• Decrease in revenues due to continuing difficult market conditions in 2003
• Signs of improvement in the market during the second half, resulting in a 7% increase in H2 sales against H1
• Gross profit margins (excluding write down of inventory) improved from 39.8 % in 2002 to 40.7 % in 2003
• Significant research and development programme maintained
• Selling, general and administrative expenses reduced by 22% to $13.6m (2002: $17.5m)
• Strong cash position: $51.1m and no borrowings (2002: $55.2m) including short and long-term deposits
• Contracts signed during the year with major US Carrier, Israel Defense Forces and Alcatel New Zealand
• Recent contract success with sales through integrators in Scandinavia and Spain
• Global distribution agreement announced today with leading telecoms infrastructure supplier and integrator (see separate announcement released today)
• Results of Eldor Computers Ltd (owned 49.9%) are not included in reported results. Eldor's turnover for the year exceeded $21million and it made a modest profit
• Recovery expected to continue in 2004

As I predicted in my annual statement last year and our interim statement for the year under review, 2003 was a difficult and challenging one for our industry and no less for BATM. However, it was also the year in which the first signs of recovery began to appear, signs which have begun to be reflected in our results. Continuing tight control of margins and expenditure has played its part in offsetting the lower level of sales achieved, whilst ourmaintenance of the valuable research and development programme, relevant to the needs of our customers, has opened up new sales opportunities for us.

Turnover for the period was $37,054,000 (2002: $48,661,000), a decrease of 24% on the prior year. This decrease is primarily related to lower sales of legacy products in the US market, which declined by 49% against 2002. However, a general improvement was seen in the second six months of the year and turnover for the second half of 2003 increased 7% compared with the first half of 2003. We are particularly encouraged to report that during the second half of 2003, turnover of our Edgelink products experienced a 32% increase compared with the first half of 2003.

Gross profit margin improved to 40.7% of turnover (2002: 39.8%) excluding a provision for write down inventory of $3,283,000 (2002: $166,000). This increase was primarily related to higher gross profit on newly designed EdgeLink products. The inventory write down is mostly related to our legacy products in the US.

Selling, general and administrative expenses were $13,598,000 during 2003 compared with $17,535,000 in 2002 reflecting a 22% decrease. This lower spending trend was reflected in both the first and second halves of the year which were 27% and 16% lower than the previous respective periods. Reductions in non-core expenditure and strict spending controls contributed to this reduction.

Gross research and development expenditure in this period was $11,247,000 (2002: $12,779,000). However, after contributions from the Israeli Chief Scientist and from the European Community, net research and development expenditure was $10,119,000 (2002: $12,185,000). The reduction in research and development expense reflected strict cost controls and a more focused effort on key projects for the immediate future.

Operating loss, before goodwill amortization and write down of investment and inventory, amounted to $8,629,000 (2002: loss $10,333,000) a reduction of $1,704,000 or 16% compared with last year.

Financial income was $1,775,000 (2002: $1,388,000), reflecting higher average interest rates on a slightly reduced level of cash and other investment balances.

The loss after taxes amounted to $20,221,000 (2002: loss $20,570,000), giving a loss per share of 5.21 cents (2002: loss 5.31 cents).

The balance sheet remains strong with cash and cash investments of $51.1 million at the year-end comprised as follows: Cash and deposits, up to three months duration of $3.3 million; short-term deposits, up to one year of $8.4 million; and long-term deposits for more than one year of $39.4 million.

During 2003, we continued to make progress on several new IP products. We completed a new version of our T5 Compact with Target Identifier (TID) capability for internal use by carriers in their networks. Also in 2003, our OTM1000 OC3 terminal multiplexer successfully passed Telcordia testing and completed the OSMINE process.

We continued to provide enhancements on our EdgeLink HUB to include STS and OC3 capability in 2004. The T (Titan) family continues to expand with new members such as our T5G and T6Pro being added all the time with improved, extended and unique telecom features being added. More are expected to be added during 2004 in order to create a complete IP access based solution for carriers and providers.

Although turnover in 2003 was less than 2002, we experienced some signs of an improving trend as the year progressed. Turnover of our EdgeLink family of products in the second half of 2003 was 32% greater than the first half of 2003. This increase was primarily related to early success of our new EdgeLink HUB product with some new customers. Our strategy of focusing on major customers paid off in 2003 when we were selected to provide our EdgeLink 100 and EdgeLink HUB M13 multiplexer products to a new major U.S. carrier customer. In addition, we continue to see more customers evaluating these and other products in their laboratories.

Our first SONET product, the OTM 1000 terminal multiplexer, introduced in early 2003 has completed initial testing at some carrier customers. This product, which has received early industry recognition, allows service providers to optically deliver a combination of traditional T1 and T3 services and Ethernet services to their customers' demarcation points. We continue to work to increase the number of major customers we are serving in our main markets. We shall also continue to address the smaller carriers in the U.S. who are recovering from the downturn while maintaining our primary focus on the major carriers.

During 2003, our new T5 Compact was approved for use by a major carrier. In addition, the T5 Compact with Target Identifier (TID), one of our new IP platforms, is now in a customer's laboratory. These products will increase our penetration of the carriers' internal IP networks.

Beginning in 2004, we have increased our focus on the VoIP market where significant technology advances will change the way that service providers do business. Our Access201 and Access211 VoIP Media Gateway products employ superior quality voice technology to provide an effective solution for service providers to migrate their customers to IP-based networks. These products are designed to fit the new Voice Over Network (VON) model.

We continue to add more platforms to complement our Ethernet based Fiber To The Home solutions. The T6Pro and other new members of the fiber based T5C family of products will position us to provide a comprehensive solution from the carriers' central office to the customer site. Our unique solutions offer both active and passive Ethernet based technology for easier and more cost effective fiber based services.

We continue to develop other trading relationships in the telecom sector most notably with Nokia as it expands its 3G activity.

2004 to date is showing a continuation of the positive trend that appeared in the latter part of last year. Our products are increasingly being selected for evaluation and subsequent adoption after rigorous testing in a highly competitive and demanding market-place and we have some important contract wins under our belt.

The nature of our customer base is such that there is an inevitable time-lag between the introduction of new products and resultant increased sales activity. However, the improving climate in our industry, combined with themanner in which we have positioned ourselves, suggests that we have witnessed the bottom of the downtown of the last few years and that we can now look forward to a resumption of growth in sales.

1. Loss per share for the years ended 31 December 2003 and 31 December 2002 are calculated using an average 388,167,140 shares in issue in 2003 and an average 387,248,601 shares in issue in 2002.
2. Further copies of this announcement are available from the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.