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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0001178913-10-002711.txt : 20110124
<SEC-HEADER>0001178913-10-002711.hdr.sgml : 20110124
<ACCEPTANCE-DATETIME>20101019125122
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001178913-10-002711
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20101019

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:		CORRESP

	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>CORRESP
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<div style="DISPLAY: block; TEXT-INDENT: 0pt"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Tel Aviv | October 19, 2010</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Form 20-F for the Fiscal Year Ended December 31, 2009</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Ladies and Gentlemen,</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 2.75pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font id="TAB1" style="MARGIN-LEFT: 33.25pt"></font>On behalf of Silicom Ltd. (the "<font style="DISPLAY: inline; FONT-WEIGHT: bold">Company</font>"), set forth below are the Company's responses to the comments (the "<font style="DISPLAY: inline; FONT-WEIGHT: bold">Comments</font>") of the staff of the Division of Corporation Finance (the "<font style="DISPLAY: inline; FONT-WEIGHT: bold">Staff</font>") transmitted by letter dated September 21, 2010 (the "<font style="DISPLAY: inline; FONT-WEIGHT: bold">Comment Letter</font>"), in relation to the Company's Form 20-F for the Fiscal Year Ended December 31, 2009 ("<font style="DISPLAY: inline; FONT-WEIGHT: bold">2009 20-F</font>"). For your reference, a copy of the Company&#8217;s proposed draft for Amendment No.&#160;1 on Form 20-F/A to the 2009 20-F (&#8220;<font style="DISPLAY: inlin
e; FONT-WEIGHT: bold">Amendment No.&#160;1</font>&#8221;) is enclosed with this letter.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 2.75pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">For the convenience of the Staff, we have restated in this letter, each of the Comments in the Comment Letter and numbered each of the responses to correspond with the numbers of the Comments in the Comment Letter.&#160;&#160;Capitalized terms used and not defined have the meanings given in the 2009 20-F.</font><br>
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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">20-F for the Fiscal Year Ended December 31, 2009</font></font></div>

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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1.</font></div>
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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">You state on pages 51-52 that two of your founders, Messrs. Yehuda and Zohar Zisapel are directors and principal shareholders of several other corporations and in the event that any opportunities to develop, manufacture or sell new products or enter new fields arise which may conflict with the company, the directors then in office will determine whether or not you should seek to pursue it. You also disclose that a majority of your board of directors is not comprised of independent directors. Please tell us what consideration you gave to including risk factor disclosure regarding any conflicts that may arise from the relationships of your directors, officers and major shareholders.</font></font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-WEIGHT: bold; TEXT-DECORATION: underline">Response:</font> The Company respectfully advises the Staff that indeed Messrs. Yehuda and Zohar Zisapel are also founders, directors and principal shareholders of several other corporations within the Rad Group.</font></div>

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<div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">With respect to any related party transactions with members of the Rad Group, in which Messrs. Yehuda and Zohar Zisapel (or any other office holders of the Company) have a personal interest, conflict of interest or raise issues of such office holders&#8217; fiduciary duties, the Company is required to implement the approval mechanism provided for in the Israeli Companies Law-1999 and the regulations promulgated thereunder (the "<font style="DISPLAY: inline; FONT-WEIGHT: bold">Israeli Companies Law</font>"), pursuant to which such transaction may require audit committee, board of directors and shareholders approval as applicable in accordance with Israeli law.</font></div>
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<div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Furthermore, as disclosed on page 54 of Amendment No.1, in January 2006 the Company's board of directors resolved that any sales to, or purchases from any members of the Rad Group from time to time must either (i) meet certain criteria, including a stipulation that (a) the transactions between the Company and members of the Rad Group relate to standard equipment, services and products purchased or sold by the Company and the Rad Group, as applicable (b) that such transactions occur within the Company's ordinary course of business, and (c) that transactions with members of the Rad Group must be entered into at least on market terms and at a value lower than 0.5% of the Company's annual turnover per transaction and not more than 1% of the Company's annual turnover in the aggregate for all such transactions in a financial year; or (ii) be specifically approved by the audit committee, board of directors and sharehol
ders of the Company, as applicable in accordance with the Israeli Companies law.</font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As disclosed on page 61 of Amendment No.1, in accordance with Israeli law and practice and subject to the exemption set forth in Rule 4350(a)(1) of the NASD Marketplace Rules, the Company follows the provisions of the Israeli Companies Law, rather than the requirements of Rule 4350 of the Market Place Rules, with respect to the independence of the Company's directors. Thus, a majority of the Company's board of directors is not comprised of independent directors as defined in Rule 4200 of the NASD Marketplace Rules, but does include two external directors in accordance with the provisions contained in Sections 239-249 of the Israeli Companies Law.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 3.5pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Given the Company's compliance with the provisions of the Israeli Companies Law with respect to the approval process of any conflicts that may arise from the relationships of the Company's directors, officers and major shareholders, and with respect to the independence of its directors, as well as its adoption of certain restrictive criteria for entering into any transactions with the Rad Group, the Staff is respectfully advised that the Company considers any risks regarding any conflicts that may arise from the relationships of its directors, officers and major shareholders as not material<font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-STYLE: italic">.</font></font></div>

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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">You state that your two top customers accounted for 27% of your revenues in 2009. Please tell us what consideration you have given to disclosing the identities of the customers and to discussing the material terms of any contractual arrangements with these significant customers. It appears that your revenues in the past have been affected by a reduction in the orders of these customers and that you may be substantially dependent on the related customer contracts. Please file the agreements as exhibits to the Form 20-F or provide us with a detailed analysis as to why you believe the agreements need not be filed pursuant to Instruction 4(b)(ii) to the Exhibits of Form 20-F.</font></font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-WEIGHT: bold; TEXT-DECORATION: underline">Response:</font> The Company respectfully advises the Staff that its revenues in the past have been affected by a reduction in the orders of only one of its top customers.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company supplementally advises the Staff that the Company does not have any material contractual arrangements in writing with its customers other than standard purchase orders which the Company receives from time to time, which are customarily based on standard terms and conditions of such customers and are customarily not negotiated. While the Company and its customers may agree in writing on confidentiality obligations or delivery methods, there are generally no written contractual arrangements defining the material terms of the transactions. Therefore, the Company does not depend on customer contracts which would require disclosure. The Company does not wish to disclose the identities of its two top customers or their standard terms and conditions due to reasonable business considerations, including exposure to competition with
 respect to such customers by the Company's existing and future competitors.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company respectfully advises the Staff that, because of the reasons described above, it does not file agreements with customers pursuant to Instruction 4(b)(ii) to the Exhibits of Form 20-F.</font></div>

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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">We note your disclosure that that you use certain key components in your products that are currently available from only one source and others that are available from a limited number of sources. Please tell us what consideration you have given to disclosing the material terms of your contractual arrangements with these suppliers, including Intel and Broadcom, and filing the agreements as exhibits to the Form 20-F. See Instruction 4(b)(ii) to the Exhibits of Form 20-F.</font></font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-WEIGHT: bold; TEXT-DECORATION: underline">Response:</font> As described in the Company&#8217;s response to Comment 2 above, the Company respectfully advises the Staff that it does not have any material contractual arrangements in writing with its suppliers other than standard purchase orders which the Company provides from time to time.</font></div>

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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">We note instances where two or more sources of a material change have been identified, without quantifying the amount that each source contributed to the change. For example, you state that the decrease in revenue in 2008 was due to the global downturn and the difficult market environment, and to a reduction in the orders of the company's largest customer. As a further example, you state that the increase in research and development expenses in 2008 was attributable to a weakening of the US Dollar against the New Israeli Shekel and to your continued investment in new products development, enhancements to existing products and the development of new and networking and connectivity technologies. Please quantify each source that contributed to a material change. See Item 5.A of Form 20-F and Section III.D of SEC Release No. 33-6835.</font></font><
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<div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As disclosed on page 36 of Amendment No.1, sales in 2008 decreased by 4.6% to $25,554 thousand compared to $26,784 thousand in 2007, primarily due to the global downturn and the difficult market environment, and to a reduction in the orders of the Company's largest customer.</font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As disclosed in Note 12B to the Company's Consolidated Financial Statements for the year ending December 31, 2009 (the "<font style="DISPLAY: inline; FONT-WEIGHT: bold">2009 Financial Statements</font>"), in 2008 orders by the Company's largest customer decreased by 31% to $5,108 thousand compared to $7,438 thousand in 2007. Orders by this customer decreased primarily due to changes in the appliance configuration of the customer, which began offering the Company's copper BYPASS cards as an optional add-on rather than as a standard component, as well as the global downturn and the difficult market environment. The Company is unable to separately quantify (i) the contribution of the changes in the customer's appliance configuration and (ii) the contribution of the global downturn on a general reduction in the customer's orders<font styl
e="DISPLAY: inline; FONT-STYLE: italic">.</font></font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company respectfully advises the Staff that the above constitutes the maximum extent of quantification possible for the contribution of two causes of material changes from year-to-year in financial statement line items, as necessary to understanding the registrant's businesses as a whole.</font></div>

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<div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As disclosed on page 37 of Amendment No.1, research and development expenses in 2008 increased by 38.0% to $3,048 thousand compared to $2,208 thousand in 2007.</font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-SIZE: 10pt">This increase was mainly attributed to a continued weakening of the US Dollar against the New Israeli Shekel and to the Company's continued investment in new product development, enhancements to existing products and the development of new networking and connectivity technologies</font>.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company respectfully advises the Staff that the continued weakening of the US Dollar against the New Israeli Shekel (since a significant portion of the Company&#8217;s research and development expenses are incurred in New Israeli Shekel) and the Company's continued investment in new product development, enhancements to existing products and the development of new networking and connectivity technologies contributed approximately $300 thousand and $350 thousand, respectively, to the increase in research and development expenses in 2008, while a mixture of other factors contributed approximately $190 thousand to such increase. The total increase in research and development expenses in 2008 compared to 2007 was in the amount of $840 thousand.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company advises the Staff that it has noted the Staff's comment and added the required disclosure in Item 5 of Amendment No. 1.</font></div>

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<div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As disclosed on page 37 of Amendment No.1, selling and marketing expenses in 2008 increased by 36.2% to $2,093 thousand compared to $1,537 thousand in 2007, mainly due to a continued weakening of the US Dollar against the New Israeli Shekel and to the Company's continued investment in the promotion of the Company's server networking products<font style="DISPLAY: inline; FONT-SIZE: 10pt">.</font></font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company respectfully advises the Staff that the continued weakening of the US Dollar against the New Israeli Shekel (since a significant portion of the Company's selling and marketing expenses are incurred in New Israeli Shekels) and the Company's continued investment in the promotion of the Company's server networking products contributed approximately $150 thousand and $300 thousand, respectively, to the increase in selling and marketing expenses in 2008, while a mixture of other factors contributed approximately $110 thousand to such increase. The total increase in selling and marketing expenses in 2008 as compared to 2007 was in the amount of $556 thousand.</font></div>

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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">We note from your disclosures on page 37 that inventory levels were higher at December 31, 2008 because certain customers postponed and/or cancelled their purchase orders during the fourth quarter of fiscal 2008. We further note that you have recorded write-downs for obsolete inventory for each of the last three fiscal years.&#160;&#160;Tell us your consideration to include a discussion of how certain events, uncertainties and/or changes in circumstances (i.e. order cancellations, economic downturn, etc.) have impacted your inventory levels and accordingly the impact (or the expected impact) on your financial condition and results of operations. In addition, tell us how you considered enhancing your critical accounting policy disclosures to discuss the impact that estimates and assumptions have had on your <font style="DISPLAY: inline; FONT-WEI
GHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">inventory accounting and the potential risk for additional write-downs of obsolete or slow moving inventory inherent in such estimates and assumptions. Please refer to Item 5.D. of Form 20-F and Section V of SEC Release No. 34-48960.</font></font></font></div>
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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">Your disclosures indicate that you believe you have sufficient cash to meet your present requirements. Please confirm, if true, and revise in the future to clearly state whether the company's cash resources will be sufficient to fund your operating needs for the next twelve months. We refer you to FRC 501.03(a).</font></font></div>
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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">It appears that you have not disclosed any amounts that you have set aside or accrued to provide pension, retirement or similar benefits to your directors or executive officers. See Item 6.B.2 of Form 20-F. We note that your board of directors has approved severance payments in the event of termination for the Chief Executive Officer and Chairman of the Board. Please advise.</font></font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-WEIGHT: bold; TEXT-DECORATION: underline">Response:</font> The Company advises the Staff that it has noted the Staff's comment and added the required disclosure in Item 6 of Amendment No. 1.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company supplementally advises the Staff that, as disclosed on page 51 to Amendment No.1 and in Note 9 to the 2009 Financial Statements, under Israeli law and labor agreements, the Company is required to make severance payments to retired or dismissed employees and to employees leaving employment in certain other circumstances. Other than as described therein, in accordance with Israeli law the Company does not have a pension plan or any other liabilities to its employees, officers or directors regarding pension, retirement or similar benefits.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; TEXT-DECORATION: underline">Response:</font><font style="DISPLAY: inline; FONT-SIZE: 10pt"> The Company respectfully </font>advises <font style="DISPLAY: inline; FONT-SIZE: 10pt">the Staff that the services that the Company receives from the Rad Group and Bynet (which is member of the Rad Group) are internet, the leasing of office space and car leasing services that amount to no more than a few tens of thousands of dollars, which the Company does not depend upon and does not consider material. The material terms of the arrangements with the Rad Group relate to standard equipment, services and products, occur within the Company's ordinary course of business, and are on market terms. The Staff is also referred to the Company&#8217;s response to Comment 1 above.</font></fo
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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">We note from your disclosures on pages 35 and 36 that fluctuations in the U.S. dollar against the New Israeli Shekel have significantly impacted your operating expenses. Tell us how you considered providing a sensitivity analysis or other quantitative presentation of the potential impact of changes in foreign exchange rates pursuant to Item 11 of Form 20-F.</font></font></div>
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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">Tell us and disclose the nature of your short- term bank deposits. In addition, tell us how you considered providing the disclosures as required by ASC 320-10-50-2 and ASC 820-10-50-1 through 50-9 for such deposits. If you continue to hold these deposits in the future, please include disclosures with regards to such investments, both as a separate significant accounting policy discussion as well as within your discussion of credit risk in Note 2.</font></font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-WEIGHT: bold; TEXT-DECORATION: underline">Response:</font> The Company respectfully advises the Staff that "short-term bank deposits" refer to the Company's bank deposits with original maturity of 3 to 12 months that bear fixed annual interest of 0.59%-1.59%, as of December 31, 2009. These short-term bank deposits are held in the US branch of one of the largest Israeli banks and their use and withdrawal are not subject to restrictions.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">These deposits are not considered debt securities under ASC 320-10-20, as they do not meet the definition of security (i.e. they are considered loans receivables from banks rather than Money Market funds). Such short-term deposits are measured at amortized cost, which approximates market values due to their short-term maturity. Accordingly, we believe that the disclosure provisions of ASC 320-10-50-2 do not apply.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In addition, we believe that as these deposits are not measured at fair value under recurring basis, but are carried out at amortized cost, they would not be subject to the ASC 820-10-50 disclosure requirements.</font></div>

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<div align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-STYLE: italic">We note the Company maintained a valuation allowance for deferred tax assets of $68,000 and $491,000 at December 31, 2009 and 2008, respectively. Please tell us the reasons for the 2008 valuation allowance and explain what changes lead to the subsequent decrease in the valuation allowance during fiscal 2009. In this regard, given your historical levels of positive pre-tax net income for each of the last five years, please describe further the positive and negative evidence considered in concluding that it is more likely than not that your deferred tax assets will not be realized. Also tell us how you considered significantly enhancing your disclosures to clarify your accounting for such allowance. We refer you to ASC 740-10-30-17 through 30-24.</font></font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Response:</font> The Company respectfully advises the Staff that all available evidence, both positive and negative, has been considered by the Company&#8217;s management to determine whether, based on the weight of such evidence, a valuation allowance on deferred tax assets is needed for the years ended December 31, 2008 and 2009. This determination has mainly focused on the projections of future taxable income.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">By its very nature, future taxable income requires estimates and judgments about future events that may be predictable.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company&#8217;s management has primarily considered the following positive and negative factors in determining the valuation allowance to be recognized in 2008:</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ASC Topic 740, Income Taxes does not prescribe a methodology to determine whether cumulative losses in recent years exist. In practice, we are aware that 'recent years' generally has been interpreted to mean the current year and prior two years, and earnings/losses have been measured based on pretax book income/loss.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline;" face="Symbol, serif">&#183;</font>&#160;&#160;&#160;&#160;&#160;&#160;The carry-forward tax losses period under the Israeli tax law is unlimited (which is relevant for the parent company), while under the US Federal tax law that period is limited to 20 years&#160;&#160;and under the NJ state tax law the carry-forward tax losses would be available for set-off until 2014 ( which is relevant for the subsidiary).</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline;" face="Symbol, serif">&#183;</font>&#160;&#160;&#160;&#160;&#160;&#160;Single product line - the Company's business was based in its entirety on a single product line (Company's Multi-Port Gigabit-Ethernet Server Adapter) which generated all of the Company's revenues, along with the Company's expectations, at that time, pursuant to which in the foreseeable future, we will continue to be dependent on this line of products for all of the Company's revenues.</font></div>

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</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-TOP: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Quarter</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-TOP: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Sales</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-TOP: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Income before income taxes</font></div>
</td>
</tr><tr bgcolor="#cceeff">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2007</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q1</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">6,049</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,275</font></div>
</td>
</tr><tr bgcolor="white">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q2</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">6,617</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,722</font></div>
</td>
</tr><tr bgcolor="#cceeff">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q3</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">6,640</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,742</font></div>
</td>
</tr><tr bgcolor="white">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q4</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">7,478</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,973</font></div>
</td>
</tr><tr bgcolor="#cceeff">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2008</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q1</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">7,703</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,695</font></div>
</td>
</tr><tr bgcolor="white">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q2</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">5,172</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160; 400</font></div>
</td>
</tr><tr bgcolor="#cceeff">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q3</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">6,141</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160; 994</font></div>
</td>
</tr><tr bgcolor="white">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q4</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">6,538</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,680</font></div>
</td>
</tr><tr bgcolor="#cceeff">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2009</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q1</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">5,018</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160; 993</font></div>
</td>
</tr><tr bgcolor="white">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q2</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">4,048</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160; 344</font></div>
</td>
</tr><tr bgcolor="#cceeff">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q3</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">4,638</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;&#160; 524</font></div>
</td>
</tr><tr bgcolor="white">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q4</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">6,822</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,263</font></div>
</td>
</tr><tr bgcolor="#cceeff">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">2010</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q1</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">6,400</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 2px solid">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,148</font></div>
</td>
</tr><tr bgcolor="white">
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-LEFT: black 2px solid; BORDER-BOTTOM: black 4px double"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 4px double">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">Q2</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 4px double">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">6,739</font></div>
</td>
<td valign="top" width="25%" style="BORDER-RIGHT: black 2px solid; BORDER-BOTTOM: black 4px double">
<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">1,626</font></div>
</td>
</tr></table>
</div>
</div>

<div style="TEXT-ALIGN: center">&#160;</div>

<div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
<div id="FTR">
<div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160; </font></div>
</div>

<div id="PN" style="PAGE-BREAK-AFTER: always; WIDTH: 100%">
<div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">- 9 -</font></div>

<div style="WIDTH: 100%; TEXT-ALIGN: center">
<hr style="COLOR: black" noshade size="2">
</div>
</div>

<div id="HDR">
<div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160; </font></div>
</div>
</div>

<div style="TEXT-ALIGN: center">
<div style="DISPLAY: block; TEXT-INDENT: 0pt"><img src="top1.jpg" alt=""></div>

<div style="DISPLAY: block; TEXT-INDENT: 0pt"><br>
&#160;</div>

<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company&#8217;s management exercised its best judgment in considering all of the abovementioned factors for 2008. The management concluded that based upon its estimations and forecasts for 2008, considering that although it may be acceptable for a profitable enterprise to assume that future taxable income will at least equal the level of taxable income generated in recent years, a recent history of earnings should not be the sole source of evidence used to support a conclusion that deferred tax benefits will be realized. In addition, despite the recent history of earnings at that time, we already started to face significant uncertainties about future operations as a result of the economic crises. Taking this fact in to consideration, together with other negative factors regarding a limited time frame in which profitability can be 
reasonably projected and a single product line the demand for which may decrease (when new products have not been developed yet), the Company&#8217;s management concluded that for a period exceeding one year there the substantial negative factors heavily outweighs the positive factors. Accordingly, it has been determined that a valuation allowance would be recognized in 2008 for deferred tax assets that are not expected to be realized in the consecutive year as their realization was not considered to be&#160;&#160;likely.</font></div>

<div style="DISPLAY: block; TEXT-INDENT: 0pt"><br>
</div>

<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">With respect to 2009, the Company&#8217;s management primarily considered the following factors in determining the valuation allowance to be recognized for this year:</font></div>

<div style="DISPLAY: block; TEXT-INDENT: 0pt"><br>
</div>

<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline;" face="Symbol, serif">&#183;</font>&#160;&#160;&#160;&#160;&#160;&#160;Proven strength - as of December 31, 2009 we concluded five consecutive years of profitability. During 2009 in particular, which was influenced by a major worldwide economic downturn as discussed above, we have not experienced loss and completed four profitable quarters despite the year&#8217;s significant challenges. Furthermore, in the last two quarters of 2009, the Company has been able to restore a process of growth in its business (which constitutes stronger evidence of a profitable business plan than in 2008), a trend which continued in the beginning of 2010 (as describe in the table above).</font></div>

<div style="DISPLAY: block; TEXT-INDENT: 0pt"><br>
</div>

<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline;" face="Symbol, serif">&#183;</font>&#160;&#160;&#160;&#160;&#160;&#160;New products &#8211; the Company launched several new products in 2009 and in the beginning of 2010, which received a strong positive reaction in the market, and are currently penetrating the Company's existing customer base. Furthermore, new customers have also expressed interest in such new products. The Company believes that its new products will prove to be a significant benefit in future years.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Exhibits 12.1 and 12.2</font></font></div>

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<div><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160; </font></div>
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<div align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.</font></div>
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<div style="DISPLAY: block; TEXT-INDENT: 0pt">&#160;</div>

<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Kindly contact the undersigned at (972) 3 608 7607, if you have any questions or require additional information.</font><br>
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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font id="TAB1" style="MARGIN-LEFT: 216pt"></font>Very truly yours,</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">cc:&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Mr. Eran Gilad</font></div>

<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font id="TAB1" style="MARGIN-LEFT: 38.7pt"></font>Chief Financial Officer</font></div>

<div style="DISPLAY: block; MARGIN-LEFT: 18pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1 Azrieli Center, Tel Aviv 67021, Israel | Tel: (+972) 3 608 7777 | Fax: (+972) 3 608 7724</font></div>

<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">31&#160;&#160;Hillel Street, Jerusalem 94581, Israel | Tel: (+972) 2 623 9239 | Fax: (+972) 2 623 9233</font></div>

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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
