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Ilan Ben-Dov managed to take control of cash cow Partner Communications, the cellular company known here as Orange. But not all his holdings are quite so lucrative: Tao Tsuot, his investment arm, much less lustrous and is bleeding cash.

On Monday, Tao released its third-quarter financial reports, revealing that it lost another NIS 8.9 million. This brings its total losses from January 2008 to a massive NIS 570 million, causing a shareholders' equity deficit of NIS 313 million. This year, Tao has lost a total of NIS 89 million.

Although one would have expected to have a going concern warning attached to Tau's filings in light of the dismal results, auditors Brightman-Almagor-Zohar included no such thing. This may be because of Ben-Dov's guarantees and liabilities to the company.

The deficit, which includes NIS 125 million that Ben-Dov and Tau have in the company's bonds, does not take into consideration Ben-Dov's commitment to make NIS 15 million available to the company for its operating needs, and also does not include a guarantee that Ben-Dov provided to Bank Leumi for debts of about NIS 91 million. Once you take these factors into account, the deficit is NIS 80 million in practice.

Even under such circumstances, though, Tao's auditors could have explained that it was only a case of an accounting deficit, because in practice the deficit consists of obligations in the form of bonds scheduled for redemption in 2013.

Several factors influenced the company's quarterly results: the NIS 11 million loss at Azorim, a company consolidated with Tao; "put" options Ben-Dov gave the company for the acquisition of Darban stock, which contributed NIS 3.5 million in losses; financing expenditures of about NIS 33 million stemming from about NIS 20 million in expenses due to the rise in the consumer price index; and the valuation of convertible bonds, which contributed an additional loss of about NIS 3.5 million.

However, there were some positive factors offsetting part of Tao's loss, including Darban's profit, of which Tao's portion was about NIS 20 million; earnings from securities trading of about NIS 1 million; and bond buybacks that produced capital gains of about NIS 14 million.

In the coming year, Tao must pay bondholders NIS 84 million in principal and interest. The NIS 40 million in Series B1 bonds are secured by Bank Leumi, which provides credit to the company every year for redemption purposes. The company is expected to fund about NIS 42 million in payments to bondholders from its own resources. Based on the anticipated cash flow listed in the report, the company expects to obtain funds from Ben-Dov's commitments, bank loan refinancing, negotiable trading in its own proprietary portfolio, and an expected dividend from Industrial Buildings Corp.

Tao Tsuot's net asset value continued to decline in the quarter, to a negative NIS 173.5 million, compared to a negative NIS 129 million at the end of 2008. In addition, from the end of the third quarter through November 24, the net asset value continued falling, hitting a negative NIS 180 million. While one could have expected an improvement in the net asset value due to increases in the capital markets, the continued decline is primarily due to the increase in the prices of the company's bonds on the market - according to the net asset value model, a bond is revalued according to its market price, so when bond prices go up, as happened to Tao this year, the company's obligations also grow.

Tao, which is managed by Yossi Arad, has so far managed to ride out the crisis. This was in no small measure thanks to Arad's financial engineering and Ben-Dov's support for the company. Tao sold about NIS 1.5 billion in assets since the beginning of 2008, including shares in Scailex, Delek, Discount Investments, the "Lipstick" Building in New York, the Mall Hayam mall in Eilat and a building on Yehuda Halevi Street in Tel Aviv, among others. Ben-Dov was one of the purchasers of some of these assets, the sale of which dramatically reduced the company's obligations to the banks.

One of the factors that has allowed Tao some breathing room is the fact that the steepest payment on the company's bonds is scheduled for 2013. However, the third quarter of 2009 was its ninth losing quarter, and the company's shareholder equity deficit continues to grow. Ben-Dov and Arad are always hiding behind accounting. The question is how much longer they will be able to continue to do so.