in other Board projects that address financial instruments, and
  (3) implementation issues related to the definition of a derivative.&#160; Statement 149 has multiple effective date
  provisions depending on the nature of the amendment to Statement 133.&#160; The Company believes that the adoption of
  SFAS 149 does not have a significant impact on its consolidated financial
  statements.</FONT></P></TD>
 </TR>
</TABLE>

<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-29</FONT></P>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<P><FONT SIZE=3 FACE="TIMES NEW ROMAN"><B>Note 16 -
Recently Enacted Accounting Pronouncement (cont&#146;d)</B></FONT></P>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>B.</B></FONT></P>
  </TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Financial Accounting Standard
Board issued
Interpretation No. 46, &#147;<I>Consolidation of Variable Interest Entities</I>&#148;:</B></FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In January 2003, the FASB issued FASB
Interpretation No. 46, <I>Consolidation of Variable </I> <I>Interest Entities
</I>(&#147;FIN 46&#148;). FIN 46 clarifies the application of Accounting Research Bulletin
No. 51, <I>Consolidated Financial Statements</I> (&#147;ARB 51&#148;), to certain entities
in which equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. ARB 51 requires that
an enterprise&#146;s consolidated financial statements include subsidiaries in which the
enterprise has a controlling financial interest. That requirement usually has been applied
to subsidiaries in which an enterprise has a majority voting interest. The voting interest
approach is not effective in identifying controlling financial interests in entities that
are not controllable through voting interests or in which the equity investors do not bear
the residual economic risk. FIN 46 explains how to identify variable interest entities and
how an enterprise assesses its interests in a variable interest entity to decide whether
it is its primary beneficiary and therefore is required to consolidate that entity. FIN 46
also addresses the initial valuation of the assets and liabilities to be consolidated, the
treatment of any gain or loss resulting from the initial measurement and disclosure
requirements for the primary beneficiary. All entities with variable interest in variable
interest entities created after January 31, 2003 shall apply the provisions of FIN 46
immediately. Public entities with a variable interest in a variable interest entity
created before February 1, 2003 shall apply the provisions of this interpretation no later
that the first interim or annual reporting period beginning after December 15, 2003. On
December 24, 2003, FASB issued an Interpretation which made certain amendments to FIN 46
(FIN 46R). The revision clarifies the definition of a business by providing a scope
exemption that eliminates the overly-broad definition in the original release that
potentially could have classified any business as a variable interest entity. The revision
also delays the effective date of the interpretation from the first reporting period
following December 15, 2003 to the first reporting period ending March 15, 2004.
The Company is currently evaluating the impact that FIN 46R may have on its
consolidated financials statements. </FONT></P>
  </TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>C.</B></FONT></P></TD>
  <TD WIDTH="85%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>FASB Statement No. 150, Accounting for Certain Financial Instruments
  with Characteristics of both Liabilities and Equity.</B></FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
 </TR>
 <TR>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P></TD>
  <TD WIDTH="90%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">On May 15,
  2003, the FASB issued FASB Statement No. 150, Accounting for Certain
  Financial Instruments with Characteristics of both Liabilities and
  Equity.&#160; This Statement establishes
  standards for how an issuer classifies and measures certain financial
  instruments with characteristics of both liabilities and equity. It requires
  that an issuer classify a financial instrument that is within its scope as a
  liability (or an asset in some circumstances).&#160; Many of those instruments were previously classified as
  equity.&#160; This Statement is effective
  for financial instruments entered into or modified after May 31, 2003 and
  otherwise is effective at the beginning of the first interim period beginning
  after June 15, 2003, except for mandatory redeemable financial instruments of
  nonpublic entities.&#160; It is to be
  implemented by reporting the cumulative effect of a change in an accounting
  principle for financial instruments created before the issuance date of the
  Statement and still existing at the beginning of the interim period of
  adoption.&#160; Restatement is not
  permitted.&#160; The Company believes that
  the adoption of SFAS 150 does not have a significant impact on its
  consolidated financial statements.</FONT></P></TD>
 </TR>
</TABLE>

<BR>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">F-30</FONT></P>



<p align=center>
<font size=2></font></p>
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     <!-- Control Number: 40769                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Silicom Ltd                                                      -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
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<P ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Exhibit 1</FONT> </P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Article 122</U><SUP>1</SUP> </FONT> </P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>122.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>Exemption,
Indemnity and Insurance</U></B> </FONT> </TD>
</TR>
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<BR>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(a) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject
to the provisions of the Companies Law &#150; 1999 as amended from time to time, and any
regulations promulgated thereunder (the &#147;<B>Companies Law</B>&#148;), the Company
may resolve in advance to exempt an Office Holder, as defined in the Companies Law, from
all or any of his or her liability for damage in consequence of a breach of the duty of
care vis-&agrave;-vis the Company.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Indent Lv 0- TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(b) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject
to the provisions of the Companies Law, the Company may enter into a contract to insure
the liability of an Office Holder therein for an obligation imposed upon him or her in
consequence of an act done in his or her capacity as an Office Holder therein, in any of
the following cases:  </FONT></P>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
breach of the duty of care vis-&agrave;-vis the Company or vis-&agrave;-vis
                    another person;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
breach of the fiduciary duty vis-&agrave;-vis the Company, provided that the
                    Office Holder acted in good faith and had reasonable basis to believe
that the                     act would not harm the Company;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
monetary obligation imposed on him or her in favor of another person;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>any
other incident for which it is or shall be permitted to insure the liability
                    of an Office Holder.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(c) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject
to the provisions of the Companies Law:  </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
Company may undertake in advance to indemnify an Office Holder for an
                    obligation or expense as specified in article (d) below, imposed on
him or her                     in consequence of an act done in his or her capacity as an
Office Holder,                     including in consequence of an act done in his or her
capacity as an officer of                     another company in the event such office is
held on the Company&#146;s behalf or                     on its request, provided that
the undertaking is limited to types of events                     which in the Directors&#146; opinion
may be foreseen at the time of giving the                     indemnity undertaking, and
to an amount which the Directors have determined is                     reasonable in the
circumstances of the case (hereinafter: an<B></B>&#147;<B>Indemnification Undertaking</B>&#148;);  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><SUP>1</SUP></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As
amended on January 7, 2004. The remainder of our Articles of Association were adopted on
February 1, 1994, and were filed by us as an Exhibit to our annual report on Form 20-F
for the fiscal year ended December 31, 2000, as filed with the Securities and Exchange
Commission on June 30, 2001. </FONT></TD>
</TR>
</TABLE>
<BR>



<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>without
derogating from the provisions of article (1) above, the Company may
                    indemnify an Office Holder therein retroactively, for an obligation
or expense                     as specified in article (d) below, imposed on him or her
in consequence of an                     act done in his or her capacity as an Office
Holder in the Company.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(d) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Indemnification Undertaking or indemnity, as mentioned in article (c) above,
                    may be given for an obligation or expense as specified in
sub-articles (d)(1) to                     (d)(3) below, imposed on the Office Holder in
consequence of an act done in his                     or her capacity as an Office Holder
in the Company, as follows:  </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
monetary obligation imposed on him or her in favor of another person pursuant
                    to a judgment, including a judgment given in settlement or a court
approved                     arbitrator&#146;s award;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>reasonable
litigation expenses, including attorneys professional fees, incurred
                    by the Office Holder or which he or she is ordered to pay by a court
in                     proceedings filed against him or her by the Company or on its
behalf or by                     another person, or in a criminal indictment of which he
or she is acquitted, or                     in a criminal indictment in which he or she
is convicted of an offence not                     requiring proof of criminal intent;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>any
other obligation or expense for which it is or shall be permitted to
                    indemnify an Office Holder.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>2</font></p>
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</body>
</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>4
<FILENAME>exhibit_4-4.htm
<TEXT>

<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+ 1.6a) -->
     <!-- Project:        \\Backup\office\EDGAR Filing\Silicom Ltd\40769\a40769.eep        -->
     <!-- Control Number: 40769                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Silicom Ltd                                                      -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>
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<P ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Exhibit 4.4</FONT> </P>

<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SUBLEASE AGREEMENT</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
sublease is made as of February 1, 2004 between RADCOM EQUIPMENT, INC., with offices at 6
Forest Avenue, Paramus, New Jersey 07652 (&#147;Sublessor&#148;) and Silicom Connectivity
Solutions, Inc., with offices at 575 Corporate Drive, Mahwah, New Jersey 07430
(&#147;Sublessee&#148;) </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
sublessor is presently under a lease (hereinafter &#147;Prime Lease&#148;) dated December,
2000, between ZOHAR ZISAPEL PROPERTIES, INC. and YEHUDA ZISAPEL PROPERTIES, INC., as
&#147;Lessor&#148; and RADCOM EQUIPMENT, INC., as &#147;Lessee&#148;. A true copy of this
Prime Lease is annexed to this Sublease and is made a part of this Sublease and is fully
incorporated herein. The copy of the Prime Lease has been initialed by all parties to this
sublease. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Sublessor and Sublessee have agreed to a subletting of the Subleased Space, as hereinafter
defined, on the terms and conditions specified in this Sublease. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
and in consideration of the covenants herein contained, and upon the terms and conditions
herein set forth, Sublessor and Sublessee agree as follows: </FONT></P>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               Sublessor hereby leases to Sublessee, and Sublessee hereby rents from Sublessor,
               276 gross rentable square feet on the first floor of the Building, being a part
               of the Demised Premises, and identified on Exhibit I hereto, which includes an
               allocable share of the Common Facilities as defined in Article 41(a) of the
               Prime Lease. This space is hereinafter refered to as the &#147;Subleased
               Space&#148;. </FONT></TD>
               </TR>
               </TABLE>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               The Commencement Date for the Subleased Space shall be February 1, 2004,
               provided that the date for commencement of payment of rent shall be February 1,
               2004. </FONT></TD>
               </TR>
               </TABLE>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               The Term of this sublease shall coincide with the Term under the Prime Lease,
               which currently has an Expiration Date of January 14, 2006, subject to Lessee
               option to renew under the Prime Lease. </FONT></TD>
               </TR>
               </TABLE>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               All of the terms and conditions, rights and obligations of Lessee under the
               Prime Lease shall apply to Sublessee hereunder, as though Sublessee were Lessee
               under the Prime Lease, except as follows: </FONT></TD>
               </TR>
               </TABLE>
               <BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)  </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Paragraph
8 of the Preamble to the Prime Lease shall be changed to read:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>No
Broker involved with the sub-lease. </U> </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Paragraph
          11 of the Preamble to the Prime Lease shall be changed to read as follows:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>FIXED
BASIC RENT </U>shall mean $17.62 per gross rentable square foot per annum (this covers
base rent of 15.72 + 1.50 for electric+.40 for building cost overruns), payable as
follows: </FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="200" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="75%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yearly rate:</FONT></TD>
     <TD WIDTH="25%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$4,863.12</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Monthly Installment</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$405.26</FONT></TD></TR>
</TABLE>
<BR>
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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Paragraph
12 of the Preamble to the Prime Lease shall be changed to read as           follows:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>SUBLESSEE&#146;S
PERCENTAGE </U>shall be .009%; The total gross rentable square footage of the Building is
28,220. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Paragraph
13 of the Preamble to the Prime Lease shall be changed to read as           follows:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>PARKING
SPACES </U>allotted to Sublessee under this Sublease shall mean a total of three (3)
spaces. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(e) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Paragraph
15 of the Preamble to the Prime Lease shall be changed to read as           follows:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>SECURITY
DEPOSIT </U>shall be $405.26 </FONT> </TD>
</TR>
</TABLE>
<BR>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               Paragraph 17 of the Preamble to the Prime Lease shall not apply to this
               Sublease. Sublessee hereby accepts the Demised Premises in its &#147;as is&#148;
               condition. Sublessee will do all fit-up on the Demised Premises, at its own
               expense, after submitting plans to Lessor for its approval, which shall not be
               unreasonably withheld. All fit-up work is to be done with proper municipal and
               governmental permits and approvals. </FONT></TD>
               </TR>
               </TABLE>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               As to the Subleased Space, Sublessee shall be granted the Renewal Option set
               forth in Paragraph 19 of the Preamble to the Prime Lease. Lessor agrees that
               Sublessee shall be entitled to exercise this option as to the Subleased Space
               only in the event that the Sublessor exercises its Renewal Option under the
               Prime Lease and agrees to such extension. </FONT></TD>
               </TR>
               </TABLE>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               The parties understand that the Sublessee&#146;s use of the Subleased Space will
               be for general office use. </FONT></TD>
               </TR>
               </TABLE>

<!-- MARKER FORMAT-SHEET="Para (List) Hang LV 1-TNR" FSL="Workstation" -->
          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               In the event of a default in leasehold obligations by Sublessor, the sublessee
               shall have no right to continue its subtenancy unless agreed to by the Landlord.
               In the event of a default, Lessor may exercise its rights under Paragraph 8 (b)
               iii of the Prime Lease to take over all Sublessor&#146;s rights, title and
               interest and Sublessee will attorn to Lessor and pay directly to Lessor,
               Sublessee&#146;s rent as set forth in this Sublease. However, Sublessee shall
               only be responsible for payment of its rent for the Subleased Space. </FONT></TD>
               </TR>
               </TABLE>
               <BR>

<p align=center>
<font size=2>2</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para (List) Hang LV 1-TNR" FSL="Workstation" -->
          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               Sublessor agrees to supply Sublessee with copies of the operating, utility and
               energy and real estate tax costs at the same time it receives these figures from
               Lessor in accordance with Paragraph 23 (g) on page 22 of the Prime Lease. </FONT></TD>
               </TR>
               </TABLE>

<!-- MARKER FORMAT-SHEET="Para (List) Hang LV 1-TNR" FSL="Workstation" -->
          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               Sublessee shall be responsible to pay any fee that may be due pursuant to
               Paragraph 8 (b) vii of the Prime Lease. </FONT></TD>
               </TR>
               </TABLE>

<!-- MARKER FORMAT-SHEET="Para (List) Hang LV 1-TNR" FSL="Workstation" -->
          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               All the terms and definitions set forth in the Prime Lease shall have the same
               meaning in this Sublease Agreement, except as they may be modified herein. </FONT></TD>
               </TR>
               </TABLE>
               <BR>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and
year first above written. </FONT></P>








<!-- MARKER FORMAT-SHEET="Signature (Single)" FSL="Workstation" -->
<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SUBLESSOR:<BR><BR>
<BR>RADCOM EQUIPMENT, INC.<BR><BR>
By:_______________________</FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SUBLESSEE:<BR><BR>
<BR>Silicom Connectivity Solutions, Inc.<BR><BR>
By:_______________________</FONT></TD>
</TR>
</TABLE>
<BR>


<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CONSENT TO SUBLET</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ZOHAR
ZISAPEL PROPERTIES, INC. and YEHUDA ZISAPEL PROPERTIES, INC. as Lessor under the Prime
Lease hereby consent to the Sublease Agreement set forth above. Lessor specifically
consents to and agrees to be bound by the terms of paragraphs 5,6,7 and 8 above, as the
same impose obligations on Lessor. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
consent is limited to the particular sublease authorized by this Consent to Sublet. Except
for this consent, the covenants and restrictions in the Prime Lease prohibiting subletting
shall remain in effect. </FONT></P>







<!-- MARKER FORMAT-SHEET="Signature (Single)" FSL="Workstation" -->
<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ZOHAR ZISAPEL PROPERTIES, INC.<BR><BR>
<BR>By:______________________________</FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>YEHUDA ZISAPEL PROPERTIES, INC.<BR><BR>
<BR>By:________________________________</FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>3</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">


</body>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>5
<FILENAME>exhibit_12-1.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+ 1.6a) -->
     <!-- Project:        \\Backup\office\EDGAR Filing\Silicom Ltd\40769\a40769.eep        -->
     <!-- Control Number: 40769                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Silicom Ltd                                                      -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>
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<HR ALIGN=LEFT WIDTH=100%  SIZE=1 NOSHADE STYLE="margin-top: -10px">
<P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Exhibit 12.1</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>CERTIFICATION</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">I, Shaike Orbach, certify that: </FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.&nbsp;&nbsp;I
  have reviewed this annual report on Form 20-F of Silicom Ltd.;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2.&nbsp;&nbsp;Based
  on my knowledge, this annual report does not contain any untrue statement of
  a material fact or omit to state a material fact necessary to make the
  statements made, in light of the circumstances under which such statements
  were made, not misleading with respect to the period covered by this annual
  report; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">3.&nbsp;&nbsp;Based
  on my knowledge, the financial statements, and other financial information
  included in this annual report, fairly present in all material respects the
  financial condition, results of operations and cash flows of the company as
  of, and for, the periods presented in this annual report; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">4.&nbsp;&nbsp;The
  company&#146;s other certifying officer and I are responsible for establishing and
  maintaining disclosure controls and procedures (as defined in Exchange Act
  Rules 13a-15(e)) for the company and have: </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(a) designed
  such disclosure controls and procedures, or caused such disclosure controls
  and procedures to be designed under our supervision, to ensure that material
  information relating to the company, including its consolidated subsidiaries,
  is made known to us by others within those entities, particularly during the
  period in which this annual report is being prepared; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(b)&nbsp;evaluated
  the effectiveness of the company&#146;s disclosure controls and procedures and
  presented in this report our conclusions about the effectiveness of the
  disclosure controls and procedures, as of the end of the period covered by
  this report based on such evaluation; and </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(c)
  disclosed in this report any change in the company&#146;s internal control over
  financial reporting that occurred during the period covered by the annual
  report that has materially affected, or is reasonably likely to materially
  affect, the company&#146;s internal control over financial reporting; and </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">5.&nbsp;&nbsp;The
  company&#146;s other certifying officer and I have disclosed, based on our most
  recent evaluation of internal control over financial reporting, to the
  company&#146;s auditors and the audit committee of company&#146;s board of directors
  (or persons performing the equivalent functions): </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(a) all significant
  deficiencies and material weaknesses in the design or operation of internal
  control over financial reporting which are reasonably likely to adversely
  affect the company&#146;s ability to record, process, summarize and report
  financial information; and </FONT></P>  </TD>
 </TR>
</TABLE>
<BR>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(b) any
  fraud, whether or not material, that involves management or other employees
  who have a significant role in the company&#146;s internal control over financial
  reporting; and </FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Date: June 30, 2004 </FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="33%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="33%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="32%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">/s/ Shaike
  Orbach</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="33%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="33%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="32%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
 </TR>
 <TR>
  <TD WIDTH="33%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="33%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="32%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Shaike
  Orbach, Chief Executive Officer</FONT></P>  </TD>
 </TR>
</TABLE>


<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>6
<FILENAME>exhibit_12-2.htm
<TEXT>
<HTML>
<HEAD>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+ 1.6a) -->
     <!-- Project:        \\Backup\office\EDGAR Filing\Silicom Ltd\40769\a40769.eep        -->
     <!-- Control Number: 40769                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Silicom Ltd                                                      -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
</HEAD>
<BODY>
<!-- MARKER FORMAT-SHEET="Scotch Rule Top-TNR" FSL="Workstation" -->
<HR ALIGN=LEFT WIDTH=100%  SIZE=4 NOSHADE STYLE="margin-top: -5px">
<HR ALIGN=LEFT WIDTH=100%  SIZE=1 NOSHADE STYLE="margin-top: -10px">

<P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Exhibit 12.2</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>CERTIFICATION</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">I, Ilan Erez, certify that: </FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1.&nbsp;&nbsp;I
  have reviewed this annual report on Form 20-F of Silicom Ltd.;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2.&nbsp;&nbsp;Based
  on my knowledge, this annual report does not contain any untrue statement of
  a material fact or omit to state a material fact necessary to make the
  statements made, in light of the circumstances under which such statements
  were made, not misleading with respect to the period covered by this annual
  report; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">3.&nbsp;&nbsp;Based
  on my knowledge, the financial statements, and other financial information
  included in this annual report, fairly present in all material respects the
  financial condition, results of operations and cash flows of the company as
  of, and for, the periods presented in this annual report; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">4.&nbsp;&nbsp;The
  company&#146;s other certifying officer and I are responsible for establishing and
  maintaining disclosure controls and procedures (as defined in Exchange Act
  Rules 13a-15(e)) for the company and have: </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(a) designed
  such disclosure controls and procedures, or caused such disclosure controls
  and procedures to be designed under our supervision, to ensure that material
  information relating to the company, including its consolidated subsidiaries,
  is made known to us by others within those entities, particularly during the
  period in which this annual report is being prepared; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(b)&nbsp;evaluated
  the effectiveness of the company&#146;s disclosure controls and procedures and
  presented in this report our conclusions about the effectiveness of the
  disclosure controls and procedures, as of the end of the period covered by
  this report based on such evaluation; and </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(c)
  disclosed in this report any change in the company&#146;s internal control over
  financial reporting that occurred during the period covered by the annual
  report that has materially affected, or is reasonably likely to materially
  affect, the company&#146;s internal control over financial reporting; and; </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">5.&nbsp;&nbsp;The
  company&#146;s other certifying officer and I have disclosed, based on our most
  recent evaluation of internal control over financial reporting, to the
  company&#146;s auditors and the audit committee of company&#146;s board of directors
  (or persons performing the equivalent functions): </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(a) all
  significant deficiencies and material weaknesses in the design or operation
  of internal control over financial reporting which are reasonably likely to
  adversely affect the company&#146;s ability to record, process, summarize and
  report financial information; and </FONT></P>  </TD>
 </TR>
</TABLE>
<BR>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>
<PAGE>

<BR>

<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="2%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="97%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">(b) any
  fraud, whether or not material, that involves management or other employees
  who have a significant role in the company&#146;s internal control over financial
  reporting; </FONT></P>  </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Date: June 30, 2004</FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="64%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="35%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">/s/ Ilan
  Erez</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="64%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="25%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="10%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="64%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="35%" COLSPAN="2" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Ilan Erez,
  Chief Financial Officer</FONT></P>  </TD>
 </TR>
</TABLE>
<BR>

<HR STYLE="MARGIN-TOP: -2PX" NOSHADE SIZE=1>
<HR STYLE="MARGIN-TOP: -10PX" NOSHADE SIZE=4>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>7
<FILENAME>exhibit_13-1.htm
<TEXT>
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     <!-- Project:        \\Backup\office\EDGAR Filing\Silicom Ltd\40769\a40769.eep        -->
     <!-- Control Number: 40769                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Silicom Ltd                                                      -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
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<P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Exhibit 13.1</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Certification Pursuant to 18.U.S.C. Section
1350,<BR>
As adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 </B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In connection with the annual report of Silicom Ltd. (the &#147;Company&#148;) on
Form 20-F for the period ending December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the &#147;Report&#148;), I the undersigned,
being the Chief Executive Officer of the Company, certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge:</FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1)</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Report
  fully complies with the requirements of sections 13(a) or 15(d) of the
  Securities Exchange Act of 1934; and </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2)</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  information contained in the Report fairly presents, in all material
  respects, the financial condition and results of operations of the Company. </FONT></P>  </TD>
 </TR>
</TABLE>

<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Signature: </FONT></P>
  </TD>
  <TD WIDTH="91%" COLSPAN="2" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">/s/ Shaike
  Orbach</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="20%" VALIGN=BOTTOM>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="71%" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Shaike
  Orbach, Chief Executive<BR>
  Officer</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="3" VALIGN=BOTTOM>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Date: June 30, 2004</FONT></P>  </TD>
 </TR>
</TABLE>
<BR>

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<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>8
<FILENAME>exhibit_13-2.htm
<TEXT>
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     <!-- Project:        \\Backup\office\EDGAR Filing\Silicom Ltd\40769\a40769.eep        -->
     <!-- Control Number: 40769                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Silicom Ltd                                                      -->
     <!-- Project Name:   20-F                                                             -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>20-F</TITLE>
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<P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN">Exhibit 13.2</FONT></P>
<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Certification Pursuant to 18.U.S.C. Section
1350,<BR>
As adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 </B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In connection with the annual report of Silicom Ltd. (the &#147;Company&#148;) on
Form 20-F for the period ending December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the &#147;Report&#148;), I the undersigned,
being the Chief Financial Officer of the Company, certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge: </FONT></P>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">1)</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Report
  fully complies with the requirements of sections 13(a) or 15(d) of the
  Securities Exchange Act of 1934; and </FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="5%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">2)</FONT></P>  </TD>
  <TD WIDTH="95%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The
  information contained in the Report fairly presents, in all material
  respects, the financial condition and results of operations of the Company. </FONT></P>  </TD>
 </TR>
</TABLE>

<BR>
<TABLE ALIGN=CENTER  BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR>
  <TD WIDTH="8%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Signature:</FONT></P>
  </TD>
  <TD WIDTH="16%" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">/s/ Ilan
  Erez</FONT></P>  </TD>
  <TD WIDTH="75%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="8%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
  <TD WIDTH="16%" VALIGN=TOP>
  <HR SIZE=1 WIDTH="100%" NOSHADE COLOR=BLACK ALIGN=CENTER>


  </TD>
  <TD WIDTH="75%" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="3" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Ilan Erez,
  Chief Financial Officer</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="3" VALIGN=TOP>
  <P><FONT SIZE=1>&nbsp;</FONT></P>  </TD>
 </TR>
 <TR>
  <TD WIDTH="100%" COLSPAN="3" VALIGN=TOP>
  <P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Date: June
  30, 2004</FONT></P>  </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2 FACE="TIMES NEW ROMAN">&nbsp;</FONT></P>

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<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>9
<FILENAME>exhibit_14-1.htm
<TEXT>
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<P ALIGN=RIGHT><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>Exhibit 14.1</B></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><IMG SRC="m_p.jpg"></FONT></P>

<P><FONT SIZE=2 FACE="TIMES NEW ROMAN"><B>REPORT OF INDEPENDENT REGISTERED ACCOUNTING
FIRM</B></FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">To the Board of Directors<BR>
Silicom Connectivity Solutions, Inc.<BR>
(A Wholly-Owned Subsidiary of Silicom, Ltd.)<BR>
Mahwah, New Jersey</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We have audited the accompanying balance sheet of Silicom Connectivity
Solutions, Inc. (A Wholly-Owned Subsidiary of Silicom, Ltd.) as of December 31,
2002, and the related statements of operations, accumulated deficit and cash
flows for each of the two years in the period ended December 31, 2002. These
financial statements are the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits 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 audit provide a reasonable basis for our opinion.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Silicom
Connectivity Solutions, Inc. (A Wholly-Owned Subsidiary of Silicom, Ltd.) as of
December 31, 2002, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 2002 in conformity with
U.S. generally accepted accounting principles.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">The Company&#146;s parent company has expressed both its ability and its
intent to continue providing financial support to assure that Silicom
Connectivity Solutions, Inc. will continue in operation.</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">/s/ McGladrey &amp; Pullen LLP</FONT></P>
<P><FONT SIZE=2 FACE="TIMES NEW ROMAN">Stamford, Connecticut<BR>
January 6, 2003</FONT></P>

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`
end

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
