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<SEC-DOCUMENT>0001178913-04-000787.txt : 20040617
<SEC-HEADER>0001178913-04-000787.hdr.sgml : 20040617
<ACCEPTANCE-DATETIME>20040617080106
ACCESSION NUMBER:		0001178913-04-000787
CONFORMED SUBMISSION TYPE:	20-F
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040617

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BOS BETTER ONLINE SOLUTIONS LTD
		CENTRAL INDEX KEY:			0001005516
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER COMMUNICATIONS EQUIPMENT [3576]
		IRS NUMBER:				0000000
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		20-F
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-14184
		FILM NUMBER:		04867445

	BUSINESS ADDRESS:	
		STREET 1:		100 BOS RD
		CITY:			TERADION ISRAEL
		STATE:			L3
		ZIP:			00000

	MAIL ADDRESS:	
		STREET 1:		TERADION INDUSTRIAL PARK
		CITY:			BEIT RABIN
		STATE:			L3
		ZIP:			20179
</SEC-HEADER>
<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>zk40755.txt
<TEXT>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

     [_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
     SECURITIES EXCHANGE ACT OF 1934

OR

     [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the fiscal year ended DECEMBER 31, 2003

OR

     [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                        Commission file number 001-14184

                      B.O.S BETTER ON LINE SOLUTIONS LTD.
             (Exact name of Registrant as specified in its charter)

                                     ISRAEL
                (Jurisdiction of incorporation or organization)

   BEIT RABIN, 100 BOS ROAD, TERADYON INDUSTRIAL PARK, MISGAV, 20179, ISRAEL
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

                                      NONE
                             (Title of each class)

Securities registered or to be registered pursuant to Section 12(g) of the Act:

                 ORDINARY SHARES, PAR VALUE NIS 4.00 PER SHARE
                                (Title of Class)
        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act:

                                      NONE
                                (Title of Class)


Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:

4,167,509 ORDINARY SHARES, NIS 4.00 PAR VALUE PER SHARE, AS OF DECEMBER 31, 2003

<PAGE>


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.

                               Yes [X]     No [_]

Indicate by check mark which financial statement item the registrant has elected
to follow:

                          Item 17 [_]     Item 18 [X]

                                       ii
<PAGE>


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


<S>                                                                                         <C>
PART  I                                                                                      1


ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                                1


ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE                                              1


ITEM 3: KEY INFORMATION REGARDING B.O.S                                                      1


ITEM 4: INFORMATION ON THE COMPANY                                                          12


ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                        26


ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                          37


ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                   48


ITEM 8: FINANCIAL INFORMATION                                                               53


ITEM 9: THE OFFER AND LISTING                                                               54


ITEM 10: ADDITIONAL INFORMATION                                                             55


ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                          69


ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                             70


PART II                                                                                     71


ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                    71


ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS       71


ITEM 15: CONTROLS AND PROCEDURES                                                            71


ITEM 16: [RESERVED]                                                                         71


ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT                                                  71


ITEM 16B: CODE OF ETHICS                                                                    71


ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES                                            71


ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                        71


PART III                                                                                    73


ITEM 17: FINANCIAL STATEMENTS                                                               73


ITEM 18: FINANCIAL STATEMENTS                                                               73


ITEM 19: EXHIBITS                                                                           73


SIGNATURES                                                                                  75

</TABLE>

                                      iii
<PAGE>


                                     PART I


ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS


Not required.

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE


Not required.

ITEM 3: KEY INFORMATION REGARDING B.O.S.


Unless the context in which such terms are used would require a different
meaning, all references to "BOS", "we" or "our" refer to B.O.S. Better On-Line
Solutions Ltd.


3A.  SELECTED CONSOLIDATED FINANCIAL DATA


The consolidated statement of operations data for B.O.S Better On-Line Solutions
Ltd. set forth below with respect to the years ended December 31, 2003, 2002 and
2001, and the consolidated balance sheet data as of December 31, 2003 and 2002,
have been derived from the Consolidated Financial Statements listed in Item 18,
which have been prepared in accordance with generally accepted accounting
principles ("GAAP") in the United States. The consolidated statement of
operations data set forth below with respect to the years ended December 31,
2000 and 1999, and the consolidated balance sheet data as of December 31, 2001,
2000 and 1999, have been derived from other consolidated financial statements
not included herein and have been prepared in accordance with U.S. GAAP. The
financial statements for the years ended December 31, 2001, 2002 and 2003 were
audited by Kost, Forer Gabbay & Kasierer, independent certified public
accountants in Israel and a member of Ernst & Young Global, while the financial
statements for the years ended December 31, 1999 and 2000 were audited by Somekh
Chaikin, independent certified public accountants in Israel and members of KPMG
International. The selected consolidated financial data presented below should
be read in conjunction with Item 5: "Operating and Financial Review and
Prospects" and the Notes to the Financial Statements included in this Form 20-F.


On May 29, 2003, the Company effected a one-for-four reverse stock split. All
share and per share numbers herein reflect adjustments resulting from this
reverse stock split.


                                       1
<PAGE>


STATEMENT OF OPERATIONS DATA: (IN US THOUSANDS OF DOLLARS WITH THE EXCEPTION OF
PER SHARE DATA)


YEAR ENDED DECEMBER 31:


<TABLE>
<CAPTION>

                                    2003       2002       2001       2000       1999
                                  -------    -------    -------    -------    -------
<S>                               <C>        <C>        <C>        <C>        <C>
Revenues                            5,728      9,441      6,042      7,294      6,720
Cost of revenues                    1,455      2,300      2,703      2,399      1,936
                                  -------    -------    -------    -------    -------
GROSS PROFIT                        4,273      7,141      3,339      4,895      4,784
OPERATING EXPENSES:
 Research and development, net      1,846      2,182      1,757      2,177      1,486
 Selling and marketing              2,178      3,705      4,811      4,185      3,024
 General and administrative         1,317      1,697      1,425      2,279      2,181
 Restructuring costs                  678          -        132         83
                                  -------    -------    -------    -------    -------
TOTAL OPERATING EXPENSES            6,019      7,584      8,125      8,724      6,691

OPERATING LOSS:                    (1,746)      (443)    (4,786)    (3,746)    (1,907)
Financial income (expense), net       109        295        427        639        (91)
Other income (expenses)              (795)       (95)      (298)      (479)     2,150
                                  -------    -------    -------    -------    -------
EARNING (LOSS) BEFORE EQUITY IN
LOSSES OF AN AFFILIATED COMPANY    (2,432)      (243)    (4,657)    (3,669)       152
Equity in losses of an
affiliated company                      -          -          -     (1,283)      (696)
                                  -------    -------    -------    -------    -------
NET LOSS FROM CONTINUING
OPERATIONS                         (2,432)      (243)    (4,657)    (4,952)      (544)
Net earning (loss) related to
discontinued operations             2,036     (7,674)    (8,313)    (2,743)      (522)
                                  -------    -------    -------    -------    -------
 NET LOSS                            (396)    (7,917)   (12,970)    (7,695)    (1,066)
                                  =======    =======    =======    =======    =======

 Basic and diluted net loss
 per share from continuing
 operations                       $ (0.66)   $ (0.08)   $ (1.50)   $ (1.66)   $ (0.23)
                                  =======    =======    =======    =======    =======

 Basic and diluted net
 earning (loss) per share
 related to discontinued
 operations                       $  0.55    $ (2.46)   $ (2.68)   $ (0.92)   $ (0.22)
                                  =======    =======    =======    =======    =======


Basic and diluted net loss per
share                             $ (0.11)   $ (2.54)   $ (4.18)   $ (2.58)   $ (0.45)
                                  =======    =======    =======    =======    =======

Weighted average number of
shares used in computing basic
and diluted net earning (loss)
per share                           3,683      3,117      3,097      2,982      2,388
                                  =======    =======    =======    =======    =======
</TABLE>


                                       2
<PAGE>



  YEAR ENDED DECEMBER 31:

<TABLE>
<CAPTION>


BALANCE SHEET HIGHLIGHTED DATA:     2003     2002     2001     2000     1999
- -------------------------------    ------   ------   ------   ------   ------

<S>                                <C>      <C>      <C>      <C>      <C>
CASH AND CASH EQUIVALENTS           3,872    5,246    8,325   16,470      261


Working Capital (*)                 5,082    5,980    7,008   17,378      290


Total Assets                       14,355   17,192   31,281   46,128   33,637

Short-term bank credit and
current maturities of long-term
debt                                    -        -      286      429      421


Long-term debt                        951      794      794    1,049    1,542


Shareholders equity                10,873    8,722   16,478   29,444   13,675


(*)Working capital comprises of:

Current assets                      7,239    9,525   10,677   20,795    3,411

Less: current liabilities           2,157    3,545    3,669    3,417    3,121
                                   ------   ------   ------   ------   ------

                                    5,082    5,980    7,008   17,378      290
                                   ======   ======   ======   ======   ======
</TABLE>



3B.  CAPITALIZATION AND INDEBTEDNESS


Not applicable


3C.  REASONS FOR THE OFFER AND USE OF PROCEEDS


Not applicable


3D.  RISK FACTORS


The following factors, in addition to other information contained or
incorporated by reference in this Form 20-F, should be considered carefully.


This report on Form 20-F contains forward-looking statements that are intended
to be, and are hereby identified as, forward looking statements for the purposes
of the safe harbor provisions of the Private Securities Reform Act of 1995.
These statements address, among other things: our strategy; the anticipated
development of our products; our anticipated use of proceeds; our projected
capital expenditures and liquidity; our development of additional revenue
sources; our development and expansion of relationships; the market acceptance
of our products; and our technological advancement. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including all the risks discussed below and elsewhere
in this report.


                                       3
<PAGE>


We urge you to consider that statements which use the terms "believe", "do not
believe", "expect", "plan", "intend", "estimate", "anticipate", "projections",
"forecast" and similar expressions are intended to identify forward-looking
statements. These statements reflect our current views with respect to future
events and are based on assumptions and are subject to risks and uncertainties.
Except as required by applicable law, including the federal securities laws of
the United States, we do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Market data and forecasts used in this report have been obtained from
independent industry sources. We have not independently verified the data
obtained from these sources and we cannot assure you of the accuracy or
completeness of the data. Forecasts and other forward-looking information
obtained from these sources are subject to the same qualifications and
additional uncertainties accompanying any estimates of future market size.


OUR SALES IN THE US DEPEND ON ONE MASTER DISTRIBUTOR


Up until the fourth quarter of 2002, we marketed our BOScom products through a
US subsidiary (the BOS US division of PacInfoSystems). Currently, we market our
products through one master distributor, Bosanova Inc. The sales of our products
in the US market currently account for more than 50% of our sales. In the event
that we encounter problems working with the master distributor, we may
experience an interruption in sales until an alternative source of distribution
can be found, which may have a material adverse effect our business.


IN EARLY 2002 WE TRANSFORMED THE CORPORATE STRUCTURE OF THE COMPANY INTO A
HOLDING COMPANY SPECIALIZING IN TECHNOLOGY. LATER IN 2002, WE DECIDED THAT THE
COMPANY WOULD FOCUS ON VOIP PRODUCTS, THE CORE BUSINESS OF ITS ISRAELI
SUBSIDIARY, BOSCOM LTD. OUR STATUS AS A HOLDING COMPANY MAY PROVE BURDENSOME
WHICH WOULD ADVERSELY AFFECT OUR LONG-TERM GROWTH, AND OUR DECISION TO
CONCENTRATE ON OUR CORE BUSINESS MAY NOT PROVE PROFITABLE.


Our decision to operate as a holding company may increase costs and not prove
profitable, and the focus on the VOIP products of our Israeli subsidiary, BOScom
Ltd., has not yet proven to be successful. There can be no assurance that this
focus on VOIP, rather than seeking a wide-range of technology investments, shall
be successful and profitable in the future, and such focus may materially
adversely affect our business condition and results of operations.


WE ARE ENGAGED IN A HIGHLY COMPETITIVE INDUSTRY, AND IF WE ARE UNABLE TO KEEP UP
WITH OR AHEAD OF THE TECHNOLOGY OUR SALES COULD BE ADVERSELY AFFECTED.
ADDITIONALLY, WE ARE FAIRLY NEW PLAYERS IN THE HIGHLY COMPETITIVE VOIP SECTOR,
AND THERE ARE NO ASSURANCES THAT WE WILL BE ABLE TO EFFECTIVELY COMPETE WITH THE
MORE ESTABLISHED BUSINESSES IN THE SECTOR.


IBM sells competing products to our own, and can exercise significant customer
influence and technology control in the IBM host connectivity market. We may
experience increased competition in the future from IBM or other companies,
which may adversely affect our ability to continue to market our products and
services successfully.


We also compete against various companies that offer computer communications
products based on other technologies that in certain circumstances can be
competitive in price and performance to our products. There can be no assurance
that these or other technologies will not capture a significant part of the
existing or potential IBM midrange computer communications market.


The market for our products is also characterized by significant price
competition. We may therefore face increasing pricing pressures. There can be no
assurance that competitors will not develop features or functions similar to
those of our products, or that we will be able to maintain a cost advantage or
that new companies will not enter these markets. We believe, however, that our
significant proprietary know-how and experience in emulation technology gives us
long-term advantages.


                                       4
<PAGE>


The VOIP market is very competitive with large companies such as Cisco competing
for the same market segment. There can be no assurance that we will be able to
successfully penetrate the market or realize significant revenues from our line
of products and become profitable.


Some of the Company's current and potential competitors have longer operating
histories, greater name recognition, access to larger customer bases and
significantly greater financial, technical and marketing resources than ours. As
a result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
promotion and sale of their products, than the Company.


IN LATE 2002 WE DECIDED TO WIND UP THE BUSINESS OF OUR SUBSIDIARY, PACIFIC
INFORMATION SYSTEMS, INC. ("PACINFOSYSTEMS"), DUE TO ITS SEVERE FINANCIAL
SITUATION. PACINFOSYSTEMS HAS ALREADY SETTLED WITH A MAJORITY OF ITS EXTERNAL
CREDITORS.


In May 2002, the Company announced its intention to sell PacInfoSystems due to a
change in the Company's business strategy. PacInfoSystems was the Company's
wholly owned U.S. subsidiary that resold, installed and provided computer
networking products to various business entities. Later, the Company decided to
wind up PacInfoSystems instead of selling it due to its severe financial
situation. As of this date, a settlement has been reached with a majority of
PacInfoSystems' creditors, however, there can be no assurance that such a
settlement will be reached with the remainder of the creditors, thus resulting
in additional costs to the Company.


Furthermore, certain actions involving PacInfoSystems, if occurred before the
end of 2003, may have triggered a tax event for Mr. Jacob Lee, who sold
PacInfoSystems to the Company in 1998. In such event, the Company may be
obligated, under the purchase agreement, to grant Mr. Lee a loan on a full
recourse basis for certain tax payments Mr. Lee may be liable for, currently
estimated at approximately $1.5 million. The purchase agreement provides that
the Company is to receive a security interest in shares of the Company that Mr.
Lee holds at the time of the loan with a fair market value as of the date of the
loan of at least 125% of the amount of the loan as security for the repayment of
the loan. In addition, in the event the Company is required to loan such sum to
Mr. Lee, the Company may also be required to reimburse Mr. Lee for certain
interest on taxes that he may owe. It is possible that the windup of
PacInfoSystems during 2002 and 2003 may have triggered such a tax event for Mr.
Lee, which would result in an obligation by the Company to loan Mr. Lee such
amount and to reimburse him for interest expenses incidental to the tax event.
Such a loan and reimbursement may have a material adverse affect on our business
condition and results of operations.


THE COMPANY'S SHARES MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET FOR FAILURE
TO MEET NASDAQ'S REQUIREMENTS.


In late 2002 and early 2003 the Company received notice from the Nasdaq Stock
Market that its ordinary shares were subject to delisting from the Nasdaq
National Market for failure to meet Nasdaq's minimum bid price and shareholders'
equity requirements ($10 million) for continued listing on the National Market.
As a result of the hearing requested by the Company and supplemental information
presented by the Company to the Nasdaq Listing Qualifications Panel by the
Company, the Panel determined to continue the listing of the Company's
securities on the Nasdaq National Market pursuant to a detailed exception to the
Nasdaq National Market Rules, and the Company successfully met all the
conditions set forth in the exception. However, there can be no assurance that
the Company will be able to continue to meet these or other Nasdaq requirements
to maintain its Nasdaq National Market listing, in which case it will need to
apply for a transfer of its ordinary shares to the Nasdaq Small Cap Market.


                                       5
<PAGE>


IF ACTUAL MARKET CONDITIONS PROVE LESS FAVORABLE THAN THOSE PROJECTED BY
MANAGEMENT, ADDITIONAL INVENTORY WRITE-DOWNS MAY BE REQUIRED


Inventories may be written down for estimated obsolescence based upon
assumptions about future demand and market conditions and could adversely affect
our business condition and results of operations. As of December 31, 2003,
inventory is presented net of $300,000 general provision for technological
obsolescence and slow moving items (see also Note 5 to the Consolidated
Financial Statements).


OUR FUTURE LEVELS OF SALES AND PROFITABILITY ARE UNPREDICTABLE.


Our ability to maintain and improve future levels of sales and profitability
depends on many factors.


These factors include:

     o    the continued demand for our existing products;

     o    our ability to develop and sell new products to meet customer needs;

     o    management's ability to control costs and successfully implement our
          business strategy; and

     o    our ability to manufacture and deliver products in a timely manner.


There can be no assurance that we will experience any growth in sales or
profitability in the future or that the levels of historic sales or
profitability experienced during previous years will continue in the future.


WE DEPEND ON CERTAIN KEY PRODUCTS FOR THE BULK OF OUR SALES.


Our IBM midrange related products account for most of our sales. We anticipate
that our IBM midrange related products will continue to account for a
significant portion of our sales and profitability. If sales of our IBM midrange
products were to decline significantly for any reason, or the profit margins on
such products were to decrease significantly for any reason (including in
response to competitive pressures), our financial results would be adversely
affected. Over the past few years there has been a continuous global decrease in
sales and revenues from the connectivity solutions sector (also known as the
legacy family products) (see Item 4B). Although the Company's revenues in this
sector have decreased as a result, in comparison to other players in this field,
we have fared quite well, but there can be no assurance that we will continue to
do so.


To reduce the risk of such a decline or decrease due to competitive pressures or
technical obsolescence, we are continually seeking to reduce costs, upgrade and
expand the features of our IBM related products, expand the applications for
which the products can be used and increase marketing efforts to generate new
sales.


Although we are developing and introducing new remote communications products
and increasing our marketing efforts, there can be no assurance that the planned
enhancements or the new developments will be commercially successful, or that we
will be able to increase sales of our IBM midrange products.


IF WE ARE UNSUCCESSFUL IN DEVELOPING AND INTRODUCING NEW PRODUCTS, WE MAY BE
UNABLE TO EXPAND OUR BUSINESS.


The market for some of our products is characterized by rapidly changing
technology and evolving industry standards. The introduction of products
embodying new technology and the emergence of new industry standards can render
existing products obsolete and unmarketable and can exert price pressure on
existing products.


                                       6
<PAGE>


We established our subsidiary Lynk, which is now known as BOScom, for the
purpose of developing, manufacturing and marketing new products for remote
networking connectivity and VOIP. However, the VOIP market has been unstable and
vulnerable over the past years, and competing in such a market may be a risky
endeavor. The VOIP market has suffered from low image due to availability,
reliability and quality problems. As such, there can be no assurance that we
will realize significant revenues from products developed and introduced by
BOScom.


Our ability to anticipate changes in technology and industry standards and
successfully develop and introduce new and enhanced products as well as
additional applications for existing products, in each case on a timely basis,
will be critical in our ability to grow and remain competitive. Although these
products are related to, and even incorporate our existing products, there can
be no assurance that we will be able to successfully develop and market any such
new products. If we are unable to develop products that are competitive in
technology and price and responsive to customer needs, for technological or
other reasons, our business will be materially adversely affected.


WE DEPEND ON KEY PERSONNEL AND NEED TO BE ABLE TO RETAIN THEM AND OUR OTHER
EMPLOYEES.


Our success depends, to a significant extent, on the continued active
participation of our executive officers, other members of management and key
technical and sales and marketing personnel. In addition, there is significant
competition for employees with technical expertise in our industry. Our success
will depend, in part on:

     o    our ability to retain the employees who have assisted in the
          development of our products;

     o    our ability to attract and retain additional qualified personnel to
          provide technological depth and support to enhance existing products
          and develop new products; and

     o    our ability to attract and retain highly skilled computer operating,
          marketing and financial personnel.


We cannot make assurances that we will be successful in attracting, integrating,
motivating and retaining key personnel. If we are unable to retain our key
personnel and attract additional qualified personnel as and when needed, our
business may be adversely affected.


WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH AND EXPANSION, AND AS A
RESULT, OUR BUSINESS RESULTS MAY BE ADVERSELY AFFECTED.


Our goal is to grow significantly over the next few years. The management of our
growth, if any, will require the continued expansion of our operational and
financial control systems, as well as a significant increase in our
manufacturing, testing, quality control, delivery and service capabilities.
These factors could place a significant strain on our resources.


Our inability to meet our manufacturing and delivery commitments in a timely
manner (as a result of unexpected increases in orders, for example) could result
in losses of sales, our exposure to contractual penalties, costs or expenses, as
well as damage to our reputation in the marketplace.


Our inability to manage growth effectively could have a material adverse effect
on our business, financial condition and results of operations.


                                       7
<PAGE>


WE HAVE LIMITED EXPERIENCE IN MAKING ACQUISITIONS.


We may wish to pursue the acquisition of businesses, products and technologies
that are complementary to ours. However, to date, our management has had limited
experience in making acquisitions. In June 1998, we acquired PacInfoSystems,
which was based in Portland, Oregon, and in 2001 PacInfoSystems acquired Dean
Technologies LLC ("Dean Tech"), which was based in Grapevine, Texas. Both
businesses have since ceased operations. Acquisitions involve a number of other
risks, including the difficulty of assimilating geographically diverse
operations and personnel of the acquired businesses or activities and of
maintaining uniform standards, controls, procedures and policies. There can be
no assurance that we will not encounter these and other problems in connection
with any acquisitions we may undertake. There can be no assurance that we will
ultimately be effective in executing additional acquisitions. Any failure to
effectively integrate future acquisitions could have an adverse effect on our
business, operating results or financial condition.


THE MEASURES WE TAKE IN ORDER TO PROTECT OUR INTELLECTUAL PROPERTY MAY NOT BE
EFFICIENT OR SUFFICIENT.


Our success is dependent upon our proprietary rights and technology. We
currently rely on a combination of trade secret, copyright and trademark law,
together with non-disclosure and invention assignment agreements, to establish
and protect the proprietary rights and technology used in our products. Much of
our proprietary information is not patentable. We generally enter into
confidentiality agreements with our employees, consultants, customers and
potential customers and limit the access to and the distribution of our
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our technology without
authorization, or to develop similar technology independently. We do not believe
that our products and proprietary rights infringe upon the proprietary rights of
others. However, there can be no assurance that any other party will not argue
otherwise. The cost of responding and adequately protecting ourselves against
any such assertion may be material, whether or not the assertion is valid.
Further, the laws of certain countries in which we sell our products do not
protect our intellectual property rights to the same extent as do the laws of
the United States. Substantial unauthorized use of our products could have a
material adverse effect on our business. We cannot make assurances that our
means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology.


WE RELY ON CERTAIN KEY SUPPLIERS FOR THE SUPPLY OF COMPONENTS IN OUR PRODUCTS.


We purchase certain components and subassemblies used in our existing products
from a single supplier or a limited number of suppliers. In the event that any
of our suppliers or subcontractors become unable to fulfill our requirements in
a timely manner, we may experience an interruption in production until an
alternative source of supply can be obtained, although we are of the opinion
that the level of inventory held by the Company would probably be sufficient to
cover such a period.


FLUCTUATIONS IN OUR OPERATING RESULTS COULD RESULT IN LOWERED PRICES.


Our sales and profitability may vary in any given year, and from quarter to
quarter, primarily depending on the number of products sold in the United States
and in Europe. In order to maintain and increase sales to the United States and
to Europe, we may find it necessary to decrease prices. We will need to offer
competitive, low entry prices in order to enter into new markets with new
products and to continue our penetration into the European market with our VOIP
products.


                                       8
<PAGE>


WE HAVE LIMITED CAPITAL RESOURCES AND WE MAY ENCOUNTER DIFFICULTIES RAISING
CAPITAL.


The continued expansion into the VOIP market will require additional resources
and especially working capital. Our efforts to obtain a significant credit line
from a financial institution have not been successful, and therefore we plan to
raise additional capital and/or to enter into strategic alliances. However, the
VOIP market has been unstable and vulnerable and we may encounter difficulties
raising capital. If our efforts to raise capital do not succeed, our efforts to
increase the business and to compete with our competitors may be seriously
jeopardized, thus having a materially adverse effect on our business.


THERE CAN BE NO ASSURANCE THAT WE WILL NOT BE CLASSIFIED AS A PASSIVE FOREIGN
INVESTMENT COMPANY (A "PFIC").


Based upon its current and projected income, assets and activities, we do not
believe that at this time the Company is a passive foreign investment company (a
"PFIC") for US federal income tax purposes, but there can be no assurance that
we won't be classified as such in the future. Such classification may have grave
tax consequences for US shareholders. One method of avoiding such tax
consequences is by making a "qualified electing fund" election for the first
taxable year in which the Company is a PFIC. However, such an election is
conditioned upon the Company furnishing US shareholders annually with certain
tax information. The Company does not presently prepare or provide such
information, and such information may not be available to US shareholders if the
Company is subsequently determined to be a PFIC.


WE HAVE SIGNIFICANT SALES WORLDWIDE AND COULD ENCOUNTER PROBLEMS IF CONDITIONS
CHANGE IN THE PLACES WHERE WE MARKET OUR PRODUCTS.


We have sold and intend to continue to sell our products in markets through
distributors in North America and Europe.


A number of risks are inherent in engaging in international transactions,
including -

     o    international sales and operations being limited or disrupted by
          longer sales and payment cycles,

     o    possible encountering of problems in collecting receivables,

     o    governmental controls, or export license requirements being imposed,

     o    political and economic instability in foreign countries,

     o    trade restrictions or changes in tariffs being imposed, and

     o    laws and legal issues concerning foreign countries.


If we should encounter such difficulties in conducting our international
operations, it may adversely affect our business condition and results of
operations.


AS PART OF A GLOBAL SLOW DOWN IN TECHNOLOGY MARKETS, TECHNOLOGY-FOCUSED
CORPORATIONS HAVE SUFFERED AND AS A RESULT THEIR SHARES HAVE DECLINED IN VALUE.


Our Company, like other technology companies, has been significantly impacted by
the current market slowdown in the technology industry. Lately, the industry has
been showing initial signs of recovery, however, there can be no assurance that
the technology market will fully recover or that our operating results will not
continue to suffer as a consequence.


INFLATION AND FOREIGN CURRENCY FLUCTUATIONS SIGNIFICANTLY IMPACT ON OUR BUSINESS
RESULTS.


The vast majority of our sales are made in US Dollars and most of our expenses
are in US Dollars and New Israel Shekels ("NIS"). The Dollar cost of our
operations in Israel is influenced by the extent to which any increase in the
rate of inflation in Israel over the rate of inflation in the United States is
offset by the devaluation of the NIS in relation to the Dollar. Our Dollar costs
in Israel will increase if inflation in Israel exceeds the devaluation of the
NIS against the Dollar or if the timing of such devaluations lags behind
inflation rate increases in Israel.


                                       9
<PAGE>


POLITICAL, ECONOMIC, AND SECURITY CONDITIONS IN ISRAEL AFFECT OUR OPERATIONS AND
MAY LIMIT OUR ABILITY TO PRODUCE AND SELL OUR PRODUCTS OR PROVIDE OUR SERVICES.


We are incorporated under the laws of the State of Israel, where we also
maintain our headquarters and our principal manufacturing, research and
development facilities. Political, economic, security and military conditions in
Israel directly influence us. We could be adversely affected by any major
hostilities involving Israel, the interruption or curtailment of trade between
Israel and its trading partners or a significant downturn in the economic or
financial condition of Israel. The future of the "peace process" with the
Palestinians is uncertain and has deteriorated due to Palestinian violence.
Furthermore, the threat of a large-scale attack by Palestinians on Israeli
civilians and key infrastructure remains a constant fear. The past three years
of renewed terrorist attacks by the Palestinians has severely affected the
Israeli economy in many ways. In addition, several countries still restrict
business with Israel and with companies doing business in Israel. We could be
adversely affected by adverse developments in the "peace process" or by
restrictive laws or policies directed towards Israel or Israeli businesses.


Generally, all nonexempt male adult citizens and permanent residents of Israel,
including some of the Company's officers and employees, are obligated to perform
military reserve duty annually, and are subject to being called to active duty
at any time under emergency circumstances. While the Company has operated
effectively under these requirements since its incorporation, we cannot predict
the full impact of such conditions on the Company in the future, particularly if
emergency circumstances occur. If many of the Company's employees are called for
active duty, the Company's business may be adversely affected.


Additionally, in recent years Israel has been going through a period of
recession in economic activity, resulting in low growth rates and growing
unemployment. Our operations could be adversely affected if the economic
conditions in Israel continue to deteriorate. Also, due to significant economic
reforms proposed by the Israeli government, there have been several general
strikes and work stoppages in 2003 and 2004, affecting all banks, airports and
ports. These strikes have had an adverse effect on the Israeli economy and on
business. Following the passing of laws to implement economic measures, the
Israeli trade unions have threatened further strikes or work stoppages, and
these may have an adverse effect on the Israeli economy and our business.


IF THE ISRAELI GOVERNMENT PROGRAMS THAT WE BENEFIT FROM ARE REDUCED OR
TERMINATED, OUR COSTS AND TAXES MAY INCREASE.


Under the Israeli Law for Encouragement of Capital Investments, 1959, facilities
that meet certain conditions can apply for "Approved Enterprise" status. This
status confers certain benefits including tax benefits. Our existing facilities
have been designated as Approved Enterprises. If we attain taxable income in
Israel, these tax benefits will help reduce our tax burden.


In addition, in order to maintain our eligibility for the grants and tax
benefits we receive, we must continue to satisfy certain conditions, including
making certain investments in fixed assets and operations and achieving certain
levels of exports. If we fail to satisfy such conditions in the future, we could
be required to refund tax benefits which may have been received with interest
and linkage differences to the Israeli Consumer Price Index.


The law and regulations prescribing the benefits provide for an expiration date
for the grant of new benefits. The expiration date has been extended several
times in the past. The expiration date currently in effect is June 30, 2004
(which may be extended by ministerial decision until December 31, 2004), and no
new benefits will be granted after that date unless the expiration date is again
extended. There can be no assurance that new benefits will be available after
June 30, 2004, or that existing benefits will be continued in the future at
their current level or at any level. The Israeli Government authorities have
indicated that the government may reduce or eliminate these benefits in the
future. A termination or reduction of certain programs and tax benefits
(particularly benefits available to the Company as a result of the Approved
Enterprise status of the Company's facilities and programs) or a requirement to
refund the tax benefits already received, would have a material adverse effect
on the Company's business, operating results and financial condition.


                                       10
<PAGE>


Under the Law for the Encouragement of Industrial Research and Development, 1984
(the "Research Law"), research and development programs approved by a research
committee appointed by the Israeli Government are eligible for grants in
exchange for payment to the Government of royalties from the sale of products
developed in accordance with the Program. Regulations issued under the Research
Law generally provide for the payment of royalties to the Office of the Chief
Scientist equal to 3.5% of sales of products developed as a result of a research
project so funded until 100% of the dollar-linked grant is repaid. Royalties
payable with respect to grants received under programs approved by the OCS after
January 1, 1999, are subject to interest on the U.S. dollar-linked value of the
total grants received at the annual rate of LIBOR applicable to U.S. dollar
deposits on the date the grants were received


The Research Law requires that the manufacture of any product developed as a
result of research and development funded by the Israeli Government take place
in Israel. It also provides that know-how from the research may not be
transferred to third parties without the approval of the Israeli Office of the
Chief Scientist in the Ministry of Industry and Trade.


THE ANTI-TAKEOVER EFFECTS OF ISRAELI LAWS MAY DELAY OR DETER A CHANGE OF CONTROL
OF THE COMPANY.

Under the Israeli Companies Law, a merger is generally required to be approved
by the shareholders and board of directors of each of the merging companies.
Shares held by a party to the merger and certain of its affiliates are not
counted toward the required approval. If the share capital of the company that
will not be the surviving company is divided into different classes of shares,
the approval of each class is also required. A merger may not be approved if the
surviving company will not be able to satisfy its obligations. At the request of
a creditor, a court may block a merger on this ground. In addition, a merger can
be completed only after all approvals have been submitted to the Israeli
Registrar of Companies and 70 days have passed from the time that a proposal for
approval of the merger was filed with the Registrar.

The Israeli Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer, if as a result of the
acquisition, the purchaser would become a holder of 25% or more of the voting
power at general meetings, and no other shareholder owns a 25% stake in the
Company. Similarly, the Israeli Companies Law provides that an acquisition of
shares in a public company must be made by means of a tender offer if, as a
result of the acquisition, the purchaser would become a holder of 45% or more of
the voting power at general meetings, unless someone else already holds a
majority of the voting power. These rules do not apply if the acquisition is
made by way of a merger.

The Israeli Companies Law provides specific rules and procedures for the
acquisition of shares held by minority shareholders, if the majority shareholder
holds more than 90% of the outstanding shares. Israeli tax law treats specified
acquisitions, including a stock-for-stock swap between an Israeli company and a
foreign company, less favorably than does U.S. tax law.

These laws may have the effect of delaying or deterring a change in control of
the Company, thereby limiting the opportunity for shareholders to receive a
premium for their shares and possible affecting the price that some investors
are willing to pay for the Company's securities.


                                       11
<PAGE>


INDEMNIFICATION OF DIRECTORS AND OFFICERS


The Company has agreements with its directors and senior officers which provide,
subject to Israeli law, for the Company to indemnify these directors and senior
officers for (a) monetary liability imposed upon them in favor of a third party
by a judgment, including a settlement or an arbitral award confirmed by the
court, as a result of an act or omission of such person in his capacity as a
director or officer of the Company, and (b) reasonable litigation expenses,
including attorney's fees, incurred by such a director or officer or imposed on
him by a court, in a proceeding brought against him by or on behalf of the
Company or by a third party, or in a criminal action in which he was acquitted,
or in a criminal action which does not require criminal intent in which he was
convicted, in each case relating to acts or omissions of such person in his
capacity as a director or officer of the Company. Such indemnification may
materially adversely affect our financial condition.


ALL OF OUR DIRECTORS AND OFFICERS ARE NON-U.S. RESIDENTS AND ENFORCEABILITY OF
CIVIL LIABILITIES AGAINST THEM IS UNCERTAIN.


All of our directors and officers reside outside of the United States. Service
of process upon them may be difficult to effect within the United States.
Furthermore, because the majority of our assets are located in Israel, any
judgment obtained in the United States against us or any of our directors and
officers may not be collectible within the United States.




ITEM 4: INFORMATION ON THE COMPANY


4A.  HISTORY AND DEVELOPMENT OF THE COMPANY


We were incorporated in Israel in 1990 as a private corporation under the
Israeli Companies Ordinance, 1983. Our headquarters and manufacturing facilities
are located at 100 Bos Road, Teradyon Industrial Zone, Misgav 20179 Israel. Our
telephone number is 972-4-990-7555.


In January 2002, the Company changed its organizational structure. As part of
this change, the Company 's marketing, development, production and support
activities were sold to Lynk, a B.O.S. subsidiary founded in 1995, to develop
and market high-quality data access convergence and remote access solutions, and
later VOIP hardware and software telephony, for the corporate market. Following
the reorganization, Lynk changed its name to BOScom Ltd.


On May 24, 2002, the Company announced its intention to sell PacInfoSystems (see
Risk Factors and Note 1c to the Consolidated Financial Statements) due to a
change in the Company's business strategy. PacInfoSystems was the Company's
wholly-owned U.S. subsidiary that resold, installed and provided computer
networking products to various business entities. Management formulated a new
strategic plan that provided for the discontinuation of the computer networking
business. As a result, the Company decided in May 2002 to sell PacInfoSystems
and to write-off amortized goodwill associated with PacInfoSystems in the amount
of $3.9 million.


However, the Company's efforts to sell PacInfoSystems, whose financial situation
was deteriorating, were not successful. Further developments, such as an
arbitration judgment rendered against PacInfoSystem in the sum of approximately
$650,000, continuation of poor sales results, termination of line of credit, as
well as the loss of some key employees and members of the sales force, left the
Company with little choice but to wind up the business. PacInfoSystems has
already settled with a majority of its creditors, however, there can be no
assurance that such a settlement will be reached with the remainder of the
creditors.


                                       12
<PAGE>


Our U.S. subsidiaries are Lynk USA, Inc., and its subsidiary PacInfoSystems,
Inc. (into which our U.S. subsidiary, Better On-Line Solutions Inc. was merged
in early 2001). Both are non-operational and commencing the beginning of year
2003 we market our products in the U.S. through one Master Distributor.


Our other subsidiaries are BOScom Ltd., in Israel, and its subsidiaries - Better
On-Line Solutions Ltd. in the U.K; Better On-Line Solutions S.A.S. in France;
and BOSDelaware, Inc., in the US. During 2003, the operation of the BOScom
subsidiaries was ceased (although all subsidiaries still exist except for the
French one) and the sales and marketing in Europe and USA have since been
conducted through master distributors.


In addition, we have an interest in Surf Communications Solutions Ltd. ("Surf"),
the leading supplier of embedded network convergence software that lends
flexibility and scalability to network products handling data modem, fax, and
voice transmissions. Surf's open system software is integrated into equipment
such as media gateways and remote access concentrators developed by original
equipment manufacturers in the telecommunications, telephony, and data
networking industries. In March 2003 the Company purchased from Catalyst
Investments, L.P. ("Catalyst"), most of the Surf shares held by Catalyst (the
"Transaction"). Under the terms of the Transaction, the Company purchased
191,548 of Catalyst's Preferred C shares in Surf, and a pro rata share of the
Surf Preferred C warrants held by Catalyst, and in exchange it issued to
Catalyst 2,529,100 ordinary shares of the Company (representing 19.9% of its
current outstanding shares pre-issuance, as a result of which Catalyst held
16.6% of the outstanding Company shares, after the issuance). The Company has an
option to purchase the remaining Catalyst Preferred C shares in Surf by January
31, 2006, and until such purchase shall be granted voting rights in these Surf
shares, in addition to being entitled to profits resulting from the sale of
these shares to a third party. In February 2004, these voting rights were
assigned to Mr. Yair Shamir, one of the Company's directors. Thus, the Company
now holds 19.8% in Surf, and 15.3% on a fully diluted basis (assuming the
Company does not exercise its option to purchase the additional shares from
Catalyst). Yair Shamir holds 0.2% in Surf (and 0.2% on a fully diluted basis),
in addition to his holdings of 2.8% of the voting rights in Surf (2.3% on a
fully diluted basis) assigned to him by the Company.


The investment in Surf is accounted for according to the cost method. In the
fourth quarter of 2003 the Company recorded an amortization of the carrying
amount of the investment in the amount of $840,000. The amortization was made
according to management's valuation of the fair market value of the investment
in Surf, supported by an external valuation prepared by an expert. As of
December 31, 2003, the carrying amount of the investment based on the cost
accounting method was reduced to $ 3,112,000.


We design, integrate and test our products in our facilities in northern Israel.
In early 1996, we moved into a new facility, which resulted in the expansion of
our production capabilities and has allowed us to continue to benefit from
substantial Israeli tax incentives.





4B.  BUSINESS OVERVIEW

INDUSTRY BACKGROUND

In the 1960s and 1970s, the business computing environment was typically
organized with the mainframe in the data center and minicomputers at the
division or department level. The host mainframe and minicomputers were accessed
by "dumb" terminals at the user level. These host systems featured high
performance and throughput and often ran custom-designed, critical applications
such as organization-wide payroll, general ledger, inventory management and
order processing programs. Because of the importance of the mainframe and
minicomputers as central repositories of corporate data and critical
applications, significant corporate resources were, and continue to be,
dedicated to maintaining this installed hardware and software base. Although
these host systems are capable of supporting enterprise-wide information system
networks, their applications are generally characterized by limited
availability, complex command sequences and character-based user interfaces.


                                       13
<PAGE>


With the introduction and proliferation of the personal computers in the 1980s,
a substantial amount of corporate computing power was added to the worker's
desktop, a change facilitated by the availability of increasingly powerful
personal productivity applications such as spreadsheets and word processors.
Personal computers began replacing dumb terminals and, as the business computing
environment became increasingly heterogeneous, organizations found themselves
with significant investments in multiple, but often incompatible, systems each
performing different functions within an organization.


Despite the functionality of personal computers, users still needed access to
certain data and applications residing on host systems. Terminal emulation
hardware and software was developed to provide host connectivity by allowing
personal computers to emulate the dumb terminals they had replaced. Often,
however, these terminal emulation products were complicated, difficult to use
and allowed only a single connection to a single host. In addition, terminal
emulation products made little or no provision for the integration of host data
and applications with personal computers data and applications such as
spreadsheets. Therefore, the full capabilities of the personal computers were
not available to the user when the personal computer was used as a terminal.


In the mid-1980s, the desire of personal computer users to share files and
peripheral devices, and to communicate with other users, led to the widespread
implementation of Local Area Networks. Local Area Networks significantly
expanded an organization's ability to more efficiently connect increased numbers
of its personal computer users to host environments through a "gateway"
dedicated to LAN-to-host communication services. The personal computer software
enabling this LAN-to-host connectivity continued to use terminal emulation
technology.


The emergence of the Internet/intranets in the 1990s has encouraged the
development of numerous new products and services that enable and facilitate
access and connectivity of host computers with computer networks. New IBM
midrange products have expanded capabilities of the AS/400 in the area of
electronic commerce.


Continued widespread use of Twinax cable infrastructure has created a need to
develop solutions that can provide these users with such features as e-mail,
networking, and Internet. In addition, the advent of the telephony revolution,
which allows transmittal of voice data over TCP/IP connections, has created a
new direction for VOIP products.


An industry trend noticed in the late 1990s was a move to a "thin client"
environment. Larger enterprises use this method as a means to reduce cost of
ownership by employing Microsoft Windows NT/2000 Terminal Servers, which enable
central configuration and user management. Terminals ("thin clients") are
deployed to users throughout the network to provide the requisite connectivity
to host applications. BOS moved into this arena in early 2003 with a progressive
release program culminating in a full suite of thin clients and Ethernet
terminals. These devices, based on a wide range of operating systems (Linux,
Windows XP and Windows CE.NET) feature embedded TN5250e/TN3720e emulation,
various connectivity tools, office application viewers, and a Web browser, and
support the new BOS 122-key driverless keyboard that functions equally well in
both thin client and PC environments, with both emulation and office
applications. In 1995 the first Client VOIP solution was introduced to the
market by VocalTec, an Israeli company that demonstrated telephone calls over
the internet.


                                       14
<PAGE>


Since then, in an accelerated mode, the VOIP (Voice over Internet Protocol) and
IP Telephony (Internet Protocol Telephony) have become a market with a turnover
of billions of dollars.


Large companies like Cisco, as well as telephony players such as Lucent, Nortel,
Siemens, Alcatel, Avaya and others are selling VoIP solutions and embedding such
technologies into their product lines.


Some players in this market develop solutions for carriers, others focus on the
corporate market.


According to market research performed by professional market analysis firms
such as Advanced Business Link, the revenues in this market are expected to grow
for at least the next 5 years.


DESCRIPTION OF BUSINESS PRODUCT LINES


Our Company operates in three main business product lines:


(A)  CONNECTIVITY -


We create innovative and powerful solutions for seamless integration of personal
computers and Local Area Networks into the midrange host environment. We also
design, integrate, test, market and support superior products that provide
efficient solutions to personnel connecting personal computers to IBM midrange
hosts. Realizing the changing role of this IBM midrange environment in today's
workplace, our mission is to provide our users with technologically advanced and
cost-efficient solutions for connectivity between them and personal computers
and local area networks, whether local or remote. We sell and support our
products worldwide through distributors, and value-added resellers.


Our proprietary products are sold to users of IBM iSeries, AS/400 and System 3x
computers, which are predominantly medium to large sized corporations that use
large data banks in their businesses and require the ability to integrate and
manipulate the data into graphics and popular personal computer programs. The
target market for our products is composed of the owners of approximately
500,000 IBM AS/400 and System 3x computers and the growing number of users who
connect to these computers through the Internet, intranets and various other
connectivity products. During 1999, we have been expanding our line of products
and are now marketing and selling products that are not limited solely to users
of midrange IBM computers.


Our main product line is comprised primarily of TCP/IP to Twinax controllers
that allows Legacy Twinax equipment to work locally or remotely via TCP/IP line
to the AS/400. In addition we have a line of emulation software, to simulate a
personal computer environment having the same functionality to which the users
are accustomed (i.e. Windows or similar graphical interfaces), while using a
midrange computer. The emulation solutions are offered at two levels - at the
user interface level and at the computer connectivity level. At the user
interface level, our emulation technology allows customers to utilize popular
Windows functions and graphics. At the connectivity level, our connectivity
technology provides personal computers with the ability to act as terminals for
IBM midrange computers either through gateway, Internet or direct connection.


We are using our expertise in the midrange computer environment to develop
Internet/intranet solution products that will enable and enhance connectivity
between IBM iSeries computers and personal computers via the Internet and
intranets.


In 2003, 82% of our sales were attributable to sales of connectivity products
and services.


Below is a description by category of our development activity in the
connectivity product line:

                                       15
<PAGE>


(A1) AS/400 DISPLAY AND PRINTING EMULATION FOR LAN/WAN


In December 1997, we announced our BOSaNOVA transmission control protocol /
internet protocol product, a connectivity tool for organizations with either
local or remote TCP/IP networks (intranet or extranet) of personal computers
using Windows 9x/Me or NT/2000/XP operating systems connected to the AS/400.
Development resources in 1999 were directed toward making TCP/IP connectivity
available for Twinax users. The e-Twin@x technology has now been implemented in
products such as the BOSaNOVA Plus, BOSaNOVA TCP/IP, and e-Twin@x Controller,
which made its debut in the middle of 1999, and has been rapidly established as
the remote computer controller of choice.


(A2) BROWSER-BASED WEB-TO-HOST GUI DISPLAY AND PRINTING


In December 1997, we introduced Jadvantage, a Java-based application that
provides AS/400 and iSeries computer users with TN5250e emulation and printing
on personal computers via an Internet browser. Jadvantage enables any user
equipped with a Java-enabled Web browser to securely access iSeries or AS/400
applications, eliminating the need for the user to install and upgrade emulation
software. Over the years, the Jadvantage has been improved greatly by the
inclusion of support for native SCS printing, SQL-based data transfer, SSL
protocol for bi-directional secure communications, and extended administrative
capabilities.


Version 5 of Jadvantage was released in 2003. The latest version expands client
support to Netscape browsers, Macintosh computers and Linux platforms. The
product is especially attractive to enterprises that want to make their iSeries
applications available to remote users, whether they be branch offices, road
warriors, home workers, distributors or customers. The built-in GUI toolbox
makes "Web facing" applications (improving the midrange application's interface
with graphics, fonts, colors, mouse-sensitive hot-spots, etc.) both quick and
simple, in direct contrast to other products in the field.


(A3)TWINAX-TO-ETHERNET CONTROLLERS


The e-Twin@x Controller, which made its debut in 1999, supplies a secure,
encrypted TN5250e connection to the AS/400 over the Internet or WAN, and
provides local or remote Twinax networks with access to LAN resources. The
e-Twin@x Controller allows enterprises to leverage their Twinax investments (in
equipment and cabling) while providing the benefits of a TCP/IP connection.
Dramatic improvements in performance, uptime and cost-efficiency are the result.
A new model, the e-TwinSt@r, was released in 2002. It features native support
for CAT5 cabling, in the form of built-in RJ45 sockets, saving customers with
this environment the cost of an active star hub.


(B) SOFTWARE UTILITIES -


Our product BOSaNOVA PrintBoss, which introduced in late 1998 is an innovative
and powerful solutions for document design, distribution and management
solutions for a wide range of operating systems, including mainframe and UNIX.
Recent collaborative efforts with printer manufacturers and software houses have
proven BOSaNOVA PrintBoss' appeal as an original equipment manufacturer
component, in addition to its suitability as an end user solution.


The year 2000 saw the second major release of BOSaNOVA PrintBoss, which added
support for e-Mail distribution, secure printing (complementing the existing
check printing functionality), and document routing to multiple destinations
capability.


In 2001 we were awarded a large contract with one of Israel's leading banks to
provide uniform, customized electronic forms to all its branches. This project
was completed in 2002.


In 2003, we realized a trend for the adoption of BOSaNOVA PrintBoss, which added
support for e-Mail distribution, secure printing (complementing the existing
check printing functionality), and document routing to multiple destinations
capability.


                                       16
<PAGE>


In 2003, 8% of our sales were attributable to sales of Software Utility products
and services.


(C) COMMUNICATION SOLUTIONS


BOS has developed a series of intelligent and highly versatile VOIP (Voice over
IP) communication products designed for the corporate market. The gateways
(described below- see "products") enable enterprises to reduce or completely
eliminate inter-office communication costs or bypass long-distance costs using
their private Intranet or the public Internet to carry telephone calls. They
also provide a powerful means to extend PBX functionality to the enterprise's
branch offices. The VOIP family of products includes a series of gateways and
clients which work together seamlessly for a variety of business applications.
All gateways are built using standard protocols and pass interoperability tests.
Special attention has been given to building a robust platform with a
user-friendly interface, automated installation procedures and powerful
management tools. All enhancements complement the priority target of top-level
voice quality connection.

In 2003, 10% of our sales were attributable to sales of VOIP products and
services.





Until late 2002, we operated in a fourth business product line - COMPUTER
NETWORKING:


On June 1, 1998, we acquired 100% of the share capital of Pacific Information
Systems, Inc. ("PacInfoSystems"), a U.S. corporation which resold, installed and
provided computer networking products to various business entities. In 2001,
PacInfoSystems acquired 100% of Dean Tech Technologies Associates, L.L.C. (Dean
Tech). Dean Tech was an IBM Advanced Business Partner providing complete IT
solutions utilizing IBM's industry-leading eServer pSeries and xSeries lines of
servers, as well as IBM TotalStorage Solutions. 100% of our computer networking
revenues were derived from sales to US customers. Both PacInfoSystems and Dean
Tech have ceased all operations (see Item 4A).


PRODUCTS


We currently offer a variety of products that provide various connectivity,
software utilities and communication solutions to customers.


(A) CONNECTIVITY SOLUTIONS -


Our products are divided into three areas:

     o    (1) connectivity emulation solutions,

     o    (2) gateway/server solutions,

     o    (3) client solutions,


(A1) CONNECTIVITY EMULATION SOLUTIONS


Our emulation products provide personal computer users with easy access to
computer applications and data on IBM midrange computers. These products
establish communications connections between a customer's personal computer or
Local Area Network and IBM midrange computers using familiar, easy-to-use modem
network or Twinax hardware and software.


                                       17
<PAGE>


Our connectivity emulation products are comprised of personal computer adapter
cards which, when installed with emulation software (of ours or of other
providers), enable personal computers to function as Twinax terminals. These
products are based on Stealth Technology(TM) which can easily integrate our
products with those of other manufacturers, and the Ornev Chip, a computer chip
for the software level that interfaces with the hardware of the IBM-compatible
computer, and which we believe is superior to the other chips currently
available in the market. We believe the Ornev Chip is faster (which is important
during file transfer) and incorporates more sophisticated signal processing
algorithms that make it especially reliable in situations involving
communication lines of marginal quality. The Stealth Technology(TM) and the
Ornev Chip reduce the personal computer resources consumed, such as memory or
IRQ, as compared to other currently available products. As a result, products
based on the Ornev Chip are easier to install than other currently available
products, especially on Pentium computers.


Our connectivity emulation products include emulation boards, emulation
software, and terminals as described below:


EMULATION BOARDS

     o    NATIVE PLUS.

          An IBM-compatible Twinax card with 5250 Stealth Technology (TM). This
          product does not require a memory segment of the personal computer or
          its valuable resources in order to facilitate interaction with the
          hardware.

     o    BOSaNOVA PLUS.

          An enhanced version of the Native Plus that includes a Twinax adapter
          card with feature-rich 5250 display/printer emulation software for
          either DOS, 16- or 32-bit Windows and 32-session APPC display/printer
          emulation software. This product is based on an IBM compatible Twinax
          card with 5250 Stealth Technology(TM).


EMULATION SOFTWARE

     o    BOSaNOVA TCP/IP.

          A robust client application that provides Windows9x/Me/NT/2000/XP
          users on a TCP/IP network with essential iSeries and AS/400
          connectivity. The product includes BOS's rich 5250 emulation, LPD
          printing capabilities, file transfer and a remote command facility.
          This product was announced at the end of 1997 and released in the
          first quarter of 1998.

     o    JADVANTAGE.

          A Java-based application that provides iSeries and AS/400 users with
          TN5250e emulation and printing and SQL-based data transfer on personal
          computers via an Internet browser. It is aimed at organizations that
          use the Internet and intranet for an increasing number of
          applications. Jadvantage enables any user equipped with a Java-enabled
          Web browser to securely access iSeries and AS/400 applications,
          eliminating the need to install and upgrade emulation software on each
          of the attached clients, and reducing the maintenance and overhead
          usually associated with installation and updating of client
          applications for secure communication over traditionally non-secure
          TCP/IP networks. Jadvantage includes SSL data encryption, IP address
          restriction and Jadvantage server log-in.


TERMINALS

     o    BOSaNOVA XTC-400

          The BOSaNOVA XTC-400 delivers Windows(R) applications simply,
          securely, and cost-effectively throughout an organization with the
          BOSaNOVA XTC-400. Based on an Intel-compatible VIA 400 MHz processor
          and featuring the state-of-the-art Windows XP-embedded operating
          system, the BOSaNOVA XTC-400 includes BOScom's award-winning
          IBM-certified BOSaNOVA TCP/IP(R) TN5250e emulation and an optional
          122-key driverless keyboard, providing iSeries customers with a unique
          opportunity to obtain a complete thin client solution from a single,
          industry-renowned manufacturer.


                                       18
<PAGE>


     o    BOSaNOVA LTC SERIES

          The BOSaNOVA LTC Series of thin client terminals provides an easily
          configurable solution to desktop computing. Whether the application is
          data entry, point of sale, training, ISP's, or web kiosks, these thin
          clients provide a highly cost-effective access to Windows desktop
          applications residing on a Microsoft Windows NT/2000 Terminal Server.
          Central configuration and user management drastically reduces cost of
          ownership, while the versatility of the hardware platform and
          customization capabilities increase user productivity. The high end
          LTC-600 provides almost twice the processing power and up to seven
          times the performance when compared to industry-standard Windows
          CE-based thin clients.

     o    BOSaNOVA TBT-400

          The BOSaNOVA TBT-400 Ethernet terminal offers the very best TN5250e
          and TN3270e emulation available for a LAN environment. In contrast to
          standard text-based terminals, the BOSaNOVA TBT-400 includes Windows
          2000 Terminal Server (RDP) and Citrix Metaframe (ICA) clients in its
          basic configuration. Full support for 122 key keyboards is also built
          in to allow maximum productivity for users migrating from other 5250
          or 3270 terminals. Performance tests measuring response time for its
          TN5250e and TN3270e embedded emulation indicate that the BOSaNOVA
          TBT-400 outperforms similar products based on Windows CE by a ratio of
          five to one.

     o    BOSaNOVA WTC-400

          The BOSaNOVA WTC-400, based on the industry-standard Windows CE.NET
          platform, provides cost-effective access to Windows desktop
          applications residing on a Microsoft Windows NT/2000/2003 Terminal
          Server. Unlike other CE.NET-based thin clients, which support only
          full-screen applications, the BOSaNOVA WTC-400 uniquely allows
          management of multiple browser windows within a single browser
          instance. As a result, even pop-up windows (which typically require
          the user to close the new window in order to revert to the parent
          window) are no longer a distraction to the standard user's workflow.
          This capability, alongside broad application compatibility and system
          integration flexibility, vastly improves the user experience and
          increases productivity.


(A2) GATEWAY/SERVER SOLUTIONS


Our gateway solutions provide host access to personal computers not directly
connected to the host, either through remote gateways, which allow personal
computer users to receive emulation sessions over telephone lines, or through
Local Area Network gateways, which provide a bridge between the host and all
personal computers on a local area network. Gateways, residing in the same
physical premises as the host and connected to it directly, are connected to the
host on one side, and either Local Area Network or serial communication port on
the user side. Remotely attached gateways replace controllers and primarily
serve users of one remote office or site. Most users at the remote site are
connected through the Local Area Network to the gateway. Remote gateways usually
utilize some sort of System Network Architecture protocol to connect to the
host.


                                       19
<PAGE>


Our gateway/server products include:

     o    E-TWIN@X CONTROLLER.

          This product provides IP over Twinax connection to local and remote
          iSeries and AS/400s, adding the benefits of a Local Area Network to
          existing Twinax infrastructure. This product eliminates the difficulty
          of maintaining System Network Architecture and Anynet protocols,
          replacing them with fast, state-of-the-art Transmission Control
          Protocol / Internet Protocol (TCP/IP).

     o    ADVANCED SERVER FOR SAA.

          A gateway package for connecting LAN-based personal computers to IBM
          midrange (iSeries, AS/400 or Advanced 36) hosts. Advanced Server for
          SAA is comprised of server and client workstation software that
          facilitates communication between the personal computer and the host,
          thereby conserving host resources for more important tasks such as
          serving more simultaneous users. The product was introduced to the
          European market at the end of 1996 and to the US market in the fourth
          quarter of 1997.


(A3) CLIENT SOLUTIONS


Our client solution products provide personal computer users with access to IBM
midrange hosts in several different ways. These products provide for workstation
function with additional interfacing capabilities for host access on personal
computers e.g. shared folders, file transfer, Dynamic Data Exchange (DDE)
interfaces, High Level Language Application Programming Interface (HLLAPI)
interfaces, along with documented application programming interfaces. Recent
developments are Graphical User Interfaces (GUIs) (such as MorphMaster) in which
the standard black and green host screens are transformed into graphic,
Windows-like screens, and Structured Query Language (SQL) file transfers,
whereby users can define and perform file transfers from the host to the
personal computer (and vice versa) based on keywords.


The Client Solution product line emulates Windows software and offers a personal
computer/host file transfer system for Windows and Windows graphics.


Client solution products include:

     o    BOSaNOVA CLIENT FOR WINDOWS.

          An advanced midrange Windows client software solution, which enables
          communication with host systems through Twinax, Ethernet, Token Ring,
          SDLC, and TCP/IP. The product provides workstation and other functions
          in a variety of protocols.

     o    VIA BOSaNOVA.

          A versatile PC/host file transfer system for Windows that provides
          flexible and powerful file transfer between a midrange host and
          stand-alone, LAN-based, or remote personal computers. When used in
          conjunction with LANbada/Twinax for Windows, all personal computers
          across a Local Area Network instantly receive file transfer
          capability. This software product has the built-in capability to
          convert host data into popular personal computer file formats,
          incorporating data into personal computer spreadsheet and database
          applications.

(B) SOFTWARE UTILITIES

     o    BOSaNOVA PRINTBOSS.

          A multi-platform forms design, distribution and management tool that
          can be installed on a personal computer and enables companies to
          eliminate pre-printed forms and create their own templates. Forms can
          be customized and improved with logos, barcodes, fonts, static and
          dynamic graphics, and formatted, resizable tables. Documents can be
          routed to different printers, fax servers, e-mail recipients or
          Web-based archives for efficient and aesthetic printing, without
          programming or changes to the host application.


                                       20
<PAGE>


(C) COMMUNICATION SOLUTIONS

     o    BOSaNOVA GATEWAYS (FXO, FXS, E1/T1)

          a series of modular point-to-point VOIP gateways that integrate voice,
          telephony and data over IP, frame relay and circuit switched networks.
          The BOSaNOVA gateways family provides a complete, end-to-end VOIP
          solution including security, management and gatekeeper functionality,
          and delivers outstanding voice quality calls over IP networks.
          Gateways are available in FXO (2-, 4-, and 8-port) models and FXS
          models (2-, 4-, 8-, and 16-port models), which connect to private
          branch exchanges (PBXs) and/or extensions using standard analog
          interfaces and E1/T1 models (23/30 digital channels per adapter).

     o    BOSaNOVA CONNECT

          a desktop device that allows mobile/remote workers to place and
          receive high-quality voice calls over IP networks using regular
          telephones.

     o    BOSaNOVA Claro

     o    A new family of intelligent VOIP gateways, premised on BOSaNOVA
          gateway technology which automatically and transparently routes calls
          from the PBX to either the PSTN or the IP network.

     o    Positioned between the enterprise PBX and the PSTN (Public Switched
          Telephony Network), the Claro gateway selectively routes all
          PSTN-designated traffic over the PSTN, and captures all potential IP
          traffic for routing over the IP network. Traffic is routed over the IP
          network only when MOS-based QoS (quality of service) meets
          user-designated threshold levels. If QoS degrades below this level, in
          spite of quality-boosting algorithms, calls are dynamically routed
          over the PSTN instead of the IP network. In this way, carrier-grade
          quality of service is guaranteed for each call.

MARKETING, DISTRIBUTION AND SALES


We market our products primarily to medium to large sized corporations through a
combination of direct sales, indirect distribution and original equipment
manufacturers, with our primary focus on resellers and distributors. VOIP
efforts have been concentrated in the European market.


In the United States, up until the fourth quarter of 2002, we marketed our
BOScom products through a US subsidiary (the BOS US division of PacInfoSystems).
Currently, we market our products through one Master Distributor (Bosanova,
Inc.) located in Phoenix, Arizona which coordinates the midrange
connectivity-related marketing efforts of dozens of distributors and resellers,
and also offers technical support and after-sales service.


In Europe, up until the second quarter of 2003, we marketed our BOScom products
through subsidiaries in U.K and France. Currently, we market our products
through local distributors that provide pre and post sales support. The European
operation is overseen by our UK master distributor, Paddock Ltd., and by our
French master distributor BOSaNOVA URL. Products sold in the rest of the world
are serviced from our headquarters in Israel.


We further rely on peripheral product distributors who offer our products along
with other products for the IBM midrange market. We also rely on value added
resellers who offer system sales and installation which include a variety of our
products. In addition, we heavily depend upon our own marketing resources
operating from Israel.


                                       21
<PAGE>


Our principal customers include: Informatics, TwinData, Peak Systems Group, I/O
Connections, KGA Technologies, and Machines & Media.


We generally do not have any significant backlog because orders are usually
shipped when received.


Our Company's sales do not fluctuate seasonally.


The following table sets forth our revenues from the continuing operations, by
major geographic area, for the periods indicated below:
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,
(in thousands US$)
                                2003      %      2002      %      2001      %
                                -----   -----    -----   -----    -----   -----
<S>                             <C>       <C>    <C>       <C>    <C>       <C>
United States                   2,974      52%   4,989      53%   3,184      53%

Rest of World (mainly Europe)   1,198      21%   2,158      23%   1,603      26%

Total outside of Israel         4,172      73%   7,147      76%   4,787      79%

Israel                          1,556      27%   2,294      24%   1,255      21%
                                -----   -----    -----   -----    -----   -----
Total Revenues                  5,728     100%   9,441     100%   6,042     100%
                                =====   =====    =====   =====    =====   =====
</TABLE>

See Note 16 to the Consolidated Financial Statements.


MANUFACTURING

Our products are designed, integrated and tested at our facility in Teradyon,
Israel. The manufacturing is done by Israeli subcontractors using components and
subassemblies supplied by vendors to our specifications. Certain components and
subassemblies used by us in our existing products are purchased from a single
supplier or a limited number of suppliers. Most of the imported components are
purchased in Israel from local representatives of the manufacturers. Some of
them have exclusive representative rights in Israel. In the event that these
suppliers are unable to meet our requirements in a timely manner, we may
experience an interruption in production until an alternative source of supply
can be obtained. We do our best effort to keep sufficient quantities of
components that will enable us to find a second source, when needed. We
generally maintain an inventory of components and subassemblies which we believe
is sufficient to limit the potential for such an interruption. Our current
manufacturing facilities have sufficient capacity to exceed current demand. The
prices of raw materials used in our industry are not volatile, although the
price and availability of electronic components may vary due to changing demands
in the market.

INTELLECTUAL PROPERTY


We currently rely on a combination of trade secrets, copyright and trademark
law, together with non-disclosure agreements and technical measures, to
establish and protect proprietary rights in our products.


We believe that the improvement of existing products, reliance upon trade
secrets and proprietary know-how and the development of new products are
generally as important as patent protection in establishing and maintaining a
competitive advantage. We believe that the value of our products is dependent
upon our proprietary software and hardware remaining "trade secrets" or subject
to copyright protection.


                                       22
<PAGE>


Generally, we enter into non-disclosure and invention assignment agreements with
our employees and subcontractors. However, there can be no assurance that our
proprietary technology will remain a trade secret, or that others will not
develop a similar technology or use such technology in products competitive with
those offered by us.


While our competitive position may be affected by our inability to protect our
proprietary information, we believe that because of the rapid pace of
technological change in the industry, factors such as the technical expertise
and the knowledge and innovative skill of our management and technical
personnel, name recognition, the timeliness and quality of support services
provided by us and our ability to rapidly develop, produce, enhance and market
software products may be more significant in maintaining our competitive
position.


To date, no material claims have been made against us for infringement of
proprietary rights of third parties. There can be no assurance, however, that
third parties will not assert material infringement claims against us in the
future.


As the number of software products in the industry increases and the
functionality of these products further overlaps, we believe that software
programs will increasingly become subject to infringement claims. The cost of
responding to any such assertion may be material, whether or not the assertion
is valid.


COMPETITION


The connectivity market is subject to rapidly changing technology and evolving
standards incorporated into personal computers, networks and host computers.
BOS's products compete with products that have already been on the market for a
number of years and manufactured by competitors, most of which have
substantially greater financial, marketing and technological resources and name
recognition than ours.


Our competitors include IBM, Perle, Advanced Business Link, IGEL, CLI PowerTerm,
NLynx, NetManage, Attachmate, and Seagull.


BOScom is developing and introducing new products in an industry that is highly
competitive. BOScom's competitors in the VoIP market include Cisco Systems,
Inc., Multi-Tech, Mediatrix, VegaStream, and Quintum. There can be no assurance
that these or other companies will not offer lower priced or more sophisticated
products than those being developed or introduced by BOScom, and by so doing
capture the market for such products.


STRATEGY


We believe that the trends described, together with the continuing proliferation
of more powerful personal computers and the continued growth of information
system networks, will stimulate increasing demand for personal computer
interaction with enterprise information systems. We believe that our products
can improve the cost effectiveness of customer information systems and increase
user productivity with:

     o    easy simultaneous access to and use of customer host and LAN-based
          computing resources;

     o    familiar and easy-to-set-up and use communications among personal
          computers, LANs and host computers;

     o    utilities and tools that simplify distributing computing between IBM
          midrange host systems and personal computer and LAN systems;

     o    utilities and tools that improve the appearance and distribution
          efficiency of forms throughout the organization; and

     o    utilities and tools that enhance and preserve customer investment in
          equipment and personnel training.


                                       23
<PAGE>


Our strategic objective is to strengthen our product line for the IBM midrange
connectivity and emulation market and use our expertise to offer personal
computer users the ability to access mainframe hosts through a lower cost
personal computer platform. We believe our proprietary technology which permits
personal computer users to increase speed without utilizing additional memory at
the personal computer level and its advanced graphic capabilities give our
product line distinct marketing advantages over competitive products. We believe
we can expand our successful technological application to other markets and
users.


The key elements of our strategy are as follows:

     o    MAXIMIZE EFFICIENCY FOR IBM MIDRANGE MARKET. We intend to expand and
          support our emulation product line for IBM midrange computers. This
          includes continuous upgrading and improvement of our connectivity
          emulation products for direct, gateway and Internet connection, and
          Windows emulation and graphics capabilities. We continually upgrade
          our client software to ensure its compatibility with each new Windows
          platform. We intend to streamline our manufacturing and distribution
          to better serve our present client base and access a greater share of
          the IBM midrange market. We have already begun to incorporate common
          components into our products in an effort to streamline manufacturing
          and intend to take steps to improve our destination networks.

     o    DEVELOP NEW PRODUCTS AND APPLICATIONS FOR REMOTE NETWORKING
          CONNECTIVITY. Through our VoIP division, we expect to penetrate a new
          market significantly greater than our present market of IBM midrange
          users. BOScom's VoIP products, which allow users to emulate their
          office telephony at a remote location, appeal to the small office home
          office market, telemarketers operating from home, sales personnel
          traveling to client locations and employees interested in working at
          home.

     o    DEVELOP NEW MARKETS FOR OUR VOIP PRODUCTS. We intend to develop new
          markets for our VOIP products, including corporate VOIP
          infrastructures as well as VOIP solutions for telephony service
          providers.

     o    EXPAND MARKETING NETWORK. We intend to increase our marketing presence
          in the United States and Europe and to expand our distribution
          channels in these markets through the use of acquisitions, additional
          independent distributors and original equipment manufacturers as well
          as our sales representatives. We also intend to increase our marketing
          efforts to penetrate new markets within Europe.

     o    ACQUISITION OF COMPLEMENTARY TECHNOLOGIES. We may, from time to time,
          make selective acquisitions of complementary technologies that we can
          sell through our existing distribution network. Since October 1997, we
          have held interests in Surf (see Item 4A).

     o    WEB SITES: We maintain web sites where potential customers, investors
          and others can obtain the most updated information about its
          activities, products, press releases and financial information.


                                       24
<PAGE>


Our Web sites may be found at:


                boscorporate.com
                Bosweb.com
                boscom.com
                Jadvantage.com
                Bosanova.com
                e-twinaxcontroller.com
                Printbos.com

EXCHANGE CONTROLS


See Item 10D.


For other government regulations affecting the Company's business, see Item 5,
paragraph entitled `Grants and Participation'.


4C. ORGANIZATIONAL STRUCTURE


The Company's wholly owned subsidiaries include:


IN ISRAEL - BOScom Ltd. (changed its name from Lynk, a Division of B.O.S., in
March 2002). Our initial investment in BOScom Ltd. was $336,000 for 86% of
BOScom's shares. In 1999 BOScom entered into an agreement with The Industrial
Finance Corporation ("IFC") under which BOScom received a three year $1,000,000
long-term loan and IFC received 3% of BOScom's share capital at par value. Thus,
our shareholdings at BOScom were reduced to 83%. In 2000, we purchased an
additional 14% of BOScom's shares and increased our holding in BOScom from 83%
to 97%. The aggregate consideration for this acquisition included $640,000 in
cash and 17,804 shares of our Company. In February 2002, we purchased from IFC
its 3% of BOScom's shares (in consideration of the issuance of 3,750 Company
ordinary shares), thereby bringing our ownership interest to 100%.


IN EUROPE - BOScom has a UK subsidiary, Better On-Line Solutions Ltd, and its
subsidiary, Better On-Line Solutions S.A.S in France, which, until mid-2003,
distributed and serviced BOScom's products abroad. The UK subsidiary was
originally a subsidiary of the Company itself, but became a subsidiary of BOScom
as part of the reorganization implemented in January 2002. In mid-2003 we
decided, due to cost-efficiency considerations, to cease operations in Europe
through the subsidiaries and to market through distributors.


IN THE U.S. - Lynk USA Inc., and its subsidiary PacInfoSystems (both Delaware
corporations). Until the fourth quarter of 2002, PacInfoSystems had a
subsidiary, Dean Tech Technologies Associates, L.L.C. ("Dean Tech"), a Texan
corporation, which is in the process of being dissolved. As abovementioned,
PacInfoSystems is in the process of dissolving as well. Lynk USA is not
operational either. Until the fourth quarter of 2002, the marketing and
distribution of the BOScom products was carried out through the "BOS US"
division of PacInfoSystems (see item 4A).


In October 2002, BOScom established a new wholly-owned subsidiary, BOSDelaware,
a Delaware corporation, and in the future may market and distribute its products
in the US through this subsidiary. Currently, the US marketing is carried out
through a master distributor, Bosanova Inc., and BOSDelaware is not operational.


The voting power we (or our subsidiaries) have in all subsidiaries, equates to
the shareholdings.


The Company also has an interest in Surf Communication Solutions Ltd. ("Surf").
Surf is a leading supplier of embedded network convergence software that lends
flexibility and scalability to network products handling data modem, fax, and
voice transmissions. Surf's open system software is integrated into equipment
such as media gateways and remote access concentrators developed by original
equipment manufacturers in the telecommunications, telephony, and data
networking industries. We have been investing in Surf since 1997, and in March
2003 we purchased additional shares (see Item 4A).


                                       25
<PAGE>


4D. PROPERTY, PLANTS AND EQUIPMENT


Our executive offices and engineering, development, testing, shipping and
service operations are located in a facility occupying a total of approximately
3,300 square meters in Teradyon, Israel, pursuant to a lease which commenced in
January 1996 and will expire in 2005. Under the terms of the lease, we had to
pay rent of approximately $11,000 per month until December 31, 2000. Beginning
January 1, 2001, the monthly rental payment has been reduced to approximately
$9,300 per month.


The facility is located in a part of Israel which has been designated by the
government as a development "A" area. This designation relates to the benefits
available to us as an "Approved Enterprise" under Israeli law, that entitles us
and our shareholders to reduced income tax rates on our income and on dividend
distributions.


We believe that our facilities are sufficient to accommodate our anticipated
needs in the foreseeable future.


The latest lease commitment will expire in 2005.

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS


The following management's discussion and analysis of financial condition and
results of operations should be read in conjunction with our financial
statements and notes thereto. Certain matters discussed below and throughout
this annual report are forward-looking statements that are based on our beliefs
and assumptions as well as information currently available to us. Such
forward-looking statements may be identified by the use of the words
"anticipate", "believe", "estimate", "expect", "plan" and similar expressions.
Such statements reflect our current views with respect to future events and are
subject to certain risks and uncertainties. While we believe such
forward-looking statements are based on reasonable assumptions, should one or
more of the underlying assumptions prove incorrect, or these risks or
uncertainties materialize, our actual results may differ materially from those
described herein. Please read the section below entitled "Factors That May
Affect Future Results" to review conditions that we believe could cause actual
results to differ materially from those contemplated by the forward-looking
statements.


The Company's discussion and analysis of its financial condition and result of
operations is based upon the Company's consolidated financial statements which
have been prepared in accordance with generally accepted accounting principles
("GAAP ") in the United States of America. Prior to 2003, the consolidated
financial statements were prepared in accordance with Israeli GAAP with
reconciliation to U.S.GAAP. The Company believes that investors and other users
of its financial statements would benefit if the primary financial statements
were prepared in accordance with U.S., rather than Israeli, GAAP.





CRITICAL ACCOUNTING POLICIES


The preparation of these financial statements required the Company to make
estimations and judgments, in accordance with U.S. GAAP, that affect the
reporting amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities. On an ongoing basis, the
Company evaluates its estimates, including those related to revenue recognition,
bad debts, inventories, investments in a company and legal contingencies. The
Company based its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis of making judgments about the values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.


                                       26
<PAGE>


For a review of the accounting policies that form the basis of the
above-referenced estimates and judgments that the Company made in preparing its
consolidated financial statements, please see Note 2 (Significant Accounting
Policies) to the Consolidated Financial Statements. The following accounting
policies had the most significant impact on the Financial Statements for the
year ended December 31, 2003.


REVENUE RECOGNITION

We recognize revenues from sales of product and services in accordance with
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
("SAB 101"), Staff Accounting Bulletin No. 104 "Revenue Recognition in Financial
Statements" ("SAB 104") and Statement of Position No. 97-2 "Software Revenue
Recognition" ("SOP 97-2") when delivery has occurred, persuasive evidence of an
arrangement exists, the vendor's fee is fixed or determinable, no further
obligation exists, and collection is reasonably assured. When a right of return
exists, the Company defers revenues until the right of return expires.
Determination of the probability of collection is based on management's
judgments regarding the payment of fees for services rendered and products
delivered. This determination is based on management's periodic assessment of
the credit worthiness and other known factors of its customers and distributors.
If this assessment will not properly reflect the actual collection, revenue
recognized for any reporting period could be adversely affected.


ALLOWANCE FOR DOUBTFUL ACCOUNTS


The Company maintains an allowance for doubtful accounts for estimated losses,
which may result from the inability of its customers to make required payments.
Management exercises judgment as to its ability to collect outstanding
receivables. Allowances for doubtful accounts are made based upon a specific
review of all significant outstanding invoices. For those invoices not
specifically reviewed, allowances for doubtful accounts are made based upon the
age of the receivable. In determining the allowance, the Company analyzes its
historical collection experience and current economic trends. If the historical
data used to calculate the allowances for doubtful accounts do not reflect the
future ability to collect outstanding receivables, additional allowances for
doubtful accounts may be needed and the future results of operations could be
materially affected.


INVENTORIES


Inventories are valued at the lower of cost or market value. Cost is determined
as follows:

<TABLE>
<CAPTION>

<S>                                                 <C>
Raw and packaging materials                         - Moving Average Cost Method

Products in progress and finished products          - On the production costs basis with the addition
                                                      of allocable indirect manufacturing costs
</TABLE>


If actual market conditions prove less favorable than those projected by
management, additional inventory write-downs may be required. Inventories are
written down for estimated obsolescence based upon assumptions about future
demand and market conditions. Likewise, favorable future demand and market
conditions could positively impact future operating results if inventory that
has been written down is sold. As of December 31, 2003, inventory is presented
net of $300,000 general provision for technological obsolescence and slow moving
items (see also Note 5 to the Consolidated Financial Statements).


                                       27
<PAGE>


INVESTMENT IN A COMPANY


The investment in a company is stated at cost, since management believes that it
does not have the ability to exercise significant influence over the operating
and financial policies of this investee. In reaching this decision, management
has evaluated all the facts and circumstances related to the investment.
Judgments and evaluations about ability to exercise significant influence are
complex and often subjective and can be affected by a variety of external and
internal factors. If these facts or related circumstances change in the future,
we may be required to account for this investment under the equity method of
accounting.


The Company's investment in a company is reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an investment
may not be recoverable, in accordance with Accounting Principle Board Opinion
No.18 "The Equity Method of Accounting for Investments in Common Stock", ("APB
No.18"). As of December 31, 2003, based on managements' most recent analyses
supported by an external valuation, an impairment loss has been recorded in the
amount of $ 840.


LEGAL CONTINGENCIES


The Company has been a party to various legal proceedings in the normal course
of its business (see Item 8A for more details). The results of legal proceedings
are difficult to predict and an unfavorable resolution of a lawsuit or
proceeding may occur. Management believes that the prospects of these
proceedings to prevail and recover a significant amount, seem remote, and
accordingly no provision was recorded. As additional information becomes
available, management will reassess the potential liability related to these
legal proceedings and may revise its estimate of the probable cost of this
proceedings. Such revisions in the estimates of the probable cost could have a
material adverse effect on the Company's future results of operations and
financial position.


5A.  RESULTS OF OPERATIONS


On May 29, 2003 we effected a 1:4 reverse stock split. All share and per share
data for periods prior to that date have been retroactively adjusted to reflect
this reverse stock split.


COMPARISON OF 2003 AND 2002


Year 2003 results of operation reflected the reorganization made in the sales
and marketing organization. In the United States, up until the fourth quarter of
2002, we marketed our BOScom products through a US subsidiary (the BOS US
division of PacInfoSystems). Currently, we market our products through one
Master Distributor (Bosanova, Inc.)


In Europe, up until the second quarter of 2003, we marketed our BOScom products
through subsidiaries in the U.K. and France. Currently, we market our products
through local distributors that provide pre and post sales support. Products
sold in the rest of the world are serviced from our headquarters in Israel.


As a result of the above reorganization, the Company experienced a significant
decrease in revenues in 2003, due to the distributors' margin, which was only
partially compensated for by the decrease in sales and marketing expenses.
Furthermore, as a result of the reorganization, in 2003 the Company recorded a
restructuring cost of $680,000.


Consolidated revenues for 2003 were $5,728,000 compared with $9,441,000 in 2002,
a 39% decrease.


The major reasons for the decrease were: (a) sales through master distributors
in year 2003 compared to sales through subsidiaries in year 2002, as the margins
of the master distributors decreased revenues; and (b) slowdown in sales due to
global slowdown in the telecommunications industry.


                                       28
<PAGE>


Gross profit in 2003 totaled $4,273,000, representing 75% of revenues, compared
with $7,141,000, constituting 76% of revenues in 2002. Cost of revenues of year
2003 includes income of $339,000 due to a reversal of a non-recurring royalty
for the Office of the Chief Scientist (see also Note 14a to the Consolidated
Financial Statements). Excluding such income, the gross profit for year 2003
represented 69% of revenues compared to 76% in year 2002, the major reasons for
the decrease being (a) sales through master distributors in year 2003 compared
to sales through subsidiaries in year 2002 which caused a decrease in the sale
price while the cost of revenue remained virtually the same; and (b) revenues of
BOSaNOVA PrintBoss in year 2003 decreased to $448,000 compared to $1,387,000 in
year 2002. Since the BOSaNOVA PrintBoss is a software product with a relatively
low cost of production, the decrease in its revenues in year 2003 compared to
year 2002 significantly affected the gross profit.


Net research and development costs in 2003 decreased by 15% to $1,846,000
compared to $2,182,000 in 2002. The expenses in 2003 included $283,000 funding
that the Company received from the Office of the Chief Scientist. In 2002 the
company did not receive such funding. Excluding the effect of the funds received
from the Office of the Chief Scientist in 2003, the research and development
costs in 2003 remained virtually the same as in year 2002.


Selling and marketing expenses in year 2003 decreased by 41% to $2,178,000,
compared to $3,705,000 in 2002. The major reason for such decrease was sales
through subsidiaries in 2002, as opposed to sales through distributors in year
2003 after the operation of the subsidiaries was ceased.


General and administrative expenses in year 2003 decreased by 22% to $1,317,000
compared to $1,697,000 in 2002. The major reason was the reduction in payroll of
employees and directors, by 17%, effected July 2003.


Restructuring costs in year 2003 amounted to $678,000 which resulted from
ceasing the operation of the Company's subsidiaries in Europe.


As a result of the foregoing, our operating loss in 2003 was $1,746,000 compared
to an operating loss of $443,000 in 2002.


The Company had net financial income of $109,000 in 2003 compared with net
financial income of $295,000 in 2002. The decrease in the financial income is
related to the decrease in cash and investment balances during 2003 and to
decrease of financial income from translation of foreign currency into dollar.


Other expenses for 2003 amounted to $795,000, compared to $95,000 in 2002. These
expenses in 2003 included a cost of $840,000 due to impairment of the Company's
investment in Surf (see note 7b to Consolidated Financial Statements).


As a result, net loss from the continuing operations for 2003 amounted to
$2,432,000 compared with $243,000 in 2002. On a per share basis, the net loss
from the continuing operations in 2003 was $0.66 per share compared with a $0.08
net loss per share in 2002. (For details regarding computation of net loss per
share, see Note 14d to the Consolidated Financial Statements.)


The net earnings related to the discontinuing operations for 2003 was $2,036,000
compared with a loss of $7,674,000 in 2002. The earnings of 2003 resulted from
debt settlement with more than 95% of PacInfoSystems' external creditors for an
amount which was significantly lower than the face value of the debt.


The total net loss for 2003 was $396,000, compared with $7,917,000 in 2002. On a
per share basis, the net loss in 2003 was $0.11 per share compared with a $2.54
net loss per share in 2002.


                                       29
<PAGE>


COMPARISON OF 2002 AND 2001


Consolidated revenues for 2002 were $9,441,000, compared with $6,042,000 in
2001, a 56% increase.


During 2002 we focused our sales on our core business products. The S&M activity
was aimed to expand our customer base and distribution channels.


During 2002 we succeeded in closing a software deal with one customer which
represented about 13% of the total revenues.


Gross profit in 2002 totaled $7,141,000, representing 76% of revenues, compared
with $3,339,000, constituting 55% of revenues in 2001. The difference is related
mainly to high provisions for slow inventory that the company made in 2001
relating to its IP old product line.


Net research and development costs in 2002 increased 24% to $2,182,000, compared
with $1,757,000 in 2001. The expenses in 2001 included $989,000 funding that the
Company received from the Office of the Chief Scientist. In 2002 the company did
not receive such funding.


Gross research and development costs in 2002 decreased 21% to $2,182,000,
compared with $2,746,000 in 2001, mainly due to HR costs reduction. We improved
the R&D staff by replacing some of our engineers with new ones, who are better
skilled and more efficient but paid lower salaries.


In Europe we closed branches that were not economically efficient and made some
personnel changes. These steps saved us $500,000 in operational and other
expenses compared to 2001. In addition, we reduced our operational costs in the
US by $550,000 compared to 2001.


Selling and marketing expenses decrease by 23% to $3,705,000 in 2002 compared to
$4,811,000 in 2001 mainly due to the closing of branches in Europe and the
reduction of operations in the US.


General and administrative expenses increased by 19% to $1,697,000 in 2002,
compared to $1,425,000 in 2001. This increase is due to expenses related to 2002
reorganization of the US subsidiary and the closing of branches in Europe.


As a result of the foregoing, our operating loss in 2002 was $443,000 compared
with an operating loss of $4,786,000 in 2001.


The Company had net financial income of $295,000 in 2002 compared with net
financial income of $427,000 in 2001. The decrease in the financial income is
related to a decrease in cash and investment balances during 2002.


Other expenses for 2002 were $95,000, compared with other expenses of $298,000
in 2001. (For more details regarding other expenses, see Note 14c to the
Consolidated Financial Statements).


As a result of the foregoing, net loss from the continuing operations for 2002
amounted to $243,000 compared with $4,657,000 in 2001. On a per share basis, the
net loss from continuing operations in 2002 was $0.08 per share compared with a
$1.5 net loss per share in 2001.


The net loss related to the discontinuing operations for 2002 was $7,674,000
compared with $8,313,000 in 2001. On a per share basis, the net loss from the
discontinuing operations in 2002 was $2.46 per share compared with a $2.68 net
loss per share in 2001.


The total net loss for 2002 was $7,917,000, compared with $12,970,000 in 2001.
On a per share basis, the net loss in 2002 was $2.54 per share compared with a
$4.18 net loss per share in 2001.


                                       30
<PAGE>


VARIABILITY OF QUARTERLY OPERATING RESULTS


Our revenues and profitability may vary in any given year, and from quarter to
quarter, depending on the number of products sold. In addition, due to potential
competition, uncertain market acceptance and other factors, we may be required
to reduce prices for our products in the future.


Our future results will be affected by a number of factors including our ability
to:

     o    increase the number of products sold,

     o    develop, introduce and deliver new products on a timely basis,

     o    anticipate accurately customer demand patterns and

     o    manage future inventory levels in line with anticipated demand.


These results may also be affected by currency exchange rate fluctuations and
economic conditions in the geographical areas in which we operate. There can be
no assurance that our historical trends will continue, or that revenues, gross
profit and net income in any particular quarter will not be lower than those of
the preceding quarters, including comparable quarters.


IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS


The US Dollar cost of our operations in Israel is influenced by the differential
between the rate of inflation in Israel and any change in the value of the NIS
relative to the Dollar.


A devaluation of the NIS in relation to the US Dollar will have the effect of
decreasing the costs in NIS and a converse effect in case of devaluation of the
US Dollar in relation to the NIS.


A devaluation of the NIS in relation to the US Dollar will have the effect of
decreasing the Dollar value of any of our assets which consist of NIS (unless
such asset is linked to the Dollar). Such a devaluation would also have the
effect of reducing the Dollar amount of any of our liabilities which are payable
in NIS (unless such payables are linked to the Dollar). Conversely, any increase
in the value of the NIS in relation to the Dollar will have the effect of
increasing the Dollar value of our assets which consist of NIS (unless such
asset is linked to the Dollar). Such an increase would also have the effect of
increasing the Dollar amount of any of our liabilities which are payable in NIS
(unless such payables are linked to the Dollar).


In the years ended December 31 2003, 2002, 2001, 2000 and 1999, the annual
inflation rate in Israel as adjusted for the devaluation of the Israeli currency
in relation to the Dollar was 5.7% (0.8)%, (7.8)%, 2.7% and 1.5%, respectively.
The closing representative exchange rate of the Dollar at the end of each such
period, as reported by the Bank of Israel, was NIS 4.379 NIS 4.737, NIS 4.416,
NIS 4.041 and NIS 4.153, respectively. As a result, the Company experienced
increases in the Dollar costs of operations in Israel in 1999, 2000 and 2003,
and decreases in 2001 and 2002.


EFFECTIVE CORPORATE TAX RATE


The Israeli regular tax rate imposed on companies is 36%, however, the effective
tax rate payable by a company (such as ours) which derives income from an
"Approved Enterprise," may be considerably less. See Note 13 to the Consolidated
Financial Statements and Item 10E ahead. Subject to relevant tax treaties,
dividends or interest received by an Israeli corporation from subsidiaries are
generally subject to tax (unless the subsidiary's income is subject to Israeli
corporate tax) regardless of its status as an Approved Enterprise. We anticipate
that most of our taxable income over the next several years will be tax exempt
in Israel. Our U.S. and U.K. subsidiaries, however, will be subject to U.S. and
U.K. corporate income taxes, respectively, on their taxable income.


                                       31
<PAGE>


On January 1, 2003, a comprehensive tax reform took effect in Israel. Pursuant
to the reform, resident companies are subject to Israeli tax on income accrued
or derived in Israel or abroad. In addition, the concept of "controlled foreign
corporations" was introduced, according to which an Israeli company may become
subject to Israeli taxes on certain income of a non-Israeli subsidiary if the
subsidiary's primary source of income is passive income (such as interest,
dividends, royalties, rental income or capital gains). The tax reform also
substantially changed the system of taxation of capital gains.

GRANTS AND PARTICIPATION

Under the Law for the Encouragement of Industrial Research and Development, 1984
(the "Research Law"), research and development programs approved by a research
committee appointed by the Israeli Government are eligible for grants in
exchange for payment to the Government of royalties from the sale of products
developed in accordance with the Program. Regulations issued under the Research
Law generally provide for the payment of royalties to the Office of the Chief
Scientist of 3.5% on sales of products developed as a result of a research
project so funded until 100% of the dollar-linked grant is repaid. Royalties
payable with respect to grants received under programs approved by the OCS after
January 1, 1999, are subject to interest on the U.S. dollar-linked value of the
total grants received at the annual rate of LIBOR applicable to U.S. dollar
deposits at the date the grants received.

The Research Law requires that the manufacture of any product developed as a
result of research and development funded by the Israeli Government take place
in Israel. It also provides that know-how from the research may not be
transferred to third parties without the approval of the Israeli Office of the
Chief Scientist in the Ministry of Industry and Trade. As of December 31, 2003,
the total amount of grants which we received from the Office of the Chief
Scientist, net of royalties paid or accrued, accumulated interest and net of non
recurring royalty reversal recorded in year 2003 in the amount of $339,000,
totaled $5,621,000, compared with $ 5,875,000 as of December 31, 2002. We are
committed to paying royalties to the Fund for the Encouragement of Exports for
its participation, by way of grants, in our marketing expenses outside of
Israel. Royalties payable are 3% of the growth in exports, from the year we
received the grant, up to 100% of the dollar-linked amount of the grant received
at the date the grants received.


The total amount of the grants we received from the Fund, net of royalties paid
or accrued, was $144,000 on December 31, 2003, compared with $225,000 on
December 31, 2002.


CONDITIONS IN ISRAEL


We are incorporated under the laws of Israel. Our offices and product
development and manufacturing facilities are located in Israel. As a
consequence, we are directly affected by political, economic and military
conditions in Israel. Our operations would be substantially impaired if major
hostilities involving Israel should occur or if trade between Israel and its
present trading partners should be curtailed. See also Item 3D - Risk Factors.

POLITICAL AND ECONOMIC CONDITIONS

Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. A peace agreement between Israel and
Egypt was signed in 1979. However, economic relations have been limited.


Since 1993, a joint Israeli - Palestinian Declaration of Principles and several
agreements between Israel and Palestinian representatives have been signed
outlining interim self-government arrangements. Israel has since transferred the
civil administration of the Gaza Strip and several major towns and villages in
the West Bank to the Palestinian Authority.


                                       32
<PAGE>


In addition, Israel and several other Arab States announced their intention to
establish trade and other relations and are discussing certain projects. As of
the date hereof, Israel has not entered into any peace agreement with Syria or
Lebanon. There is substantial uncertainty with regard to how the "peace process"
will develop or what effect it may have on us.


Furthermore, full diplomatic ties between Israel and Jordan were created
following a peace treaty signed in 1994. The treaty expressed a mutual desire
for full economic cooperation, the lifting of economic barriers and a strive
towards the lifting of any economic boycotts by third parties.


Despite the progress towards peace between Israel, its Arab neighbors and the
Palestinians, certain countries, companies and organizations continue to
participate in a boycott of Israeli firms. We do not believe that the boycott
has had a material adverse effect on us, but there can be no assurance that
restrictive laws, policies or practices directed towards Israel or Israeli
businesses will not have an adverse impact on our business or financial
condition in the future.


Some of our employees are obligated to perform annual reserve duty in the Israel
Defense Forces and may, at any time, be called for active military duty. While
we have operated effectively under those and similar requirements in the past,
no assessment can be made of the full impact of such requirements on us in the
future, particularly if emergency circumstances occur.


Israel's economy has been subject to many destabilizing factors including a
period of high inflation in the early to mid-1980s. It has also been subject to
low foreign exchange reserves, fluctuations in world commodity prices, military
conflicts and civil unrest. The Government of Israel has intervened in several
sectors of the economy, employing among other means, fiscal and monetary
policies, import duties, foreign currency restrictions and control of wages, as
well as prices and foreign currency exchange rates.


In 1998, the Israeli currency control regulations were liberalized dramatically.
As a result, Israeli citizens can generally freely purchase and sell Israeli
currency and assets. The Government of Israel has periodically changed its
policies in these areas. There are currently no Israeli currency control
restrictions on remittances of dividends on ordinary shares or proceeds from the
sale of ordinary shares; however, legislation remains in effect pursuant to
which currency controls can be imposed by administrative action at any time.


The costs of our operations in Israel are generally incurred in New Israeli
Shekels ("NIS"). If the inflation rate in Israel exceeds the rate of devaluation
of the NIS against the US Dollar in any period, the costs of our Israeli
operations, as measured in US Dollars, could increase. Israel's economy has, at
various times in the past, experienced high rates of inflation.


Like many Israeli companies, we receive grants and tax benefits from the Israeli
Government. We also participate in programs sponsored by the Israeli Government.
The reduction or termination of any such grants, programs or tax benefits,
especially those benefits available as a result of the "Approved Enterprise"
status of certain facilities in Israel, could have a materially adverse effect
on future investments by us in Israel.

TRADE AGREEMENTS

Israel is a member of the United Nations, the International Monetary Fund, the
International Bank for Reconstruction and Development, and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences, from Australia, Canada and Japan. These
preferences allow Israel to export the products covered by such programs either
duty-free or at reduced tariffs.


                                       33
<PAGE>


Israel and the European Union signed a Free Trade Agreement, which became
effective on July 1, 1975, that confers certain advantages with respect to
Israeli exports to most European countries and obligates Israel to lower its
tariffs with respect to imports from these countries over a number of years. In
1985, Israel and the United States entered into an agreement to establish a Free
Trade Area ("FTA"). The FTA has eliminated all tariff and certain non-tariff
barriers on most trade between the two countries.


On January 1, 1993, Israel and the European Free Trade Association ("EFTA"),
entered into an agreement establishing a free-trade zone between Israel and the
EFTA nations. In recent years, Israel has established commercial and trade
relations with a number of other nations, including Russia, the People's
Republic of China, India and the nations of Eastern Europe, with which Israel
had not previously had such relations.


5B.  LIQUIDITY AND CAPITAL RESOURCES


We finance our activities by different means, including proceeds of equity
financing, long-term loans, grants from the Office of the Chief Scientist in
Israel and income from operating activities.


In December 2003 we received net proceeds of $928,000 from a private placement
with two European private investors. We issued these investors 357,143 ordinary
shares at a price per share of $2.80. We also granted these investors certain
incidental registration rights with respect to the ordinary shares they
purchased.


On June 10, 2004 the Company entered into a Securities Purchase Agreement (the
"Purchase Agreement"), with Laurus Master Fund Ltd. (the "Investor"), under
which the Company issued and sold to the Investor in a private placement (i) a
Secured Convertible Term Note of a $2 million principal amount, due June 10,
2007 (the "Note") and (ii) a warrant to purchase 130,000 Ordinary Shares at an
exercise price of $4.04 per share (the "Warrant"). The Warrant is exercisable,
in whole or in part, until June 10, 2011. The Note bears interest at a
fluctuating interest rate equal at all times to the prime rate plus 3%, subject
to reduction if the average closing price of the Registrant's Ordinary Shares
exceeds certain benchmarks. The proceeds from the private placement will be used
for general working capital purposes and/or mergers and acquisitions.


The Note is convertible into Ordinary Shares at a price of $3.08 per share
(subject to adjustment). The principal amount of the Note is repayable in
monthly installments, commencing as of October 1, 2004, in the initial amount of
$20,000 eventually increasing to $73,600, and may be paid in cash or, subject to
certain conditions, in Ordinary Shares. Interest on the Note is payable monthly
and may be paid in cash or, subject to certain conditions, in Ordinary Shares.
The Note is secured by a security interest in certain assets of the Company.


The Company also entered into a Registration Rights agreement with the Investor
pursuant to which the Company agreed to prepare and file with the Securities and
Exchange Commission within 45 days a registration statement covering the resale
of Ordinary Shares that is issuable upon conversion of the Note and/or exercise
of the Warrants, and/or issuable in payment of principal and interest on the
Note.





As of December 31, 2003, we had $3,872,000 in cash and cash equivalents,
$2,876,000 in marketable securities, and positive working capital of $5,082,000.
Net cash used in operating activities of continuing operations in 2003 was
$1,937,000 compared to cash provided by operating activities in 2002 in the
amount of $127,000. The cash used in operating activities in year 2003 was
adversely affected by a number of factors. First, a decrease in gross profit due
to the sales through distributors instead of subsidiaries from mid 2003, which
was not immediately compensated by decrease in the sales and marketing expenses
in 2003. Second, the revenues of BOSaNOVA PrintBoss in year 2003 amounted to
$448,000 compared to $1,387,000 in year 2002. Since the BOSaNOVA PrintBoss is a
software product with a relatively low cost of production, the decrease in its
revenues in year 2003 compared to year 2002 adversely affected the cash used in
operating activities. Net cash provided by investing activities in 2003 was
$519,000 which was mainly due to realization of restricted cash into cash and
cash equivalents.


                                       34
<PAGE>


The Company does not currently have borrowings from financial institutions.


Working capital and working capital requirements will vary from time-to-time and
will depend on numerous factors, including but not limited to operating results,
the level of resources devoted to research and development, new product
introductions, grants from the Office of the Chief Scientist in Israel,
marketing and acquisition activities.


We have in-balance sheet financial instruments and off-balance sheet contingent
commitments. Our in-balance sheet financial instruments consist of our assets
and liabilities. Our cash is invested in short-term (less than 3 months) U.S.
dollars and NIS interest bearing deposits with banks. Our receivables' aging is
between 60 to 70 days and our current liabilities' aging is approximately 60
days. The fair value of our financial instruments is similar to their book
value, with one exception. We believe that our investment in Surf has a
substantial value. Our off-balance sheet contingent commitments consist of: (a)
royalty commitments that are directly related to our future revenues, (b) lease
commitments of our premises and vehicles, (c) directors and officers'
indemnities, in excess of the proceeds received from liability insurance which
we obtain and (d) legal proceeding.


We believe that cash resources are sufficient to meet our needs for at least 12
months following the date of this submission. However, it is our intention to
engage in equity and loan financing to further feature-rich products of the
Company and establish distribution channels in new markets. There is, however,
no assurance that we shall be able to obtain such financing.

5C.  RESEARCH AND DEVELOPMENT


We believe that our future growth will depend upon our ability to enhance our
existing products and introduce new products on a timely basis. Since we
commenced operations, we have conducted extensive research and development
activities. In 2003, gross research and development costs totaled $2,129,000,
compared to $2,182,000 in 2002 and $2,746,000 in 2001.


Our research and development efforts have been focused on VOIP solutions, and
our existing products for the IBM midrange market. We intend to finance our
research and development activities with our own resources and grants from the
Office of the Chief Scientist. Grants from the Chief Scientist totaled $283,000
in 2003 and $989,000 in 2001 (no grants were received for the year 2002).


5D.  TREND INFORMATION


The global slowdown in the telecommunications industry has taken its toll on our
company. The effect of a prolonged slowdown may continue to result in lower
sales and lower gross margins as our products may be subject to price pressure
due to reduced demand, write-downs and write-offs.


Over the past few years there has been a continuous global decrease in sales and
revenues from the connectivity solutions sector (also known as the legacy family
products) (see Item 4B). Although the Company's revenues in this sector have
decreased as a result, in comparison to other players in this field, we have
fared quite well.


                                       35
<PAGE>


Currently the Company's R&D focuses mainly on the company's VOIP line of
products, that will successfully compete with Legacy telephony quality and
reliability, and will allow special CTI (Computer Telephony Integration)
features that are not available in Legacy telephony today. These products will
allow seamless integration with legacy telephony systems, thus reducing the
implementation price. In addition, the products will guaranty the quality of
service and will allow the end users to use the telephone system in the same way
that they used their non-IP-enabled system. Until now, complicated installation,
non-transparent usage and inconsistent quality of service were the major issues
that slowed-down the implementation of VOIP in the corporate market. With the
new line of intelligent gateways, these hurdles are solved, thus opening new
opportunities in this market. According to market research performed by
professional market analysis firms such as Advanced Business Link, the revenues
in this VOIP market are expected to grow for at least the next five years.
Although the Company's business in this market has not fared well until now, we
hope to overcome marketing and other hurdles, and become a significant player in
this field, although there is no assurance that we will be able to do so.


5E.  OFF-BALANCE SHEET ARRANGEMENTS


In 1998, as part of PacInfoSystems' Share Purchase Agreement between the Company
and Mr. Jacob Lee (the seller of PacInfoSystems who became a shareholder of the
Company), certain actions involving PacInfoSystems, if occurring before the end
of 2003, may trigger a tax event for Mr. Jacob Lee. In such event, the Company
may be obligated, under the purchase agreement, to grant Mr. Lee a loan on a
full recourse basis for certain tax payments Mr. Lee may be liable for,
currently estimated at approximately $1.5 million. The purchase agreement
provides that the Company is to receive a security interest in shares of the
Company that Mr. Lee holds at the time of the loan with a fair market value as
of the date of the loan of at least 125% of the amount of the loan as security
for the repayment of the loan. In addition, in the event the Company is required
to loan such sum to Mr. Lee, the Company may also be required to reimburse Mr.
Lee for certain interest on taxes that he may owe. It is possible that the
windup of PacInfoSystems during 2002 and 2003 may have triggered such a tax
event for Mr. Lee, which would result in an obligation by the Company to loan
Mr. Lee such amount and to reimburse him for interest expenses incidental to the
tax event.


5F.  TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS


The following table summarizes our contractual obligations as of December 31,
2003:


<TABLE>
                          Payment due by period
                          ---------------------
                                  Less than 1    1-3        3-5       More than
                          Total      year       years      years      5 years
                          ----       ----       ----       ----       ----

<S>                       <C>        <C>        <C>           <C>        <C>
Operating lease           $471       $286       $185          -          -

Purchase obligation       $415       $415          -          -          -

Total                     $886       $701       $185          -          -
</TABLE>


The above table does not include contingent obligations to pay royalties to the
Office of the Chief Scientist and to the Overseas Marketing Fund since the total
amount to be paid under the terms of those agreements are a function of future
sales (see note 11(a)(1) of the Consolidated Financial Statements).


                                       36
<PAGE>


ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES


6A.  DIRECTORS AND SENIOR MANAGEMENT


The following is a listing of our directors, senior officers and key employees:

<TABLE>
<CAPTION>

Name                             Age      Position
- ----                             ---      --------
<S>                              <C>      <C>
Mr. Edouard Cukierman            39       Chairman of the Board of Directors

Mr. Adiv Baruch                  41       Director, President and Chief Executive Officer

Mr. Eli Ben-Mayor                63       Director

Mr. Israel Gal                   53       Director

Mr. Avishai Gluck (2)            32       Director

Mr. Zvi Greengold                52       Director

Mr. Andrea Mandel-Mantello       45       Director

Mr. Yair Shamir                  59       Director

Mr. Ronen Zavlik (1)             43       Director

Dr. Yael Ilan (1)                55       External Director

Prof. Adi Raveh (1)(2)           56       External Director

Mr. Nehemia Kaufman              55       Chief Financial Officer
</TABLE>


(1)  Member of the Audit Committee.

(2)  Member of the Remuneration Committee.

MR. EDOUARD CUKIERMAN, 39, has been a director since May 2003, and Chairman of
the Company since June 2003. He is the Chairman of Cukierman & Co. Investment
House and CEO of the Catalyst Fund. Former President and Managing director of
the Astra Fund, Mr. Cukierman provides a key role in determining and
implementing Catalyst's investment selection and exit strategies for its
investments. Mr. Cukierman holds several Board positions in portfolio companies
including VCON, BOS and Orex CR. He is also the Vice Chairman of Citec
Environment and services in Paris and a Board member of Lamina Technologies in
Switzerland. In addition, Mr. Cukierman is on the Board of Sar-El, an Israeli
Defense Forces volunteer organization and serves in the IDF Spokesman Unit
(Reserves). In 1997, Mr. Cukierman was awarded the prize of Honor from the
Israel-France Chamber of commerce as CEO of Astra. He was listed among the most
influential businessman in the Israeli high-tech industry by Israel's most
widely read newspaper. Mr. Cukierman holds an M.B.A. from INSEAD, Fontainebleau,
France and a B.Sc. from the Technion - Israel Institute of Technology.

MR. ADIV BARUCH, 41, has been a director since February 2004 and the Company's
President and CEO service provider since January 1, 2004. From June 2004 he also
serves as the CEO service provider of the Company's subsidiary, BOSom Ltd. From
1999 to 2003 he served as Executive VP Business Development of Ness
Technologies, and has expertise in the Telecom and High-tech industries. Mr.
Baruch is also a former partner and active director of IPEX, acquired by Ness.
He has served as founder and an executive or director for several IT companies
and Internet start-ups, and was significantly involved in the M&A process and in
assisting these companies in their global expansion. Mr. Baruch is actively
involved as the chairman of the Israeli Export Institute Hi-Tech and Telecom
Division, and serves as a director for Ramdor Ltd., an Israeli public company
traded on the TASE. He has a B.Sc. in Computer Science and Industrial
Engineering from the Technion - Israel Institute of Technology.


                                       37
<PAGE>


MR. ELI BEN-MAYOR, 63, has been a director since June 2002. Mr. Ben-Mayor
currently serves as Chairman of the Board of general manager of Vulcan
Foundries, a multidisciplinary manufacturer and solution provider of castings
and valves products and metal projects. Previously he was the General Manager of
Rogosin Ltd. where he implemented a program geared to improve the operational
and financial situation of the company. Prior to joining Rogosin, Mr. Ben-Mayor
served as General Manager of several companies within the Clal Industries group.
Recently he concluded a five-year service term as a director of ICL Israel
Chemicals Financing and Issuing Ltd. Mr. Ben-Mayor holds a B.Sc. degree in
Mechanical Engineering from the Technion - Israel Institute of Technology, and
an MBA from Tel-Aviv University.

MR. ISRAEL GAL, 53, B.O.S.' founder, served as B.O.S.' Chief Executive Officer
and President from its inception in 1990 until January 2002, and then again from
September 2002 until December 2003. Mr. Gal was the Chairman of the Board of
Directors from 1990 until 2000 and also served as the CEO of one of the
Company's subsidiaries, BOScom Ltd. until June 2004. Mr. Gal is currently the
CTO of VOIP products in BOScom. From 1983 to 1989, Mr. Gal served as IBM
midrange product manager at IIS. In 1989, Mr. Gal served as the product manager
for sales and marketing of IIS in the United States. In 1979, Mr. Gal co-founded
Liad Electronics Ltd. where he worked until 1983. From 1976 to 1979, Mr. Gal
served as research and development engineer and product manager for Elbit Ltd.
Mr. Gal received a Bachelors of Science in Electronic Engineering from the
Technion-Israel Institute of Technology (the "Technion").


MR. AVISHAI GLUCK, 32, has been a director since February 2004. He serves as the
Executive Vice President of Catalyst Investments. Mr. Gluck brings with him over
6 years of financial management, accounting and tax consultation experience. He
has extensive knowledge of the Israeli high tech market, having screened
hundreds of companies for Catalyst and as a senior corporate consultant at E&Y
Israel. Mr. Gluck currently serves as a director in MTI Wireless-Edge Ltd. Prior
to joining Catalyst, he held the position of Corporate Finance Consultant and
accountant with Ernst & Young's Israeli affiliate Kost Forer & Gabbay, a leading
Israeli CPA firm with a dominant position among Israeli technology companies.
Mr. Gluck has a BA from Tel-Aviv University in Accounting and Economics and is a
licensed CPA.


MR. ZVI GREENGOLD, 52, has been a director since June 2002, and served as
Chairman from September 2002 to June 2003. Mr. Greengold is currently
self-employed in the field of industrial management, promotion and consulting,
and serves as Chairman of Polysac Ltd. and Polyraz of kibbutz Maoz-Haim. From
2000 to 2001 he served as Managing Director of Caribbean Petroleum, Corp., a
company that manufactures and markets fuel products in Puerto Rico. From 1999 to
2000 he served as General Manager of the Israeli Oil Refineries Ltd. From 1996
to 1998 Mr. Greengold served as Managing Director of Electrochemical Industries
(1952) Ltd. (traded on TASE), a company that manufactures polyvinyl chloride and
non-organic chemicals. From 1986 to 1996 he held various positions with
Electrochemical Industries (1952) Ltd., including Chief Financial Officer, Vice
President of Organization and Logistics, Vice President of Finance and
Organization and Vice Managing Director. Mr. Greengold currently serves as an
external director of two public Israeli companies. He holds a B.A degree in
Economics and Administration from the Rupin College in Israel.


MR. ANDREA MANDEL-MANTELLO, 45, has been a director since November 2003. Mr.
Mandel-Mantello is Founder and Partner of Advicorp PLC, a UK Investment Bank
regulated by the UK Financial Services Authority. He is an advisor on the first
high yield corporate bond issue in Italy. From 2000 to 2001 he was an advisor to
a US based private equity group on business development in Israel. Prior to his
work at Advicorp, Mr. Mandel Mantello spent 9 years at SBC Warburg (now known as
UBS) in London in various senior management positions including Executive
Director of SBC Warburg, member of the Board of SBC Warburg Italia SIM S.p.A,
and Country Head for Israel. Prior to working at SBCW Mr. Mandel-Mantello spent
2 years at Chemical Bank International Ltd. in London and 3 years at Banca
Nazionale dell'Agricoltura in Rome. He holds a Bachelors degree in Economics and
Political Science from Yale University.


                                       38
<PAGE>


MR. YAIR SHAMIR, 59, has been a director since May 2003. He has been the
Chairman of the Catalyst Fund since 1999. He served as VCON Communication's
Chief Executive Officer and Director since 1997. From 1995 to 1997, Mr. Shamir
served as Executive Vice President of the Challenge Fund-Etgar L.P., an Israeli
venture capital firm. From 1993 to 1995, he served as Chief Executive Officer of
Elite Food Industries Ltd., one of Israel's largest branded food product
companies. From 1988 to 1993, he served as Executive Vice President and General
Manager of Scitex Corporation Ltd., a leading supplier of computer graphic
systems. From 1963 to 1988, Mr. Shamir served in the Israeli Air Force as a
pilot and commander. During his term in the Air Force, he attained the rank of
colonel and the served as head of the Electronics Department, the highest
professional electronics position within the Air Force. Mr. Shamir currently
serves as a director of several public companies listed on the NASDAQ including
Orckit Communications Ltd, Mercury Interactive Corporation and DSP Group
Corporation as well as serving as a director of several private companies. Mr.
Shamir is the Chairman of The Catalyst Fund, an Israel-based venture capital
fund investing in late-stage companies mainly in the high technology sector. Mr.
Shamir holds a B.Sc. in Electronic Engineering from the Technion - Israel
Institute of Technology.


MR. RONEN ZAVLIK, 43, has been a director since May 2003. He is a partner in the
CPA firm of Grinberg-Zavlik, which he founded in 1987. His firm provides a wide
range of audit, tax consultancy and CFO services, to a wide variety of
companies. Mr. Zavlik provides internal auditing services to a number of large
companies whose shares are traded on the Tel Aviv Stock Exchange, including
Ma'ariv Holdings Ltd, Extra Plastic Ltd. Israel Land Development Malls and
Shopping Centers Ltd and Israel Land Development Company Hotels Ltd. Mr. Zavlik
holds a B.A. in Accountancy and Business Management from the College of
Management in Tel-Aviv. Mr. Zavlik is a licensed CPA in Israel and a member of
the Institute of Certified Public Accountants in Israel.


DR. YAEL ILAN, 55, has been an external director since November 2002. Dr. Ilan
is the president of Yedatel Ltd., an economic consulting company, and serves as
a director of CI Systems in the technology sector. Until 1998 she served on the
board of Bezeq - Israel's Telecommunication Company in which she headed the
committee of technological policy and infrastructure and was a member of the
audit committee and the committee for strategic planning and investment. From
1998 through 2000 she served as an external director of Elron Industries. In
2000-01 she founded and managed Optichrom, an optical component start-up. From
1995 through 2000 Dr. Ilan served as the head of program of the Broad Band
Communication, a consortium of MAGNET - the Israeli Government hi-tech
cooperation initiative. Dr. Ilan holds a Ph.D. in industrial engineering from
Stanford University, a Ph.D. in physical chemistry from the Hebrew University
and a Masters degree in business administration from the Hebrew University.


PROF. ADI RAVEH, 56, has been an external director since February 2003. Prof.
Raveh is a professor and head of the B.A. Program at the School of Business
Administration, Hebrew University, Jerusalem. Since 1998 he served as an
external director at Clal Insurance Company Ltd. Since 2002 he has served as the
Chairman of the Board of Jerusalem Capital Markets Underwriting limited. He also
serves as a director of Meitav - a Mutual Funds Management company (since 1995),
and as a director of Peilim - a Portfolio Management company - part of Bank
Hapoalim Group (since 1996). Since 1992 he is a director who represents the
Hebrew University at Hi-Tech - a Technology Entrepreneurship located at
Har-Hahotzvim, Jerusalem. Prof. Raveh also serves as a director of two start-up
companies: A.D.M (Advanced Dialysis Methods Ltd.) and Virtouch Ltd. Between
1994-1999 he served as a director and a member of the executive committee of the
Bank of Jerusalem, Ltd. Between 1996-1998 he served as a member of an ad-hoc
committee of the Council of Higher Education. In 1999 he served as a member of
the Budget Committee for Research at the Israel Science Foundation. Prof. Raveh
holds a Ph.D. from the Hebrew University. He is the author of about 50
professional publications, was a visiting professor at Stanford University,
Columbia University and Baruch College, N.Y., and has received a number of
grants and honors.


                                       39
<PAGE>


MR. NEHEMIA KAUFMAN, 55, has provided CFO services to the Company since
September 2002. Before then, from May 2002, he served as a consultant and CFO of
the Company's subsidiary, BOScom Ltd. Mr. Kaufman is currently the Managing
Director of Mocha Global Managerial Services Ltd. From 1999 to 2002 he
co-founded and served as CFO of Trellis Photonics Ltd., from 1997 to 1999 Mr.
Kaufman was self-employed as a CFO service provider, from 1995 to 1997 he served
as CFO of Computer Direct Ltd. (TASE: CMDR), and from 1993 through 1995 he
served as CFO of Rogosin Enterprises Ltd. (TASE: ROGO). Mr. Kaufman holds an MBA
degree from the Hebrew University in Jerusalem (graduated with distinction) and
a BA degree in Economics and Business Administration from Haifa University.


6B.  BOARD COMPENSATION


The directors who are not executive officers are paid a fee for their services
as directors to the extent that such fees are approved by a general meeting of
our shareholders. Until February 18, 2003, only the Company's external directors
were paid for their service on the Company's Board of Directors and its
committees. As resolved by the shareholders, the external directors are
compensated according to the maximum rate permitted (now and in the future) by
Israeli law and regulation. The current rates for companies the size of ours,
are an annual fee of approximately $5,520, and a participation fee in meetings
of approximately $290. On February 18, 2003 the shareholders approved
compensation for all directors who are not employees or consultants1, including
directors appointed in the future, at the same rate the external directors of
the Company are paid. With respect to two incumbent directors, the shareholders'
resolution provides that the compensation be paid retroactively since their
appointment in June 2002. On June 26, 2003, the Board of Directors resolved to
reduce the annual fee for all directors by 18%, effective July 1, 2003, as part
of a cost reduction plan. Additionally, the Company's directors are granted
options (see "Share Ownership" ahead, and "Related Party Transactions" under
Item 7). The Company does not have any contracts with any of its non
employee/consultant directors, that would provide for benefits upon termination
of service.


The following table presents the total compensation paid to or accrued on behalf
of all of our directors and officers as a group for the year ended December 31,
2003:

- --------

     1 However, the audit committee and the Board of Directors have approved,
subject to shareholder approval at the upcoming annual meeting of shareholders,
that Edouard Cukierman, Chairman of the Board, will receive remuneration
(retroactively from the date of his nomination in May 2003) as a Board member,
under the same terms as all other directors, despite his being (indirectly) a
controlling shareholder and senior executive of Cukierman & Co. Investment House
Ltd. (a service provider to the Company - see Item 7B), and therefore not
eligible for remuneration according to the current shareholder resolution.
Additionally, in November 2003 the audit committee and the Board of Directors
approved a consulting agreement between Mr. Zvi Greengold and the Company's
subsidiary, BOScom Ltd. (see Item 7B), and that the consulting fee shall be in
addition to the remuneration and options Mr. Greengold receives as a director of
the Company (as all directors who are non employees/consultants of the Company).
For the avoidance of doubt, the shareholders shall be requested to ratify this
resolution at the upcoming annual meeting.


                                       40
<PAGE>


<TABLE>
<CAPTION>

                                       Salaries, Directors' Fees,
                                       Service Fees2, Commissions       Pension, Retirement and
                                       and Bonuses                      Similar Benefits
                                        --------                        --------
<S>                                     <C>                             <C>
All directors and officers as a
group (then 13 persons)                 $370,000                        $ 45,000
</TABLE>



Such remuneration does not include amounts expended by the Company for expenses,
including business association dues and expenses reimbursed to said officers,
and other fringe benefits commonly reimbursed or paid by companies in the
location in which the particular executive officer of the Company is located, as
the case may be.


6C.  BOARD PRACTICES


Our Board of Directors is currently comprised of eleven directors, including two
external directors. The directors are elected at the annual shareholders
meeting, by a simple majority, to serve until the next annual meeting of our
shareholders and until their respective successors are elected and qualified,
with the exception of the external directors who, by rule of the Companies Law
1999, serve for three years. Our Articles of Association provide that the number
of directors in the Company (including external directors) shall be determined
from time to time by the annual general meeting of shareholders, provided that
it shall not be less than four nor more than eleven. Our Articles of Association
provide that the directors may appoint additional directors (whether to fill a
vacancy or to expand the Board) so long as the number of directors so appointed
does not exceed the number of directors authorized by shareholders at the annual
general meeting, and such appointees shall serve until the next annual general
meeting.


Under the Companies Law and the regulations promulgated pursuant thereto,
Israeli companies whose shares have been offered to the public in, or that are
publicly traded outside of, Israel are required to appoint at least two natural
persons as "external directors". No person may be appointed as an external
director if the person, or a relative, partner or employer of the person, or any
entity under the person's control, has or had, on or within the two years
preceding the date of the person's appointment to serve as an external director,
any affiliation with the company to whose board the external director is
proposed to be appointed or with any entity controlling or controlled by such
company or by the entity controlling such company. The term affiliation includes
an employment relationship, a business or professional relationship maintained
on a regular basis, control and service as an office holder (which term includes
a director).


In addition, no person may serve as an external director if the person's
position or other business activities create, or may create, a conflict of
interest with the person's responsibilities as an external director or interfere
with the person's ability to serve as an external director or if the person is a
member or employee of the Israel Securities Authority or of an Israeli stock
exchange. If, at the time of election of an external director, all other
directors are of the same gender, the external director to be elected must be of
the other gender.


External directors are elected for a term of three years and may be re-elected
for one additional three-year term. Each committee of a company's board of
directors that has the authority to exercise powers of the board of directors is
required to include at least one external director and its audit committee must
include all external directors.


- ----------

     2 We receive CFO services from Mocha Global Managerial Services Ltd., and
the services are provided by Mr. Nehemia Kaufman. From January 1, 2004 we
receive managerial/CEO services from Signum Ltd., and the services are provided
by Mr. Adiv Baruch.


                                       41
<PAGE>


External directors are elected at the general meeting of shareholders by a
simple majority, provided that the majority includes at least one-third of the
shareholders who are not controlling shareholders, who are present and voting,
or that the non-controlling shareholders who vote against the election hold one
percent or less of the voting power of the company.


Under the Companies Law an external director cannot be dismissed from office
unless: (i) the board of directors determines that the external director no
longer meets the statutory requirements for holding the office, or that the
external director is in breach of the external director's fiduciary duties and
the shareholders vote, by the same majority required for the appointment, to
remove the external director after the external director has been given the
opportunity to present his or her position; (ii) a court determines, upon a
request of a director or a shareholder, that the external director no longer
meets the statutory requirements of an external director or that the external
director is in breach of his or her fiduciary duties to the company; or (iii) a
court determines, upon a request of the company or a director, shareholder or
creditor of the company, that the external director is unable to fulfill his or
her duty or has been convicted of specified crimes.


Our Articles of Association provide that a director may appoint, by written
notice to us, any individual to serve as an alternate director, up to a maximum
period of one month, if the alternate is not then a member of the Board. Any
alternate director shall have all of the rights and obligations of the director
appointing him or her and shall be subject to all of the provisions of the
Articles of Association and the Companies Law. Unless the time period or scope
of any such appointment is limited by the appointing director, such appointment
is effective for all purposes for a period of one month, but in any event will
expire upon the expiration of the appointing director's term, removal of the
alternate at an annual general meeting, the bankruptcy of the alternate, the
conviction of the alternate for an offense under Section 232 of the Companies
Law, the legal incapacitation of the alternate, the removal of the alternate by
court order or the resignation of the alternate. Currently, one alternate
director has been appointed - Mr. Avishai Gluck has appointed Mr. Erez Miller as
his alternate for the period of May 30, 2004 thru June 23, 2004, while Mr. Gluck
is on military reserve duty.


Officers serve at the discretion of the Board or until their successors are
appointed.


According to the provisions of our Articles of Association and the Companies
Law, the board of directors convenes in accordance with the Company's
requirements, and at least once every three months. In practice, the board of
directors convenes more often.

AUDIT COMMITTEE:

The Companies Law requires public companies to appoint an audit committee
comprised of at least three directors, including all of the external directors,
and further stipulates that the chairman of the board of directors, any director
employed by or providing other services to a company and a controlling
shareholder or any relative of a controlling shareholder may not be members of
the audit committee. The responsibilities of the audit committee include
identifying flaws in the management of a company's business, making
recommendations to the board of directors as to how to correct them and deciding
whether to approve actions or transactions which by law require audit committee
approval. An audit committee may not approve an action or transaction with a
controlling shareholder or with an office holder unless at the time of approval
two external directors are serving as members of the audit committee and at
least In order to comply with the Sarbanes-Oxley Act of 2002, the Board of
Directors has expanded the role of the Company's Audit Committee to provide
assistance to the Board of Directors in fulfilling its legal and fiduciary
obligations with respect to matters involving the accounting, auditing,
financial reporting and internal control functions of the Company. In carrying
out these duties, the Audit Committee must meet at least once in each fiscal
quarter with management at which time, among other things, it reviews, and
either approves or disapproves, the financial statements of the Company for the
immediately preceding fiscal quarter and conveys its conclusions in this regard
to the Board of Directors. The Audit Committee also monitors generally the
services provided by the Company's external auditors to ensure their
independence, and reviews, and either approves or disapproves, all audit and
non-audit services provided by them. The Company's external and internal
auditors must also report regularly to the Audit Committee at its meetings, and
the Audit Committee discusses with the Company's external auditors the quality,
not just the acceptability, of the accounting principles, the reasonableness of
significant judgments and the clarity of disclosures in the Company's financial
statements, as and when it deems it appropriate to do so.


                                       42
<PAGE>


Under the Sarbanes-Oxley Act of 2002, the Audit Committee is also responsible
for the appointment, compensation, retention and oversight of the work of the
Company's external auditors. However, under Israeli law, the appointment of
external auditors requires the approval of the shareholders of the Company.
Accordingly, the appointment of the external auditors is approved and
recommended to the shareholders by the Audit Committee and ratified by the
shareholders. Furthermore, pursuant to the Company's Articles of Association,
the Board of Directors is the organ that has the authority to determine the
compensation of the external auditors, however, the Board of Directors recently
delegated its authority to the audit committee, so that a second discussion by
the Board of Directors shall not be necessary.


In 2003 the Company adopted an Audit Committee Charter which sets forth the
responsibilities of the committee.


REMUNERATION COMMITTEE


The role of the Remuneration Committee is to provide assistance and make
recommendations to the Board of Directors regarding matters related to the
compensation of directors and certain employees of the Company. The Remuneration
Committee of the Company meets on an ad hoc basis, and in the past has not
always been active. Under the Israeli Companies Law, the Remuneration Committee
may only make recommendations to the Board of Directors concerning the grant of
options (and in some cases, such grants may need approval of the audit
committee, the Board of Directors and the shareholders as well).


6D.  EMPLOYEES


As of December 31, 2003, we employed 57 employees worldwide, including those in
our subsidiaries. Of the 57 employees, 55 are based in our facility in Israel
(employed by us or BOScom), including 10 employees in administration and
finance, 5 employees in marketing and sales, 26 employees in engineering,
research and development, 6 employees in technical support, and 8 employees in
manufacturing. We have 1 employee in the U.S. and 1 in the U.K. As of December
31, 2002 we employed 104 employees worldwide. As of December 31, 2001, we
employed 181 employees worldwide. We believe that our relations with our
employees are satisfactory. We have not experienced a collective labor dispute
or strike.


Israeli labor laws are applicable to all of our employees in Israel. 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.


All Israeli employers, including us, are required to provide a certain
escalation of wages in relation to the increase in the Israeli Consumer Price
Index. The specific formula of such escalation varies according to agreements
reached between the Government of Israel, the Manufacturers' Association and the
Histadrut, the general labor union in Israel. The majority of our employees are
covered by comprehensive life and pension insurance policies. The remainder are
covered by retirement accounts. Israeli employees and employers are required to
pay predetermined sums to the Israel National Insurance Institute which amounts
also include, since January 1, 1995, payments for national health insurance.


                                       43
<PAGE>


6E.  SHARE OWNERSHIP


As of May 16, 2004, our directors and officers as a group, now consisting of 12
persons, hold an aggregate of 321,332 ordinary shares. We have also granted our
officers and directors options to purchase 221,250 ordinary shares under our
Stock Option Plans3. Of these options, none have been exercised until now and
168,750 had vested as of May 15, 2004.


The only directors or officers who hold shares are:

     o    Mr. Israel Gal (Director) holds 321,332 ordinary shares, amounting to
          7.7% of the Company's outstanding shares4.

     o    Mr. Yair Shamir has indirect holdings of less than 1%.


The options granted to directors or officers who are serving as of the date of
this report are outlined below:

<TABLE>
<CAPTION>

Name                          No. of options    Terms
- ----                          --------------    -----
<S>                           <C>               <C> <C>
Israel Gal5                   18,750            1.  All vested.
                                                2.  Exercisable - until November 10, 2004.
                                                3.  Exercise price -$18.00



Israel Gal                    75,000            1.  All vested.
                                                2.  Exercisable - until April 17, 2006.
                                                3.  Exercise price -$28.00



Each of6:                      7,500            1.  2,500 vesting August 31, 2004;
Zvi Greengold7, Eli                                 2,500 vesting August 31, 2005;
Ben-Mayor, Yair Shamir,                             2,500 vesting August 31, 2006.
Ronen Zavlik, Yael Ilan,                        2.  Exercisable - until August 31, 2008.
Adi Raveh                                       3.  Exercise price -$1.84.
</TABLE>

- ----------

     3 Does not include 7,500 options granted to Avishai Gluck, an executive of
Catalyst Investments, serving on the Company's Board of Directors, which have
been transferred to Catalyst (see also footnote 6), and does not include
additional grants that have not yet been approved by the Company shareholders.


     4 Does not include indirect ownership of 244,467 Ordinary Shares owned by
Ms. Yael Gal, Mr. Israel Gal's spouse, as to which Mr. Gal disclaims beneficial
ownership. Does not include options held by Mr. Gal - see table below.


     5 Does not include, the grant of 12,805 options to Mr. Gal (vesting 50% on
August 31 2004, and 50% on August 31 2005, exercise price - $2, exercisable
until August 31, 2013), that was approved by the Board of Directors in August
2003 and is subject to shareholder approval at the upcoming annual general
meeting.

     6 Additionally, 7,500 options under the same vesting and exercise price
terms, have been granted to an executive of Catalyst Investments, Avishai Gluck,
serving on the Company's Board of Directors. The Audit Committee and the Board
of Directors have resolved, subject to shareholder approval and retroactive from
August 2003, that if executives of Catalyst on the Company's Board of Directors
(currently: Edouard Cukierman and Avishai Gluck), transfer their right to be
granted options, to Catalyst (the audit committee and Board of Directors have
approved such transfer), then for purposes of vesting and exercise terms of the
options, the holding period of a successor Catalyst executive on the Company's
Board will be tacked to that of his predecessor, provided that the service


                                       44
<PAGE>


<TABLE>
<CAPTION>
<S>                           <C>               <C> <C>
Andrea Mandel-Mantello         7,500            1.  2,500 vesting November 16, 2004;
                                                    2,500 vesting November 16, 2005;
                                                    2,500 vesting November 16, 2006.
                                                2.  Exercisable - until November 16, 2008.
                                                3.  Exercise price -$1.84.


Nehemia Kaufman8              75,000            1.  All vested.
                                                2.  Exercisable - until June 26, 2011.
                                                3.  Exercise Price - $4.00
</TABLE>



On February 18, 2003 the Company's shareholders approved the grant of 7,500
options to any future first-time director, who is not an employee or paid
consultant of the Company. The terms and conditions of the grant, as approved by
the shareholders, are as follows: the exercise price shall be $1.84 (pre-split
price of $0.46 - the closing price of the shares on the Nasdaq National Market
on the date of approval by the shareholders); the options will vest over a three
year period from the date of grant (one-third vesting every year) and be
exercisable within five years from the date of grant. As the share price has
fluctuated over the past year, the Board of Directors has resolved to bring
before the annual shareholders meeting to be held in the summer of 2004, a
proposal that future issuances to new directors will have an exercise price
equal to the average closing price of the shares on the Nasdaq National Market
on the 20 trading days preceding their appointment.


Additionally, the audit committee and the Board of Directors have approved,
subject to shareholder approval at the upcoming annual meeting of shareholders:


(a) that Edouard Cukierman, Chairman of the Board, will be granted 7,500 options
under the same terms as all other directors (with a grant date of August 31,
2003), despite his being (indirectly) a controlling shareholder and senior
executive of Cukierman & Co. Investment House Ltd. (a service provider to the
Company), and therefore not eligible for options according to the current
shareholder resolution.


(b) the grant of options to purchase 216,282 ordinary shares of the Company
(equal to five percent (5%) of the Company's issued and outstanding share
capital, on a fully diluted and as converted basis, on November 23, 2003), to
Signum Ltd., the management services provider to the Company (exclusively
through Adiv Baruch who serves in the capacity of President and Chief Executive
Officer of the Company). The options shall vest and become exercisable in 36
equal monthly installments (fractions shall be rounded up) at the end of each
month following the date of grant and shall be exercisable at any time during a
period of ten years from the date of adoption of the Company's stock option plan
(22.5.2013). The exercise price shall be $3 per ordinary share. Notwithstanding
the foregoing, all options shall immediately vest and become exercisable upon
(a) the occurrence of a merger, reorganization, or sale of the Company or a sale
all or substantially all of the Company's shares or assets or (b) upon the
termination by the Company of the management agreement other than for Cause (as
defined in the management agreement), provided however that no such immediate
vesting shall occur in the event of termination due to failure of Adiv Baruch to
reach the annual goals set by the Company's Board of Directors.

- --------------------------------------------------------------------------------

on the Board is consecutive. As of the date of this report, one Catalyst
executive, Avishai Gluck, who was granted options on February 5, 2004, has
transferred his options to Catalyst. In the event shareholder approval is
received, the grant date of the options that were transferred to Catalyst by
Avishai Gluck, will be August 31, 2003 (and not February 5, 2004), as Avishai
Gluck replaced Boaz Harel, another Catalyst executive, on the Company's Board of
Directors, and Boaz Harel was granted options on August 31, 2003.


     7 In November 2003 the audit committee and the Board of Directors approved
a consulting agreement between Mr. Zvi Greengold and the Company's subsidiary,
BOScom Ltd. (see Item 7B), and that the consulting fee shall be in addition to
the remuneration and options Mr. Greengold receives as a director of the Company
(as all directors who are non employees/consultants of the Company). For the
avoidance of doubt, the shareholders shall be requested to ratify this
resolution at the upcoming annual meeting.

     8 Additional terms of these options include certain restrictions on the
sale of most of the shares derived from the exercise of the options.

                                       45
<PAGE>


SHARE OPTION PLANS

The purpose of the Share Option Plans is to enable us to attract and retain
qualified persons as employees, officers, directors, consultants and advisors
and to motivate such persons by providing them with an equity participation in
the company. In addition, the Incentive Stock Options (ISO)/ Restricted Stock
Option (RSO) Plan is designed to afford qualified optionees certain tax benefits
available under the U.S. Internal Revenue Code of 1986, as amended (the "Code").
The Section 102 Plan is designed to afford qualified optionees certain tax
benefits under the Israel Income Tax Ordinance. The Share Option Plans will
expire 10 years after their adoption, unless terminated earlier by the Board of
Directors.


The Share Option Plans are administered by the Board of Directors which has
broad discretion, subject to certain limitations, to determine the persons
entitled to receive options or rights to purchase (in the case of the Section
102 Plan).


Under the Share Option Plans, the terms and conditions under which options or
rights to purchase (in the case of the Section 102 Plan) are granted and the
number of shares subject thereto shall be determined by the Board of Directors.
The Board of Directors also has discretion to determine the nature of the
consideration to be paid upon the exercise of an option and/or right to purchase
granted under the Share Option Plans. Such consideration generally may consist
of cash, or, at the discretion of the Board of Directors, cash and a recourse
promissory note.


Stock options issued as incentive stock options pursuant to the ISO/RSO Plan
will only be granted to our employees, including those of all subsidiaries. The
exercise price of incentive stock options issued pursuant to the ISO/RSO Plan
must be at least equal to the fair market value of the ordinary shares as of the
date of grant. The price per share under options awarded pursuant to the Section
102 Plan may be any price determined by the Board.


The ordinary shares acquired upon exercise of an option are subject to certain
restrictions on transfer, sale or hypothecation. Options are exercisable and
restrictions on disposition of shares lapse pursuant to the terms of the
individual agreements under which such options were granted or shares issued.


Due to a tax reform in Israel, after January 1, 2003 the Company may not grant
options pursuant to an "old" Section 102 Plan. Therefore, the Company may not
grant any more options pursuant to the 2000 and 1995 Plans described below.
Previous grants under these Plans remain unaffected


2003 PLAN


In May 2003 the Company's shareholders approved the adoption of the 2003 Stock
Option Plan, pursuant to which 625,000 ordinary shares were reserved for
purchase by the employees, directors, consultants and service providers of the
Company and its subsidiaries. The Board of Directors has resolved that no
further grants shall be made from the existing plans (which, as of December 31,
2003, had in the aggregate 337,902 options left for issuance from the existing
option pools previously approved by the shareholders). The Company has elected
the benefits available under the "capital gains" alternative. There are various
conditions that must be met in order to qualify for these benefits, including
registration of the options in the name of a trustee (the "Trustee") for each of
the employees who is granted options. Each option, and any ordinary shares
acquired upon the exercise of the option, must be held by the Trustee for a
period commencing on the date of grant and ending no earlier than 24 months
after the end of the tax year in which the option was granted and deposited in
trust with the Trustee. Pursuant to an election made by the Company, capital
gains derived by optionees arising from the sale of shares derived from the
exercise of options granted to them under Section 102, will be subject to a flat
capital gains tax rate of 25% (instead of the gains being taxed as salary income
at the employee's marginal tax rate). However, as a result of this election, the
Company will no longer be allowed to claim as an expense for tax purposes the
amounts credited to such employees as a benefit when the related capital gains
tax is payable by them, as the Company was previously entitled to do. The
Company may change its election in the year 2005.


                                       46
<PAGE>


As of December 31, 2003, we had 203,076 options outstanding under this plan,
135,576 at an exercise price of $2.00 per share, and 67,500 at an exercise price
of $1.84 per share. None were vested as of December 31, 2003.

2001 PLAN

In March 2002, the Company's shareholders approved the adoption of the 2001
Stock Option Plan, pursuant to which 250,000 ordinary shares were reserved for
purchase by the Company's employees, directors, consultants or service
providers, as determined by the Board of Directors or its authorized
sub-committee. As of December 31, 2003, we had 104,418 options outstanding under
this plan, 75,000 at an exercise price of $4.00 per share and 29,418 at an
exercise price of $6.80 per share. Of these options, 60,668 were vested as of
December 31, 2003.

2000 PLAN

In April 2001, the Company's shareholders approved our 2000 Employees Incentive
Share Option Plan, pursuant to which 112,500 ordinary shares were reserved for
purchase. The plan is subject to Section 102 of the Israeli Income Tax
Ordinance. As of December 31, 2003, we had 55,075 options outstanding under this
plan, 45,325 at an exercise price of $28.00 per share and 9,750 at an exercise
price of $6.80 per share. Of these options, 51,825 were vested as of December
31, 2003.

1999 PLAN

In November 1999, the Company's shareholders approved the adoption of the 1999
Stock Option Plan (incentive and restricted stock options). The 1999 plan has
193,750 ordinary shares reserved in its favor. As of December 31, 2003, 44,257
of the options granted under this plan had been exercised, and there were 32,500
more options outstanding at an exercise price of $18.00 per share all of which
had vested as of 31.12.2003.

1995 PLANS

In December 1995, we adopted the following plans: (i) the Stock Option Plan
(Incentive and Restricted Share Options) (the "ISO/RSO Plan"), which provides
for the grant of incentive and restricted stock options and (ii) the Section 102
Stock Option/Stock Purchase Plan (the "Section 102 Plan" and together with the
ISO/RSO Plan, the "Share Option Plans").


The Share Option Plans provide for the grant of options to purchase up to an
aggregate of 50,000 ordinary shares. As of December 31, 2003, 22,300 of the
options granted under this plan had been exercised, and there were 13,488 more
options outstanding, 8,038 at an exercise price of $17.00 per share, and 5,450
at an exercise price of $18.00 per share. All of the outstanding options had
vested as of December 31, 2003.

1994 PLAN

In 1994, we adopted a plan for the grant of options to purchase 50,000 ordinary
shares to our employees. As of December 31, 2003, 28,615 of the options granted
under this plan had been exercised, and there were 17,695 more options
outstanding, 3,695 at an exercise price of $10.60 and 14,000 at an exercise
price of $14.00. All of the outstanding options had vested as of December 31,
2003.


                                       47
<PAGE>


ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS


7A.  MAJOR SHAREHOLDERS


We are not directly or indirectly owned or controlled by another corporation or
by any foreign government.


The following table presents, to the best of our knowledge, certain information
as of May 16, 2004 with respect to each shareholder known to the Company to be
the beneficial owner of more than 5% of our outstanding ordinary shares. Except
where indicated, we believe, based on information provided by the owners, that
the beneficial owners of the ordinary shares listed below have sole investment
and voting power with respect to those shares (subject to community property
laws, where applicable). Applicable percentage ownership in the following table
is based on 4,167,509 shares outstanding (out of which 5,338 are dormant shares)
as of May 16, 2004.

<TABLE>
<CAPTION>

                                                Shares Beneficially Owned
Name and Address                                Number            Percent
- ----------------                                -------           ----
<S>                                             <C>               <C>
Catalyst Fund, LP(1)                            947,275           22.7%
3 Daniel Frisch Street,
Tel-Aviv 64731, Israel

Mr. Israel Gal (2)                              321,332            7.7%
C/o B.O.S. Better OnLine Solutions Ltd.
100 Bos Drive
Teradion 20197, Israel

Ms. Yael Gal (3)                                244,467            5.9%
C/o B.O.S. Better OnLine Solutions Ltd.
100 Bos Drive
Teradion 20197, Israel

M. Wertheim Holdings, Ltd.                      279,958            6.7%
Twin Towers 2, 35 Zabotinski Street
Ramat-Gan, Israel

Hillswood Holdings Limited                      310,119            7.4%
C/o Credit Suise Trust Limited
Guernsey Office
P.O. Box 122, Helvetia Court
South Esplanade, St. Peter Port
Guernsey, GY1 4EE Channel Islands

Officers and directors as a group (4)           321,332            7.7%
</TABLE>


(1) Does not include options to purchase 7,500 ordinary shares that were
transferred to Catalyst by their executive on the Company's Board of Directors
(see Item 6E).


(2) Does not include indirect ownership of 244,467 ordinary shares owned by Ms.
Yael Gal, Mr. Israel Gal's spouse, as to which Mr. Gal disclaims beneficial
ownership. Does not include options held by Mr. Gal (see Item 6E).


(3) Does not include indirect ownership of 321,332 ordinary shares owned by Mr.
Israel Gal, Ms. Yael Gal's spouse, as to which Ms. Gal disclaims beneficial
ownership.


                                       48
<PAGE>


(4) Does not include indirect ownership of 244,467 ordinary shares owned by Ms.
Yael Gal, Mr. Israel Gal's spouse, as to which Mr. Gal disclaims beneficial
ownership. Does not include 221,250 options to purchase ordinary shares of the
Company granted and currently held by Officers and/or Directors of the Company.



Of the major shareholders, to the best of our knowledge, only the holdings of M.
Wertheim Holdings Ltd. changed over the last three years (all figures adjusted
to represent the 1:4 reverse-split effected May 29, 2003): as of December 31,
2001 - 147,627 ordinary shares, as of December 31, 2002 until today - 279,958
ordinary shares. Hillswood Holdings Limited became a shareholder only in
December 2003.


The shareholders' holdings reflect their voting rights. The Company's major
shareholders do not have different voting rights than other shareholders, with
respect to their shares.


As of May 16, 2004, there were 37 record holders of ordinary shares, of which 18
were registered with addresses in the United States, representing approximately
49% of the outstanding ordinary shares. However, the number of record holders in
the United States is not representative of the number of beneficial holders nor
is it representative of where such beneficial holders are resident since many of
the ordinary shares are held of record by brokers and other nominees.


7B.  RELATED PARTY TRANSACTIONS


GRANT OF OPTIONS TO THE COMPANY'S NON-EMPLOYEE/CONSULTING DIRECTORS


On February 18, 2003, the Company's shareholders approved the issuance of a
one-time grant of 7,500 options to purchase ordinary shares of the Company,
under one of the Company's Stock Option Plans (at the discretion of the Board of
Directors) to all then current Company directors (including the external
directors) and any future first-time directors who are not employees or paid
consultants of the Company9.


The terms and conditions of the grant are as follows:

(a)  Exercise Price of each option - $1.84 ($0.46 pre-split -the closing price
     of the Company's Shares on the Nasdaq National Market on the date of the
     approval by the shareholders)10.

(b)  Option Terms - The Options will vest and become exercisable over a period
     of three years, in three equal parts as follows: 33.33% after one year from
     the date of grant, with an additional 33.33% becoming exercisable upon the
     expiration of each of the two years thereafter.

(c)  Maximum Option Term - Five years from grant.

(d)  Payment - Payment for ordinary shares purchased upon exercise of Options
     must be made in full upon exercise of the Option, by cash or check or cash
     equivalent, or by the assignment of the proceeds of a sale of some or all
     of the shares being acquired upon exercise of an Option, or by any
     combination of the foregoing.

(e)  Restrictions on Transfer of Plan Shares - Options are exercisable in whole
     or in part at such times after the date of grant as set forth above.
     Options are exercisable during the lifetime of the Option holder only by
     such Option holder, and may not be assigned or transferred except by an
     advance approval of the Company's Audit Committee, by will or by the laws
     of descent and distribution. Options shall be exercisable during the term
     the Option holder holds office as a director of the Company or within 60
     days after leaving this position, with certain exceptions in the case of
     the Option holder's death or disability.

- ----------

     9 At this time, the incumbent directors who have been granted options
pursuant to this resolution include: Messrs. Zvi Greengold, Eli Ben-Mayor, Yair
Shamir, Ronen Zavlik, Avishai Gluck, Andrea Mandel-Mantello, Prof. Adi Raveh and
Dr. Yael Ilan. Edouard Cukierman shall be entitled to options, despite his being
(indirectly) a controlling shareholder and senior executive of Cukierman & Co.
Investment House Ltd., a service provider to the Company, if so approved at the
upcoming shareholders meeting (see Item 6E). Avishai Gluck has transferred his
options to Catalyst, after having received audit committee approval.


     10 As the share price has fluctuated over the past year, the Board of
Directors has resolved to bring before the annual shareholders meeting to be
held in the summer of 2004, a proposal that future issuances to new directors
will have an exercise price equal to the average closing price of the shares on
the Nasdaq National Market on the 20 trading days preceding their appointment.


                                       49
<PAGE>


REMUNERATION OF THE COMPANY'S NON-EMPLOYEE/CONSULTING DIRECTORS


On February 18, 2003, the Company's shareholders approved the remuneration of
the directors of the Company (including directors appointed in the future) who
are not employees or paid consultants of the Company11, at the same rate the
external directors of the Company are paid, and with respect to Messrs.
Greengold and Ben-Mayor, the remuneration shall be paid retroactively since the
date of their appointment to the Board of Directors in June 2002. At the annual
general meeting held on March 13, 2002, the shareholders resolved to remunerate
the external directors according to the maximum rate permitted now and in the
future by Israeli law and regulations. The current rates for companies the size
of ours, are an annual fee of approximately $5520, and a participation fee in
meetings of approximately $290. On June 26, 2003, the Board of Directors
resolved to reduce the annual fee for all directors by 18%, effective July 1,
2003, as part of a cost reduction plan.


INDEMNITY UNDERTAKINGS BY THE COMPANY TO ITS DIRECTORS AND OFFICERS


On February 18, 2003, the Company's shareholders approved indemnity undertakings
to its directors and officers (including future directors and officers as may be
appointed from time to time), in excess of any insurance proceeds, not to
exceed, in the aggregate over the years, a total amount of $2,500,000 (two and a
half million dollars).


SETTLEMENT AGREEMENT BETWEEN THE COMPANY, CATALYST INVESTMENTS L.P, AND CERTAIN
SHAREHOLDERS


In January 2003, the Company's Board of Directors approved the transaction with
Catalyst Investments, L.P. ("Catalyst" and the "Transaction"), pursuant to which
Catalyst was issued Company shares, in exchange for the sale of most of its Surf
shares to the Company (see also Item 4A). Shortly thereafter, certain
shareholders filed suit against the Company demanding that a shareholders
meeting be convened and requesting a declaratory judgment that the transaction
is subject to shareholder approval. The court issued a temporary restraining
order, EX PARTE, prohibiting the Company from signing the transaction agreements
and closing the deal, and scheduled a hearing in the presence of all parties.
The Company's position was that the shareholders lack voting authority with
regard to the Transaction.


- ----------

     11 Edouard Cukierman shall also be entitled to such remuneration, despite
his being (indirectly) a controlling shareholder and senior executive of
Cukierman & Co. Investment House Ltd., a service provider to the Company, if so
approved at the upcoming shareholders meeting (see Item 6E). Additionally, the
audit committee and the Board of Directors approved a consulting agreement
between Mr. Zvi Greengold and the Company's subsidiary, BOScom Ltd., and that
the consulting fee shall be in addition to the remuneration and options Mr.
Greengold receives as a director of the Company (as all directors who are non
employees/consultants of the Company). For the avoidance of doubt, the
shareholders shall be requested to ratify this resolution at the upcoming annual
meeting.


                                       50
<PAGE>


In February 2003, a settlement agreement reached between the parties provided
for the dismissal of the lawsuit, so that the Transaction will be executed
without the need for shareholder approval. Under the settlement agreement,
Catalyst is prohibited, until February 1, 2005, from entering into a voting
agreement of any kind, with other shareholders of the Company, unless some of
the plaintiff shareholders enter into voting agreements of their own. Catalyst
also represented that it purchased the Company shares for investment purposes
and undertook to not sell its shares until February 1, 2006, subject to certain
agreed-upon exceptions. The settlement agreement also provided Catalyst with the
same registration rights with regard to the purchased shares, as some of the
plaintiff shareholders received when they invested in the Company in May 2000.
Furthermore, all parties waived claims against each other and against the
directors of the Company, with regard to the Transaction, as well as any claims
against Orwer Ltd. and/or Mr. Aviram Wertheim, with relation to the private
placement between the Company and Orwer Ltd., which did not take place despite
the authorization given by the shareholders in March 2002.


SERVICES AGREEMENT WITH CUKIERMAN & Co. INVESTMENT HOUSE LTD.


The Company's audit committee and Board of Directors have approved the
engagement of Cukierman & Co. Investment House Ltd., to provide non-exclusive
investment-banking services and business development services to the Company,
effective April 15, 2003. Cukierman & Co. is a company indirectly controlled by
Mr. Edouard Cukierman, who, since June 26, 2003, serves as Chairman of our Board
of Directors, and is a co-manager of the Catalyst Fund, the Company's largest
shareholder. For its services, Cukierman & Co. is paid a monthly sum of $10,000
plus VAT, in addition to a success fee of 4-6% for a consummated private
placement. According to its terms the Company may terminate the agreement at any
time, by giving one month prior written notice.


CONSULTING AGREEMENT BETWEEN BOSCOM AND ZVI GREENGOLD


The Company's audit committee and Board of Directors have approved a consulting
agreement between the Company's subsidiary, BOScom Ltd. and Mr. Zvi Greengold (a
director of the Company and Chairman of the Board of Directors of BOScom),
effective September 1, 2003, and that the consulting fee of 4,500 NIS per month
(approximately $1,000) plus applicable VAT and reimbursement of expenses, shall
be in addition to the remuneration and options Mr. Greengold receives as a
director of the Company (as do all directors who are non employees/consultants
of the Company). The consulting services include accompanying management in
formalization of managerial processes and providing consulting services to the
CEO. The agreement may be terminated by either party for any reason by 30 day
advance written notice. For the avoidance of doubt, the shareholders shall be
requested to ratify this resolution at the upcoming annual meeting.


MANAGEMENT AGREEMENT WITH SIGNUM LTD.


The Company's audit committee and Board of Directors have approved, subject to
shareholder approval, an agreement with Signum Ltd. to provide management
services to the Company (exclusively through Adiv Baruch who serves in the
capacity of President and Chief Executive Officer of the Company), effective
January 1, 2004. Signum is entitled to a monthly gross management fee of NIS
79,698, (approximately $18,000) plus Value Added Tax, based on a NIS - US Dollar
exchange rate of NIS4.4 to 1 US Dollar, that shall be adjusted at the beginning
of every calendar quarter in accordance with the NIS - US Dollar exchange rate
on the last day of the previous quarter. In connection with the preparation by
the Board of Directors of the annual work plan and budget of the Company, the
Board of Directors shall annually establish an annual bonus to be paid to Signum
provided that Signum shall have satisfied or exceeded the goals or milestones
established by the Board of Directors for the respective year.


                                       51
<PAGE>


Additionally, Signum shall be granted options to purchase 216,282 ordinary
shares of the Company (equal to five percent (5%) of the Company's issued and
outstanding share capital, on a fully diluted and as converted basis, on
November 23, 2003). The options shall vest and become exercisable in 36 equal
monthly installments (fractions shall be rounded up) at the end of each month
following the date of grant and shall be exercisable at any time during a period
of ten years from the date of adoption of the Company's stock option plan
(22.5.2013). The exercise price shall be $3 per ordinary share. Notwithstanding
the foregoing, all options shall immediately vest and become exercisable upon
(a) the occurrence of a merger, reorganization, or sale of the Company or a sale
all or substantially all of the Company's shares or assets or (b) upon the
termination by the Company of the management agreement other than for Cause (as
defined in the agreement), provided however that no such immediate vesting shall
occur in the event of termination due to failure of Adiv Baruch to reach the
annual goals set by the Company's Board of Directors.


Furthermore, pursuant to the agreement, Signum will have PRO RATA preemptive
rights (taking into account all of the ordinary shares as if the options had
vested and Signum had exercised all such options) with regard to future issuance
of securities of the Company, under certain terms and conditions.


ASSIGNMENT OF VOTING RIGHTS TO MR. YAIR SHAMIR


On February 5, 2004 the audit committee and Board of Directors approved an
Assignment and Assumption Agreement, between the Company, Catalyst Investments
L.P, and Mr. Yair Shamir (who is a director of the Company and the Chairman of
Catalyst Investments), according to which the voting rights in all but one of
the Surf shares that the Company has an option to purchase from Catalyst (se
Item 4A), have been assigned to Yair Shamir. Pursuant to the agreement, Yair
Shamir irrevocably undertook to assign the voting rights to the Company
immediately upon the earlier to occur of the following, and subject to the
receipt of a written request from the Company to effect such assignment: a) at
the time Surf's shares are offered to the public in a public offering pursuant
to a registration statement filed by Surf under the Securities Act of 1933 or a
similar act of another jurisdiction, or b) the Company exercises its option to
purchase the additional shares from Catalyst.



7C.  INTERESTS OF EXPERTS AND COUNSEL


Not applicable.


                                       52
<PAGE>


ITEM 8: FINANCIAL INFORMATION.


8A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS

See Item 18.


SALES OUTSIDE ISRAEL


The total amount of export sales of the Company has been as follows:


2003- $4,173,000 (totaling 73% of all revenues); 2002 - $7,147,000 (totaling 76%
of all revenues); 2001 - $4,787,000 (totaling 79% of all revenues);


LEGAL PROCEEDINGS


In 2001, our US subsidiary, PacInfoSystems acquired 100% of Dean Tech. The
effective date of the acquisition was January 1, 2001. The total purchase price,
including acquisition costs, consisted of $275,000 in cash plus Dean Tech's
total amount of cash and accounts receivables, less accounts payable, and plus
payments to the sellers of certain annual earn-out payments until April 15,
2004. During the second quarter of 2002, the sellers of Dean Tech disputed the
financial audit and earnings calculations of Dean Tech for the year ended 2001,
which directly affected their earn-out payment for that year. Their dispute was
submitted to the American Arbitration Association ("AAA") and contained a claim
for an earn-out payment in the amount of $900,000 against PacInfoSystems. In
October 2002, the AAA resolved that PacInfoSystems should pay the sellers of
Dean Tech $618,000 plus $29,000 arbitration costs. In July 2003 BOS entered into
an Agreement and Assignment of the AAA Judgment with the sellers of Dean Tech,
and negotiated a final payment of $324,000, made by BOS to the sellers of Dean
Tech


PacInfoSystems is responsible for collecting sales taxes on sales of products to
customers in various states. Between 1999 and 2001 PacInfoSystems had not
remitted collected sales taxes to several states on a timely basis. As of
December 31, 2001, the financial statements included a liability for taxes,
interest and estimated penalties amounting to $1,392,000. During 2002,
PacInfoSystems paid its unpaid sales taxes according to certain amnesties with
state authorities in the amount of $772,000. As a result, PacInfoSystems
reversed the provision for interests and penalties in the amount of $568,000.
During year 2003 the Company reached a final settlement with the tax
authorities, which resulted in additional sales tax expenses in year 2003 in the
amount of $28,000. As of December 31, 2003 there is no sales tax debt.


In July 2002, Operate Lease, Ltd., a company from which the Company leased cars
for its employees, claimed that the Company's termination notice of the leasing
agreement in March 2002 constituted a breach of the agreement and Operate Lease
demanded compensation in the amount of NIS 1,278,968 (the nominal sum of the
claim is equivalent to approximately $292,000, as of December 31, 2003). The
Company denied the claim and to date, no legal proceeding has been filed. The
Company does not believe that the chances of Operate Lease prevailing and
recovering a significant amount, are high, and therefore no provision was
recorded.


                                       53
<PAGE>


On the basis of an audit conducted by the Office of the Chief Scientist in
October 2002, the Company was required to pay royalties in the sum of $473,200
for the years 1991-1999 (in excess of royalties already paid for this period).
The Company paid $23,367 and appealed with respect of the remainder of the sum
claimed. In July 2003 the company entered into an agreement with the Chief
Scientist pursuant to which the required royalties for the years 1991-1999 were
reduced from $473,200 to $247,000. The Company has recorded a provision for the
reduced amount.


DIVIDEND POLICY


We intend to reinvest our earnings and therefore do not anticipate paying any
cash dividends in the foreseeable future. The declaration and payment of any
cash dividends in the future will be determined by the Board of Directors in
light of the conditions existing at the time. This will include our earnings and
financial condition. We may only pay cash dividends in any fiscal year out of
"profits," as determined under Israeli statutory standards. Any dividends paid
out of Approved Enterprise earnings (i.e. tax exempt income) will be liable to
tax. As we do not intend to distribute these earnings, no provision has been
made for this additional tax in our Financial Statements.


8B.  SIGNIFICANT CHANGES


Not applicable.


ITEM 9: THE OFFER AND LISTING.


9A.  OFFER AND LISTING DETAILS


Our ordinary shares are traded, and our warrants, until they expired on April 2,
2000, were traded in the over-the-counter market in the United States, as quoted
on the NASDAQ Small Capitalization Market under the symbol "BOSC" and "BOSCW,"
respectively. In September 2000, our shares started to be traded on the NASDAQ
National Market. In January 2002, our shares began trading, as well, on the
Tel-Aviv Stock Exchange, under the symbol "BOS", pursuant to the dual-listing
regulations of the Israeli Securities Authority.


Prices set forth below are high and low reported closing sale prices for our
ordinary shares and warrants of the Company, as reported by NASDAQ for the
period indicated. All share prices have been retroactively adjusted to reflect
the 1:4 reverse stock split effected May 29, 2003.


<TABLE>
<CAPTION>

                                          Ordinary Shares                Warrants
                                        --------------------         ------------------
Period                                  High          Low           High           Low
<S>           <C>                       <C>           <C>           <C>            <C>
 1999         Annual                    34.76          6.52          8.88          0.20

 2000         Annual                    71.24         10.36         40.00*         4.56*

 2001         Annual                    16.68          3.64

 2002         Annual                     7.92          2.40
              First Quarter              7.92          5.56
              Second Quarter             6.56          2.96
              Third Quarter              4.40          2.80
              Fourth Quarter             3.76          2.40

 2003         Annual                     3.97          1.67
              First Quarter              1.96          1.92
              Second Quarter             2.40          1.99
              Third Quarter              1.90          1.67
              Fourth Quarter             3.97          2.60

 2003         December                   3.49          2.72
 2004         January                    3.10          2.87
              February                   2.91          2.31
              March                      4.00          2.46
              April                      3.25          2.53
              May                        2.69          1.77
</TABLE>


(*) The warrants expired and ceased to be traded on April 2, 2000.


                                       54
<PAGE>


9B.  PLAN OF DISTRIBUTION


Not applicable.


9C.  MARKETS


Our securities are traded on the NASDAQ Stock Exchange (symbol "BOSC") and the
Tel-Aviv Stock Exchange (symbol "BOS").


9D.  SELLING SHAREHOLDERS


Not applicable.


9E.  DILUTION


Not applicable.


9F.  EXPENSES OF ISSUE


Not applicable.


ITEM 10: ADDITIONAL INFORMATION.


10A. SHARE CAPITAL


Not applicable.


10B. MEMORANDUM AND ARTICLES OF ASSOCIATION


In March 2002 the Company adopted new Articles of Association, in view of the
Israeli Companies Law, 1999.


Set forth below is a summary of certain provisions governing our share capital.
This summary is not complete and should be read together with our Memorandum and
Articles of Association, copies of which have been filed as exhibits to the
Annual Report.


1.   OBJECTS OF THE COMPANY:


The company's objects and purposes are outlined in the Memorandum of
Association. These objects include: the development of sophisticated interfaces
for IBM mainframe computers; the export of hi-tech products to Europe and the
USA; and research, development and manufacture of products in the sphere of
communication networks. The Company's Articles of Association (Article 2) allow
it to engage in any legal business.


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2.   PROVISIONS RELATED TO THE DIRECTORS OF THE COMPANY:

(a) Approval of Certain Transactions under the Companies Law:

We are subject to the provisions of the Israeli Companies Law 1999, which became
effective on February 1, 2000.


The Companies Law codifies the fiduciary duties that an Office Holder has to the
Company. An "Office Holder" is defined in the Companies Law as any Director,
General Manager or any other Manager directly subordinate to the General Manager
and any other person with similar responsibilities.


An Office Holder's fiduciary duties consist of a Duty of Loyalty and a Duty of
Care.


The Duty of Loyalty includes: the avoidance of any conflict of interest between
the Office Holder's position in the company and his personal affairs; the
avoidance of any competition with the company; the avoidance of any exploitation
of any business opportunity of the Company in order to receive personal
advantage for himself or others; and a duty to reveal to the Company any
documents or information relating to the Company's affairs that the Office
Holder has received due to his position.


The Duty of Care requires an Office Holder to act at a level of care that a
reasonable Office Holder in the same position would employ under the same
circumstances. This includes the duty to utilize reasonable means to obtain (1)
information regarding the appropriateness of a given action brought for his
approval or performed by him by virtue of his position and (2) all other
information of importance pertaining to the foregoing actions.


Under the Companies Law, all arrangements with regard to the compensation of
Office Holders who are not Directors require the approval of the Board of
Directors. Arrangements regarding the compensation of Directors require Audit
Committee, Board and Shareholder approval.


The Companies Law requires that an Office Holder of a company promptly disclose
to the company's Board of Directors any personal interest that he or she may
have, and all related material information known to him in connection with any
existing or proposed transaction by the company. This disclosure must be made by
the Office Holder, whether orally or in writing, no later than the first meeting
of the Company's Board of Directors which discusses the particular transaction.
An Office Holder is deemed to have a "personal interest" if he, certain members
of his family, or a corporation in which he or any one of those family members
is a 5% or greater shareholder or exercises or has the right to exercise
control, has an interest in a transaction with the company. An "Extraordinary
Transaction" is defined as a transaction - other than in the ordinary course of
business, not on market terms, or that is likely to have a material impact on
the company's profitability, assets or liabilities.


In the case of a transaction that is not an Extraordinary Transaction, after the
office holder complies with the above disclosure requirements, only board
approval is required. The transaction must not be adverse to the company's
interests. In the case of an Extraordinary Transaction, the company's Audit
Committee and the Board of Directors, and, under certain circumstances, the
shareholders of the company must approve the transaction, in addition to any
approval stipulated by the Articles of Association. An Office Holder who has a
personal interest in a matter that is considered at a meeting of the Board of
Directors or the Audit Committee may not be present at this meeting or vote on
this matter, unless a majority of the members of the Board of Directors or Audit
Committee, respectively, have a personal interest in the matter, in which case
they may all be present and vote, after which the matter must be approved by the
shareholders of the Company.


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(b) Borrowing powers exercisable by the Directors are not specifically outlined
in the Company's Articles of Association, however, according to Article 15: "Any
power of the Company which has not been vested in another organ pursuant to the
Companies Law or the articles may be exercised by the Board of Directors".


(c) The Company's Articles of Association do not contain provisions regarding
the retirement of directors under an age limit requirement, nor do they contain
a provision requiring a Director to hold any Company shares in order to qualify
as a Director.


For further reference to the Articles of Association regarding the Company's
directors, see Item 6.


3.   WITH REGARD TO THE RIGHTS, PREFERENCES AND RESTRICTIONS ATTACHING TO THE
     SHARES, THE COMPANY'S ARTICLES OF ASSOCIATION PROVIDE THE FOLLOWING:


(a),(c),(d): Dividends, Rights to Share in the Company's Profits and Rights to
Share in any Surplus upon Liquidation


All holders of paid-up ordinary shares of the Company have an equal right to
participate in the distribution of (i) dividends, whether by cash or by bonus
shares; (ii) Company assets; and (iii) the Company's surplus assets upon winding
up, all pro rata to the nominal value of the shares held by them (Articles
4.2.2, 4.2.3 and 7.3).


The Board of Directors is the organ authorized to decide upon the distribution
of dividends and bonus shares (Article 26). The shareholders who are entitled to
a dividend are the shareholders on the date of the resolution for the dividend
or on a later date if another date is specified in the resolution on the
dividend's distribution. If the Board of Directors does not otherwise determine,
any dividend may be paid by way of a cheque or payment order that shall be sent
by mail in accordance with the registered address of the shareholder or person
entitled thereto, or in the case of registered joint shareholders to the
shareholder whose name appears first in the shareholders' register in relation
to the joint shareholding. Every such cheque shall be drawn up to the order of
the person to whom it is being sent. The receipt of a person who on the date of
the dividend's declaration is listed in the shareholders' register as the holder
of any share or, in the case of joint shareholders, of one of the joint
shareholders shall serve as confirmation of all the payments made in connection
with such share. For the purpose of implementing any resolution pursuant to the
provisions of this paragraph, the Board of Directors may settle, as it deems
fit, any difficulty arising in relation to the distribution of the dividend
and/or bonus shares, including determine the value for the purpose of the said
distribution of certain assets and resolve that payments in cash shall be made
to members in reliance upon the value thus determined, determine regulations in
relation to fractions of shares or in relation to non-payment of amounts less
than NIS 200.

(b) Voting Rights

All holders of paid-up ordinary shares of the Company have an equal right to
participate in and vote at the Company's general meetings, whether ordinary or
special, and each of the shares in the Company shall entitle its holder, present
at the meeting and participating in the vote, himself, by proxy or through a
voting instrument, to one vote (Article 4.2.1). Shareholders may vote either in
person or through a proxy or voting instrument, unless the Board of Directors
prohibited voting through a voting instrument on a certain matter and stated so
in the notice of the meeting (Articles 14.1 and 14.6). A resolution at the
general meeting shall be passed by an ordinary majority unless another majority
is specified in the Companies Law or the Company's Articles of Association
(Article 14.3).


Directors of the Company stand for reelection at every annual meeting (Article
16.2) and not at staggered intervals, with the exception of the External
directors who are appointed for a period of 3 years under the Israeli Companies
Law, 1999. The Articles do not provide for cumulative voting.


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(e) Redemption

The Company may, subject to any applicable law, issue redeemable securities on
such terms as determined by the Board of Directors, provided that the general
meeting of shareholders approves the Board of Director's recommendation and the
terms determined (Article 27).

(g) Capital Calls by the Company

The Board of Directors may only make calls for payment upon shareholders in
respect of monies not yet paid for shares held by them (Article 7.2).

(h) Discrimination

No provision in the Company's Articles of Association discriminates against an
existing or prospective holder of securities, as a result of such shareholder
owning a substantial amount of shares.


4.   MODIFICATION OF RIGHTS OF HOLDERS OF STOCK


The general meeting of shareholders may resolve to create new shares of an
existing class or of a new class with special rights and/or restrictions
(Article 9.1).


So long as not otherwise provided in the shares' issue terms and subject to the
provisions of any law, the rights attached to a particular class of shares may
be altered, after a resolution is passed by the Company and with the approval of
a resolution passed at a general meeting of the holders of the shares of such
class or the written agreement of all the class holders. The provisions of the
Company's Articles of Association regarding general meetings shall apply,
mutatis mutandis, to a general meeting of the holders of a particular class of
shares (Article 10.1). The rights vested in the holders of shares of a
particular class that were issued with special rights shall not be deemed to
have been altered by the creation or issue of further shares ranking equally
with them, unless otherwise provided in such shares' issue terms (Article 10.2).


The above mentioned conditions are not more onerous than is required by law.


5.   ANNUAL GENERAL MEETINGS AND EXTRAORDINARY GENERAL MEETINGS


General meetings shall be convened at least once a year at such place and time
as determined by the Board of Directors but no later than 15 months from the
last general meeting. Such general meetings shall be called "annual meetings".
The Company's other meetings shall be called "special meetings" (Article 12.1).
The annual meeting's agenda shall include a discussion of the Board of
Directors' reports and the financial statements as required at law. The annual
meeting shall appoint an auditor, appoint the directors pursuant to these
articles and discuss all the other matters which must be discussed at the
Company's annual general meeting, pursuant to these articles or the Law, as well
as any other matter determined by the Board of Directors (Article 12.2).


The Board of Directors may convene a special meeting pursuant to its resolution
and it must convene a general meeting if it receives a written requisition from
any one of the following (hereinafter referred to as "requisition") (i) two
directors or one quarter of the directors holding office; and/or (ii) one or
more shareholders holding at least 5% of the issued capital and at least 1% of
the voting rights in the Company; and/or (iii) one or more shareholders holding
at least 5% of the voting rights in the Company (Article 12.3). A requisition
must detail the objects for which the meeting must be convened and shall be
signed by the persons requisitioning it and sent to the Company's registered
office. The requisition may be made up of a number of documents in an identical
form of wording, each of which shall be signed by one or more of the persons
requisitioning the meeting (Article 12.4). Where the Board of Directors is
required to convene a special meeting, it shall do so within 21 days of the
requisition being submitted to it, for a date that shall be specified in the
invitation and subject to the law (Article 12.5).


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Notice to the Company's members regarding the convening of a general meeting
shall be sent to all the shareholders listed in the Company's shareholders'
register at least 21 days prior to the meeting and shall be published in other
ways insofar as required by the law. The notice shall include the agenda,
proposed resolutions and arrangements with regard to a written vote. The
accidental omission to give notice of a meeting to any member, or the
non-receipt of notice sent to such member, shall not invalidate the proceedings
at such meeting (Article 12.6).


The shareholders entitled to participate in and vote at the general meeting are
the shareholders on the date specified by the Board of Directors in the
resolution to convene the meeting, and subject to the law (Article 14.1).


No discussions may be commenced at the general meeting unless a quorum is
present at the time of the discussion's commencement. A quorum is the presence
of at least two shareholders holding at least 25% of the voting rights
(including presence through a proxy or a voting instrument), within half an hour
of the time fixed for the meeting's commencement (Article 13.1). If no quorum is
present at a general meeting within half an hour of the time fixed for the
commencement thereof, the meeting shall be adjourned for one week, to the same
day, time and place, or to a later time if stated in the invitation to the
meeting or in the notice of the meeting (hereinafter referred to as "the
adjourned meeting") (Article 13.2). The quorum for the commencement of the
adjourned meeting shall be any number of participants.


The Articles of Association provide that all shareholder resolutions shall be
passed by an ordinary (simple) majority of the votes cast, unless another
majority is specified in the Companies Law or in the Articles (Article 14.3).


6.   LIMITATIONS ON THE RIGHTS TO OWN SECURITIES


There are no limitations on the rights to own the Company's securities,
including the rights of non-residents or foreign shareholders to do so.


7.   CHANGE OF CONTROL


Under the Companies Law, a merger is generally required to be approved by the
shareholders and board of directors of each of the merging companies. If the
share capital of the company that will not be the surviving company is divided
into different classes of shares, the approval of each class is also required,
unless determined otherwise by the court. A majority of votes approving the
merger shall suffice, unless the company (like ours) was incorporated in Israel
prior to the Companies Law of 1999, in which case a majority of 75% of the
voting power is needed in order to approve the merger. Additionally, unless the
court determines differently, a merger will not be approved if it is objected to
by a majority of the shareholders present at the meeting, after excluding the
shares held by the other party to the merger, by any person who holds 25% or
more of the other party to the merger and by the relatives of and corporations
controlled by these persons. Upon the request of a creditor of either party to
the proposed merger, the court may delay or prevent the merger if it concludes
that there exists a reasonable concern that, as a result of the merger, the
surviving company will be unable to satisfy the obligations of any of the
parties of the merger. Also, a merger can be completed only after all approvals
have been submitted to the Israeli Registrar of Companies and 70 days have
passed from the time that a proposal for approval of the merger was filed with
the Registrar.


The Companies Law also provides that an acquisition of shares in a public
company must be made by means of a tender offer if, as a result of the
acquisition, the purchaser would become a holder of 25% or more of the voting
power at general meetings. This rule does not apply if there is already another
holder of 25% or more of the voting power at general meetings. Similarly, the
Companies Law provides that an acquisition of shares in a public company must be
made by means of a tender offer if, as a result of the acquisition, the
purchaser would become a holder of more than 45% of the voting power of the
company. This rule does not apply if someone else already holds a majority of
the voting power of the company. These tender offer requirements do not apply to
companies whose shares are listed for trading outside of Israel if, under local
law or the rules of the stock exchange on which their shares are traded, there
is a limitation on the percentage of control which may be acquired or the
purchaser is required to make a tender offer to the public.


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Under the Companies Law, a person may not acquire shares in a public company if,
after the acquisition, he will hold more than 90% of the shares or more than 90%
of any class of shares of that company, unless a tender offer is made to
purchase all of the shares or all of the shares of the particular class. The
Companies Law also provides that as long as a shareholder in a public company
holds more than 90% of the company's shares or of a class of shares, that
shareholder shall be precluded from purchasing any additional shares. If a
tender offer is accepted and less than 5% of the shares of the company are not
tendered, all of the shares will transfer to the ownership of the purchaser. If
5% or more of the shares of the company are not tendered, the purchaser may not
purchase shares in a manner which will grant him more than 90% of the shares of
the company.


8.   DISCLOSING SHARE OWNERSHIP


The Company has no bylaw provisions governing the ownership threshold, above
which shareholder ownership must be disclosed.


10C. MATERIAL CONTRACTS


All material contracts have been described in detail throughout this form,
wherever applicable.


10D. EXCHANGE CONTROLS


All exchange control restrictions imposed by the State of Israel have been
removed, although there are still reporting requirements for foreign currency
transactions. Legislation remains in effect, however, pursuant to which currency
controls can be imposed by administrative action at any time.


Pursuant to the General Permit issued by the Israeli Controller of Foreign
Currency, at the Bank of Israel (under the Currency Control Law, 1978),
non-residents of Israel who purchase our ordinary shares will be able to convert
any proceeds from the sale of these ordinary shares, as well as dividend and
liquidation distributions, if any, into non-Israeli currency, provided that
Israeli Income Tax has been paid (or withheld) on such amounts (to the extent
applicable).


There are no limitations on the Company's ability to import and export capital.


10E. TAXATION


The following is a summary of the material Israeli tax consequences, Israeli
foreign exchange regulations and certain Israeli government programs affecting
the Company.


To the extent that the discussion is based on new tax or other legislation 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 or other authorities in question. 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.


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ISRAELI TAX CONSIDERATIONS


On January 1, 2003 a comprehensive tax reform took effect in Israel. Pursuant to
the reform, resident companies are subject to Israeli tax on income accrued or
derived in Israel or abroad. In addition, the concept of "controlled foreign
corporation" was introduced according to which an Israeli company may become
subject to Israeli taxes on certain income of a non-Israeli subsidiary if the
subsidiary's primary source of income is passive income. The tax reform also
substantially changes the taxation of capital gains.


GENERAL CORPORATE TAX STRUCTURE


Israeli companies are generally subject to corporate tax at the rate of 36% of
their taxable income. However in the Company's case, the rate is currently
effectively reduced, as described below.


TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959.


The Company's facilities have been granted Approved Enterprise status pursuant
to the Law for the Encouragement of Capital Investments, 1959 (the "Investment
Law"), which provides certain tax and financial benefits to investment programs
that have been granted such status.


The Investment Law provides that a proposed capital investment in eligible
facilities may, upon application to the Investment Center of the Ministry of
Industry and Trade of the State of Israel, 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 by its physical characteristics, e.g., 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. If a company has more than one approval or
only a portion of its capital investments are approved, its effective tax rate
is the result of a weighted combination of the applicable rates. Income derived
from activity that is not integral to the activity of the enterprise should not
be divided between the different enterprises and should not enjoy tax benefits.


Taxable income of a company derived from an approved enterprise is subject to
company tax at the rate of 10-25% (subject to the percentage of the foreign
shareholders holding in the company), rather than 36%, for the benefit period.
This period is ordinarily seven years commencing with the year in which the
approved enterprise first generates taxable income, and is limited to 12 years
from completion of the investment under the approved plan (commencement of
production) or 14 years from the date of approval, whichever is earlier. The
Investment Law also provides that a company that has an approved enterprise is
entitled to accelerated depreciation on its property and equipment that are
included in an approved investment program. A Foreign Investors Company ("FIC"),
as defined in the Investment Law, may enjoy benefits for a period of up to 10
years, or 12 years if it complies with certain export criteria stipulated in the
Investment Law.


A company owning an approved enterprise may elect to receive an alternative
package of benefits. Under the alternative package, a company'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 a reduced tax rate for the remainder of
the benefits period.


The Company has four approved enterprise programs under the Capital Investments
Law, which entitle the Company to some tax benefits. In our first program, we
elected to participate in a government guaranteed loans and grants approved
enterprise program and have received grants from the investment center. Income
derived from the first program which began in 1991 and completed in 1992, was
subject to a reduced tax rate of 25% for the period of seven years ended 1999.


In our second and third programs we have elected to participate in government
guaranteed loans programs. Income derived from these programs, which began in
1992 and 1994, respectively, are tax exempt for a period of ten years commencing
on the first year of taxable income.


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In our fourth program, we have elected to participate in the "alternative
benefit program". Income derived from "alternative benefit program" which began
in 1997 is exempt from tax for a period of ten years, starting in the first year
in which we generate taxable income from the approved enterprise. The tax
benefit period for this program will expire through 2010.The fourth plan was
extended until 2001.


During 2002, as part of the transfer of operations from the Company to BOScom,
all tax benefits that were related to the Approved Enterprise of the Company,
were transferred to BOScom.


Since 2002, we elected not to participate in any approved enterprise program.
Accordingly, taxable income generated in that period will be split by the assets
ratio into a taxable income that is entitled to the benefits of the approved
enterprise and into an income that will be taxed at the 36% corporate tax rate.


Our subsidiary, BOScom, also has a production facility, which was granted an
"Approved Enterprise" status and had a separate investment program. BOScom
elected to receive the "alternative benefits". Accordingly, income derived from
BOScom's investment program, which commenced operations in 1997 is exempt from
income tax for a period of ten years commencing from the first year in which
taxable income is generated.


In 2002, BOScom applied for a second program in the "alternative benefits
route". Currently, the application has not yet been approved.


The tax-exempt income attributable to the "Approved Enterprise" can be
distributed to shareholders without imposing tax liability on the Company only
upon the complete liquidation of the Company. In the event of a distribution of
such tax-exempt income as a cash dividend in a manner other than in the complete
liquidation of the Company and BOScom, the Company (or BOScom) will be required
to pay corporate tax at the reduced corporate tax rate applicable to such
profits between 10% and 25%. In addition, dividends from approved enterprises
are generally taxable at the reduced rate of 15% if distributed during the tax
exemption period or within 12 years thereafter (this time limit does not apply
to an FIC). Tax must be withheld at source, regardless of whether the dividend
is converted into foreign currency. The Company currently intends to reinvest
the amounts of tax-exempt income and not to distribute such income as dividends.


The Investment Center of the Ministry of Industry and Trade bases its decision
as to whether or not to approve an application, on the criteria set forth in the
Investment Law and regulations, the then prevailing policy of the Investment
Center, and the specific objectives and financial criteria of the applicant.
Accordingly, there can be no assurance that any such application will be
approved. In addition, the benefits available to an approved enterprise are
conditional upon the fulfillment of conditions stipulated in the Investment Law
and its regulations and the criteria set forth in the specific certificate of
approval, as described above. In the event that a company does not meet these
conditions, it would be required to refund the amount of tax benefits, with the
addition of the consumer price index linkage adjustment and interest.


TAX BENEFITS AND GRANTS FOR RESEARCH AND DEVELOPMENT


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, 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.


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In case the tax deduction, in the year research and development expenditures are
incurred, is not approved by the relevant Israeli government ministry, the
Company will be entitled for the tax deduction over a period of three years.


TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXATION), 1969


According to the Law for the Encouragement of Industry (Taxation), 1969, or the
Industry Encouragement Law, an "Industrial Company" is a company resident in
Israel and at least 90% of the income of which, in any tax year, determined in
Israeli currency, exclusive of income from certain government loans, capital
gains, interest and dividends, is derived from an "Industrial Enterprise" owned
by it. An "Industrial Enterprise" is defined as an enterprise whose major
activity in a given tax year is industrial production activity. Until December
31, 2001 the Company qualified as an "Industrial Company" within the definition
of the Industry Encouragement Law. Under the Industry Encouragement Law,
Industrial Companies are entitled to certain preferred corporate tax benefits.


Eligibility for the benefits under the Industry Encouragement Law is not subject
to receipt of prior approval from any governmental authority. In January 2002,
subsequent to the Company's restructure transforming it into a holding company
by transferring its industrial operations to its wholly-owned subsidiary,
BOScom, the Company disqualified from being an "Industrial Company" and
therefore the benefits described above are not available since then.


SPECIAL PROVISIONS RELATING TO TAXATION UNDER INFLATIONARY CONDITIONS


The Income Tax Law (Inflationary Adjustments), 1985, generally referred to as
the "Inflationary Adjustments Law," represents an attempt to overcome the
problems presented to a traditional tax system by an economy undergoing rapid
inflation. The Inflationary Adjustments Law is highly complex. The material
aspects to the Company can be described as follows:


There is a special tax adjustment for the preservation of equity whereby certain
corporate assets are classified broadly into fixed, inflation resistant, assets
and non-fixed (soft) assets. Where a company's equity, as defined in law,
exceeds the depreciated cost of fixed assets, a deduction from taxable income
that takes into account the effect of the applicable annual rate of inflation 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 company's equity, then
such excess multiplied by the applicable annual rate of inflation is added to
taxable income.


Subject to certain limitations, depreciation deductions on fixed assets and
losses carried forward are adjusted for inflation based on the increase in the
Israeli consumer price index (CPI). Under Law, results for tax purposes are
measured in real terms, in accordance with the changes in the Israeli CPI, or in
the exchange rate of the dollar for a "foreign investors' company". The Company
elected to measure its results for tax purposes on the basis of the changes in
the Israeli CPI.


CAPITAL GAINS TAX ON SALES OF ORDINARY SHARES


Israeli law generally imposes a capital gains tax on the sale of securities and
other capital assets, by both residents and non-residents of Israel, unless a
specific exemption is available or unless a treaty between Israel and the
country of a non-resident provides otherwise. Until the Israeli tax reform that
became effective on January 1, 2003, sales by both residents and non-residents
of Israel (other than certain Israeli corporations) of securities of Israeli
companies that qualified as "Industrial Companies" or Industrial Holding
Companies" on recognized stock exchanges outside of Israel were exempt from the
capital gains tax. This exemption did not apply to dealers in securities in
Israel and persons subject to Inflationary Adjustments Law who were taxed at
regular tax rates applicable to business income. Subsequent to the
disqualification of the Company as an "Industrial Company" since January 2002, a
sale of shares on the Nasdaq National Market by the Company's Israeli
shareholders was not tax exempt under paragraph 4a of the Regulation for
"Exemption of Capital Gain Incurred in a Sale of Shares" (1981) (the
"Regulation"). However, since January 2002, the Company registered its shares
for trade in the Tel Aviv Stock Exchange (TASE). Accordingly, sales (other than
by certain Israeli corporations) of securities of Israeli companies were subject
to tax exemption throughout the year 2002, if sold on the TASE. However, the tax
reform of January 2003 repealed these exemptions and now imposes a 15% capital
gains tax on Israeli resident individuals, in respect of gains derived after
January 1, 2003 from the sale of shares of an Israel company on the TASE or a
recognized stock exchange outside Israel, and the status of an Industrial
Company is no longer relevant. The 15% tax rate does not apply to dealers in
securities, persons subject to Inflationary Adjustments Law, and shareholders
who acquired their shares prior to an initial public offering. This tax does not
affect non-residents who are exempt from Israeli capital gains tax on any gains
derived from the sale of shares publicly traded on a recognized stock exchange,
provided such shareholders did not acquire their shares prior to an initial
public offering.


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THE US-ISRAEL TAX TREATY


Pursuant to the Convention Between the Government of the United States of
America and the Government of Israel with Respect to Taxes on Income, as amended
(the "United States- Israel Tax Treaty"), the sale, exchange or disposition of
ordinary shares by a person who qualifies as a resident of the United States
within the meaning of the United States-Israel Tax Treaty and who is entitled to
claim the benefits afforded to such person by the United States- Israel Tax
Treaty (a "Treaty United States Resident") generally will not be subject to the
Israeli capital gains tax unless such Treaty United States Resident holds,
directly or indirectly, shares representing 10% or more of the Company's voting
power during any part of the 12- month period preceding such sale, exchange or
disposition, subject to certain conditions. A sale, exchange or disposition of
ordinary shares by a Treaty United States Resident who holds, directly or
indirectly, shares representing 10% or more of the Company's voting power at any
time during such preceding 12-month period would be subject to such Israeli tax,
to the extent applicable; however, under the United States-Israel Tax Treaty,
such Treaty United States Resident would be permitted to claim a credit for such
taxes against the United States federal income tax imposed with respect to such
sale, exchange or disposition, subject to the limitations specified in the
treaty. The United States-Israel Tax Treaty does not relate to United States
state or local taxes.


TAXATION OF NON-RESIDENT HOLDERS OF ORDINARY SHARES

Non-residents of Israel are subject to Israeli income tax on income accrued or
derived from sources in Israel, including passive income such as dividends,
royalties and interest. On distributions of dividends, other than bonus shares
and stock dividends, income tax at the rate of 25%, (or 15% for dividends
generated by an approved enterprise) is withheld at the source, unless a
different rate is provided in a treaty between Israel and the shareholder's
country of residence. Under the United States- Israel Tax Treaty, the maximum
tax on dividends paid to a holder of ordinary shares who is a Treaty United
States Resident will be 25%, however, under the Investment Law, dividends
generated by an approved enterprise are taxed at the rate of 15%. The Treaty
further provides that a 12.5% Israeli dividend withholding tax will apply to
dividends paid to a United States corporation owning 10% or more of an Israeli
company's voting shares during, in general, the current and preceding tax years
of the Israeli company. The lower 12.5% rate applies only on dividends
distributed from income not derived from an Approved Enterprise in the
applicable period and does not apply if the company has certain amounts of
passive income.

Under an amendment to the Inflationary Adjustments Law 1985, effective January
1,1999, non-Israeli corporations might be subject to Israeli taxes on the sale
of traded securities in an Israeli company, subject to the provisions of any
applicable double taxation treaty.


                                       64
<PAGE>


FOREIGN EXCHANGE REGULATIONS


Dividends, if any, paid to the holders of the ordinary shares, and any amounts
payable upon dissolution, liquidation or winding up, as well as the proceeds of
any sale in Israel of the ordinary shares to an Israeli resident, may be paid in
non-Israeli currency or, if paid in Israeli currency, may be converted into
freely repatriable dollars at the rate of exchange prevailing at the time of
conversion.


UNITED STATES FEDERAL INCOME TAXES


The following general discussion sets forth the material United States federal
income tax consequences applicable to the following persons who purchase, hold
or dispose of the ordinary shares as capital assets ("U.S. Shareholders"): (i)
citizens or residents (as defined for U.S. federal income tax purposes) of the
United States; (ii) corporations or other entities taxable as corporations
created or organized in or under the laws of the United States or any state
thereof; (iii) estates, the income of which is subject to United States federal
income taxation regardless of its source; and (iv) a trust if (a) a U.S. court
is able to exercise primary supervision over its administration and (b) one or
more U.S. persons have the authority to control all of its substantial
decisions. This discussion is based on the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), United States Treasury Regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all as in effect as of the date of this Annual Report on Form 20-F. This
discussion generally considers only U.S. Shareholders that will hold the
ordinary shares as capital assets and does not consider (a) all aspects of U.S.
federal income taxation that may be relevant to particular U.S. Shareholders by
reason of their particular circumstances (including potential application of the
alternative minimum tax), (b) U.S. shareholders subject to special treatment
under the U.S. federal income tax laws, such as financial institutions,
insurance companies, broker-dealers, tax-exempt organizations, financial
institutions or foreign individuals or entities, (c) U.S. Shareholders owning
directly or by attribution 10% or more of the Company's outstanding voting
shares, (d) U.S. Shareholders who hold the ordinary shares as part of a hedging,
straddle or conversion transaction, (e) U.S. Shareholders who acquire their
ordinary shares in a compensatory transaction, (f) U.S. Shareholders whose
functional currency is not the dollar, or (g) any aspect of state, local or
non-United States tax law.



THE FOLLOWING SUMMARY DOES NOT ADDRESS THE IMPACT OF AN INVESTOR'S INDIVIDUAL
TAX CIRCUMSTANCES. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF AN INVESTMENT IN
THE ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR FOREIGN
TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.



DIVIDENDS PAID ON THE ORDINARY SHARES


Distributions paid on ordinary shares (including any Israeli taxes withheld) to
a U.S. Shareholder will be treated as ordinary dividend income for United States
federal income tax purposes to the extent of the Company's current and
accumulated earnings and profits (as computed for U.S. federal income tax
purposes). Such dividends, which will be treated as foreign source income for
U.S. foreign tax credit purposes, generally will not qualify for the
dividends-received deduction available to corporations. Distributions in excess
of such earnings and profits will be applied against and will reduce the
shareholder's tax basis in the ordinary shares and, to the extent in excess of
such tax basis, will be treated as gain from a sale or exchange of such ordinary
shares. The amount of the distribution will equal the US Dollar value of the
distribution, calculated by reference to the exchange rate in effect on the date
the distribution is received (or otherwise made available to the U.S.
Shareholders), regardless of whether a payment in Israeli currency is actually
converted to US Dollars at that time. U.S. Shareholders should consult their own
tax advisors concerning the treatment of foreign currency gain or loss, if any,
on any Israeli currency received which is converted into US Dollars subsequent
to receipt.


                                       65
<PAGE>


Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, qualified
dividend income received by an individual U.S. Shareholder for taxable years
beginning after December 31, 2002 and beginning before January 1, 2009 are taxed
at reduced rates of either 5 or 15 percent, depending upon the amount of such
shareholder's taxable income. If an individual U.S. Shareholder does not hold
ordinary shares for more than 60 days during the 120 day period beginning 60
days before an ex-dividend date, dividends received on ordinary shares are not
eligible for reduced rates. Dividends received from a foreign corporation that
was a passive foreign investment company (as further discussed below) in either
the taxable year of the distribution or the preceding taxable year are not
qualified dividend income. Qualified dividend income includes dividends received
from a "qualified foreign corporation." A "qualified foreign corporation"
includes a foreign corporation whose shares are readily tradable on an
established securities market in the United States as well as a foreign
corporation that is entitled to the benefits of a comprehensive income tax
treaty with the United States which includes an exchange of information program.
Israel and the United States are parties to a comprehensive income tax treaty
which includes an exchange of information program. The United States Treasury
Department will periodically issue guidance regarding which income tax treaties
will be satisfactory for treating a corporation as a "qualified foreign
corporation". In the event ordinary shares should not be readily tradable on an
established securities market in the United States, individual U.S. Shareholders
should consult their own tax advisors as to whether any distributions paid on
ordinary shares will be taxed for United States federal income tax purposes at
reduced tax rates.


CREDIT FOR ISRAELI TAXES WITHHELD


Subject to certain conditions and limitations, any Israeli tax withheld or paid
with respect to dividends on the ordinary shares generally will be eligible for
credit against a U.S. Shareholder's United States federal income tax liability
at such U.S. Shareholder's election. The Code provides limitations on the amount
of foreign tax credits that a U.S. Shareholder may claim, including extensive
separate computation rules under which foreign tax credits allowable with
respect to specific categories of income cannot exceed the United States federal
income taxes otherwise payable with respect to each such category of income.
Dividends with respect to the ordinary shares generally will be classified as
foreign source "passive income" for the purpose of computing a U.S.
Shareholder's foreign tax credit limitations for U.S. foreign tax credit
purposes. The availability of the Israeli withholding tax as a foreign tax
credit will also be subject to certain restrictions on the use of such credits,
including a prohibition on the use of the credit to reduce liability for the
United States individual and corporate minimum taxes by more than 90%.
Alternatively, U.S. Shareholders that do not elect to claim a foreign tax credit
may instead claim a deduction for Israeli income tax withheld or paid, but only
for a year in which these U.S. Shareholders elect to do so for all foreign
income taxes. The rules relating to foreign tax credits are complex, and you
should consult your tax advisor to determine whether and if you would be
entitled to this credit.


DISPOSITION OF THE ORDINARY SHARES


The sale or exchange of ordinary shares generally will result in the recognition
of capital gain or loss in an amount equal to the difference between the amount
realized on the sale or exchange and the U.S. Shareholder's tax basis in the
ordinary shares. Such gain or loss generally will be long-term capital gain or
loss if the U.S. Shareholder's holding period of the ordinary shares exceeds one
year at the time of the disposition. Certain limitations apply to the
deductibility of capital losses by both corporate and non-corporate taxpayers.
Under the Code, gain or loss recognized by a U.S. Shareholder on a sale or
exchange of ordinary shares generally will be treated as U.S. source income or
loss for U.S. foreign tax credit purposes. Under the tax treaty between the
United States and Israel, however, gain derived from the sale, exchange or other
disposition of ordinary shares by a holder who is a resident of the United
States for purposes of the treaty and who sells the ordinary shares within
Israel may be treated as foreign source income for U.S. foreign tax credit
purposes. U.S. Shareholders should consult their own tax advisors regarding the
treatment of any foreign currency gain or loss on any Israeli currency received
in respect of the sale, exchange or other disposition of ordinary shares.


                                       66
<PAGE>


PASSIVE FOREIGN INVESTMENT COMPANY STATUS


A foreign corporation generally will be treated as a "passive foreign investment
company" ("PFIC") if, after applying certain "look-through" rules, either (i)
75% or more of its gross income is passive income or (ii) 50% or more of the
average value of its assets is attributable to assets that produce or are held
to produce passive income. Passive income for this purpose generally includes
dividends, interest, rents, royalties and gains from securities and commodities
transactions. The look-through rules require a foreign corporation that owns at
least 25% by value, of the stock of another corporation to treat a proportionate
amount of assets and income as held or received directly by the foreign
corporation.


The Company has not made the analysis necessary to determine whether or not it
is currently a PFIC or whether it has ever been a PFIC. However, the Company
does not believe that it was a PFIC in 2003. However, there can be no assurance
that the Company is not, has never been or will not in the future be a PFIC. If
the Company were to be treated as a PFIC, any gain recognized by a U.S.
Shareholder upon the sale (or certain other dispositions) of ordinary shares (or
the receipt of certain distributions) generally would be treated as ordinary
income, and a U.S. Shareholder may be required, in certain circumstances, to pay
an interest charge together with tax calculated at maximum rates on certain
"excess distributions," including any gain on the sale or certain dispositions
of ordinary shares. In order to avoid this tax consequence, a U.S. Shareholder
(i) may be permitted to make a "qualified electing fund" election, in which
case, in lieu of such treatment, such holder would be required to include in its
taxable income certain undistributed amounts of the Company's income or (ii) may
elect to mark-to-market the ordinary shares and recognize ordinary income (or
possible ordinary loss) each year with respect to such investment and on the
sale or other disposition of the ordinary shares. Additionally, if the Company
is deemed to be a PFIC, a U.S. Shareholder who acquires ordinary shares in the
Company from a decedent will be denied the normally available step-up in tax
basis to fair market value for the ordinary shares at the date of the death and
instead will have a tax basis equal to the decedent's tax basis if lower than
fair market value. Neither the Company nor its advisors have the duty to or will
undertake to inform U.S. Shareholders of changes in circumstances that would
cause the Company to become a PFIC. U.S. Shareholders should consult their own
tax advisors concerning the status of the Company as a PFIC at any point in time
after the date of this Annual Report on Form 20-F. The Company does not
currently intend to take the action necessary for a U.S. Shareholder to make a
"qualified electing fund" election in the event the Company is determined to be
a PFIC.


                                       67
<PAGE>


INFORMATION REPORTING AND BACK UP WITHHOLDING.


A non-corporate U.S. Shareholder may, under certain circumstances, be subject to
information reporting requirements and "backup withholding" at a 30% rate on
cash payments in the United States of dividends on, and the proceeds of
disposition of, ordinary shares. Backup withholding will apply only if a U.S.
Shareholder: (a) fails to furnish its social security or other taxpayer
identification number ("TIN") within a reasonable time after the request
therefor; (b) furnishes an incorrect TIN; (c) is notified by the IRS that it has
failed properly to report payments of interest and dividends; or (d) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is subject
to backup withholding for failure to report interest and dividend payments. U.S.
Shareholders should consult their tax advisors regarding their qualification for
exemption, if applicable. The amount of backup withholding from a payment to a
U.S. Shareholder generally will be allowed as a credit against such U.S.
Shareholder's federal income tax liability and may entitle such U.S. Shareholder
to a refund, provided that the required information is furnished to the IRS.


10F. DIVIDENDS AND PAYING AGENTS


Not applicable.


10G. STATEMENT BY EXPERTS


Not applicable.


10H. DOCUMENTS ON DISPLAY


The documents concerning the Company that are referred to in the form may be
inspected at the Company's office in Israel.


10I. SUBSIDIARY INFORMATION


For information relating to the Company's subsidiaries, see Item 4 -
"Organizational Structure" as well as the Company's Consolidated Financial
Statements (Items 8 and 18 of this form).


                                       68
<PAGE>


ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.


CURRENCY EXCHANGE RATE RISK MANAGEMENT


The Company's functional currency is the US Dollar. Since the Company operates
in Israel and Europe it manages assets and liabilities in currencies other than
US Dollar such as Israeli Shekel, UK Pound and Euro.


The excess balance of monetary assets on liabilities in non-dollar currencies in
the Balance Sheet as of 31.12.03 and 31.12.02 ("Balance Sheet Exposure") is
presented in the table below. The data is presented in US Dollars (in
thousands):
<TABLE>
<CAPTION>

                             DECEMBER 31, 2003               DECEMBER 31, 2002
                         ---------------------------    -----------------------------
                        ISRAELI CURRENCY (1)           ISRAELI CURRENCY (1)
                         -----------------    OTHER     ------------------      OTHER
                                            NON-DOLLAR                       NON-DOLLAR
                                            CURRENCIES                       CURRENCIES
                         LINKED(2) UNLINKED     (3)     LINKED(2)  UNLINKED      (3)
                          U.S.$      U.S.$     U.S.$      U.S.$      U.S.$      U.S.$
                         -------   -------   -------    -------    -------    -------
<S>                     <C>        <C>       <C>       <C>         <C>        <C>
CURRENT ASSETS:
Cash and cash
equivalents             $      -   $   629   $    41   $      -    $   117    $   128
Accounts receivable -
trade                          -       388         2          -        250        686
Other accounts
receivable                     -        87        68          -        188        133
                         -------   -------   -------    -------    -------    -------


                        $      -   $ 1,104   $   111   $      -    $   555    $   947
                         =======   =======   =======    =======    =======    =======
CURRENT LIABILITIES:
Accounts payable -
trade                   $      -   $    41   $    16   $      -    $   947    $    76
Other accounts payable         -       406       110         29        936        518
                         -------   -------   -------    -------    -------    -------

                        $      -   $   447   $   126    $    29    $ 1,883    $   594
                         =======   =======   =======    =======    =======    =======

NET                     $      -   $ 1,551   $   (15)   $   (29)   $(1,328)   $   353
                         =======   =======   =======    =======    =======    =======
</TABLE>


(1)  The above does not include balances in Israeli currency linked to the US
     dollar.

(2)  To the Israeli Consumer Price Index (Israeli CPI).

(3)  Primarily Pound Sterling.


The Company does not use financial instruments and derivatives, but manages the
risk of Balance Sheet Exposure by attempting to maintain a similar balance of
assets and liabilities in any given currency.


The selling prices of our products in Israel and Europe are quoted and collected
in the local currency. The purchases and salary expenses in Israel and Europe
are paid in the local currency.


A material change in currency exchange rate of the NIS, Sterling or Euro
compared to the US Dollar may have an effect on the Company's financial results
and cash flow.


CREDIT RISK MANAGEMENT


The company sells its products and purchases products from vendors on credit
terms.


                                       69
<PAGE>


Customer payment terms are based on a credit check performed in relation to
every new customer, and on periodic evaluations of the prevailing terms.


Provisions are made for doubtful debts on a specific basis and, in management's
opinion, appropriately reflect the loss inherent in collection of the debts.
Management bases this provision on its assessment of the risk of the debt.


The table below presents the accounts receivables balance by geographical market
as of 31.12.03 and 31.12.02:


<TABLE>
<CAPTION>

                  DECEMBER 31,
                ---------------
                 2003     2002
                ------   ------

<S>             <C>      <C>
United States   $  392   $  669

Europe          $  117   $  686

Israel          $  566   $  168
                ------   ------
                $1,075   $1,523
                ======   ======
</TABLE>


INTEREST RATE RISK


The Company's exposure to market risk for changes in interest rates, is due to
its investment of its surplus funds.


The Company has a conservative investment policy. According to this policy the
Company invests in bank deposits and in high level marketable securities.


A material change in yields of the securities which the company invests in and
the need of cash before the securities' maturation, may have an effect on the
Company's financial results and cash flow.


A material change in interest we receive on our bank deposits, may have an
effect on the Company's financial results and cash flow.


BANK RISK


The Company invests and manages the majority of its funds in two banks which are
among the five largest in Israel.

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.


Not applicable.


                                       70
<PAGE>


                                     PART II


ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.


Not applicable.

ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.


Not applicable.

ITEM 15: CONTROLS AND PROCEDURES

The Company performed an evaluation of the effectiveness of its 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 the Company's evaluation, the Company's
management, including the CEO and CFO, has concluded that the Company's
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. Notwithstanding the foregoing, there can
be no assurance that the Company's disclosure controls and procedures will
detect or uncover all failures of persons within the Company to disclose
material information otherwise required to be set forth in the Company's
reports.

There have been no significant changes in the Company's 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.

ITEM 16: [RESERVED]


ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT


The Company's board of directors has determined that Prof. Adi Raveh and Mr.
Ronen Zavlik, both members of the audit committee, are "audit committee
financial experts", as defined by the applicable SEC regulations.


ITEM 16B: CODE OF ETHICS


The Company has adopted a Code of Ethics applicable to its executive officers,
directors and all other employees. A copy of the code may be obtained, without
charge, upon a written request addressed to the Company's investor relations
department.


ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES


The Company's principal accountants for the years 2002 and 2003 were Kost Forer
Gabbay & Kasierer, a member of Ernst & Young Global.


The table below summarizes the audit and other fees paid by the Company and its
consolidated subsidiaries to Kost Forer Gabbay & Kasierer, during each of 2002
and 2003:


                                       71
<PAGE>

<TABLE>
<CAPTION>

                               YEAR ENDED DECEMBER 31, 2003       YEAR ENDED DECEMBER 31, 2002
                                AMOUNT            PERCENTAGE       AMOUNT            PERCENTAGE
<S>                            <C>                   <C>          <C>                   <C>
Audit Fees                     $ 40,000               61%         $ 62,000               51%
Audit-Related Fees (1)         $  7,650               12%           $    -                -
Tax Fees (2)                   $  8,000               12%         $ 31,000               25%
All Other Fees (3)             $  9,500               15%         $ 29,500               24%
Total                          $ 65,150              100%         $122,500              100%
</TABLE>



(1)  "Audit-related fees" are fees related to assurance and associated services
     that traditionally are performed by the independent auditor, including
     consultation concerning reporting standards.

(2)  "Tax fees" are fees for consulting services rendered by the Company's
     auditors with respect to employee tax services, tax benefits under the
     Israeli law for encouragement of investment and tax aspects of
     restructuring.

(3)  "All Other Fees" are fees for consulting services rendered by the Company's
     auditors with respect to the restructuring and requests for grants from the
     Israeli Office of the Chief Scientist.


The Audit Committee pre-approves on an annual basis the audit and certain
non-audit services provided to the Company by its auditors. Such annual
pre-approval is given with respect to particular services and sets forth a
specific budget for such services. Additional services not covered by the annual
pre-approval may be approved by the Audit Committee on a case-by-case basis as
the need for such services arises. Furthermore, the Audit Committee has
authorized the Committee Chairman and one other Committee member to pre-approve
engagements of the Company's auditors so long as the fee for each such
engagement does not exceed $5,000 and so long as the engagement is notified to
the Committee at its next subsequent meeting. Any services pre-approved by the
Audit Committee (or by the Chairman and one other Committee member) must be
permitted by applicable law.


ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES


Not yet applicable to Registrant


                                       72
<PAGE>


                                    PART III


ITEM 17: FINANCIAL STATEMENTS


Not applicable.

ITEM 18: FINANCIAL STATEMENTS


The following financial statements are filed as part of this Annual Report:
<TABLE>
<CAPTION>

                                                     Page
                                                     ----
<S>                                                    <C>
Report of Independent Auditors                       F-2
Consolidated Balance Sheets                          F-3 - F-4
Consolidated Statements of Operations                F-5
Statement of Changes in Shareholders' Equity         F-6
Statements of Cash Flows                             F-7 - F-8
Notes to Consolidated Financial Statements           F-9 - F-30
</TABLE>



ITEM 19: EXHIBITS


The following exhibits are filed as part of this Annual Report:


1.1  Memorandum of Association, as amended (incorporated by reference to the
     Company's Annual Report on Form 20-F filed on June 27, 2003).


1.2  Articles of Association, as amended (incorporated by reference to the
     Company's Annual Report on Form 20-F filed on June 27, 2003).

4.1  Form of Indemnification Agreement between the Company and its officers and
     directors (incorporated by reference to the Company's Current Report on
     Form 6-K filed on January 17, 2003).

4.2  Share Purchase Agreement, dated as of February 23, 2003, and Option
     Agreement and Registration Rights Agreement, dated as of March 30, 2003, by
     and between Catalyst Investments L.P. and the Registrant.

4.3  Share Purchase Agreement and Registration Rights Agreement, dated as of
     December 14, 2003, by and between Hillswood Holdings Limited and Vamos Inc.
     and the Registrant.

4.4  Services Agreement, dated as of April 15, 2003, between Cukierman & Co.
     Investment House Ltd., BOScom Ltd. and the Registrant.

4.5  Management Agreement between Signum Ltd., Adiv Baruch and the Registrant,
     dated as of January 1, 2004.

4.6  Securities Purchase Agreement, Master Security Agreement and Registration
     Rights Agreement, dated as of June 10, 2004, by and between Laurus Master
     Fund Ltd. and the Registrant.


8.1  List of subsidiaries (incorporated by reference to Item 4C of this Annual
     Report on Form 20-F).

10.1 Consent of Kost Forer Gabbay & Kasierer, a member of Ernst &Young Global.




                                       73
<PAGE>

31.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
     15d-14(a) of the Securities Exchange Act of 1934.


31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
     15d-14(a) of the Securities Exchange Act of 1934.


32.1 Certification by Chief Executive Officer and Chief Financial Officer
     pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act
     of 1934.


                                       74
<PAGE>


                                   SIGNATURES



The Registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.



                  B.O.S. Better On-Line Solutions, Ltd.


/s/ Adiv Baruch                                      /s/ Nehemia Kaufman
- ---------------                                      -------------------
Adiv Baruch                                          Nehemia Kaufman
President and Chief Executive Officer                Chief Financial Officer



Date: June 17, 2004


                                       75
<PAGE>



                       B.O.S. BETTER ONLINE SOLUTIONS LTD.

                              AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2003

                                 IN U.S. DOLLARS

                                      INDEX

<Table>
<Caption>
                                                                    PAGE
                                                                  --------
<S>                                                               <C>
REPORT OF INDEPENDENT AUDITORS                                       F2

CONSOLIDATED BALANCE SHEETS                                       F3 - F4

CONSOLIDATED STATEMENTS OF OPERATIONS                                F5

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                        F6

CONSOLIDATED STATEMENTS OF CASH FLOWS                             F7 - F8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        F9 - F30
</Table>

                             - - - - - - - - - - - -

<Page>

[ERNST & YOUNG LOGO]    o KOST FORER GABBAY & KASIERER    o Phone: 972-3-6232525
                          3 Aminadav St.                    Fax:   972-3-5622555
                          Tel-Aviv 67067, Israel

                         REPORT OF INDEPENDENT AUDITORS

                   THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

              B.O.S. BETTER ONLINE SOLUTIONS LTD. AND SUBSIDIARIES

     We have audited the accompanying consolidated balance sheets of B.O.S
Better OnLine Solution Ltd. ("the Company") and subsidiaries as of December 31,
2003 and 2002, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit 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
audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company and
subsidiaries at December 31, 2003 and 2002, and the consolidated results of
their operations and cash flows for each of the three years in the period ended
December 31, 2003, in conformity with U.S. generally accepted accounting
principles.

     As discussed in the notes to the consolidated financial statements,
effective January 1, 2002 the Company changed its method of accounting for
goodwill to conform with Statement of Financial Accounting Standards
No.142,"Goodwill and Other Intangible Assets" see Note 2(k).

Tel-Aviv, Israel                                  KOST FORER GABBAY & KASIERER
March 22, 2004                                  A Member of Ernst & Young Global

                                       F-2
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<Table>
<Caption>
                                                                               DECEMBER 31,
                                                                           -------------------
                                                                             2003       2002
                                                                           --------   --------
<S>                                                                        <C>        <C>
    ASSETS

CURRENT ASSETS
   Cash and cash equivalents                                               $  3,872   $  5,246
   Restricted cash (Note 3)                                                       -        700
   Marketable securities (Note 6)                                             1,014        819
   Trade receivables (net of allowance for doubtful accounts of $ 171 in
      2003 and $ 347 in 2002)                                                 1,075      1,523
   Other accounts receivable and prepaid expenses (Note 4)                      317        382
   Inventories (Note 5)                                                         961        855
                                                                           --------   --------

                                                                              7,239      9,525
                                                                           --------   --------
LONG-TERM INVESTMENTS:
   Long-term marketable securities (Note 6)                                   1,862      2,226
   Long-term prepaid expenses                                                     -         15
   Severance pay funds                                                          684        563
   Investment in a company (Note 7)                                           3,112      2,042
                                                                           --------   --------

Total long-term investments                                                   5,658      4,846
                                                                           --------   --------

PROPERTY AND EQUIPMENT, NET (Note 8)                                            598        965
                                                                           --------   --------

GOODWILL (Note 9)                                                               741        741
                                                                           --------   --------

ASSETS RELATED TO DISCONTINUED OPERATIONS (Note 1c)                             119      1,115
                                                                           --------   --------

                                                                           $ 14,355   $ 17,192
                                                                           ========   ========
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       F-3
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

<Table>
<Caption>
                                                                                   DECEMBER 31,
                                                                               -------------------
                                                                                 2003       2002
                                                                               --------   --------
<S>                                                                            <C>        <C>
     LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Trade payables                                                              $    464   $  1,044
   Employee and payroll accruals                                                    404        717
   Deferred revenues                                                                378        491
   Accrued expenses and other liabilities (Note 10)                                 911      1,293
                                                                               --------   --------

Total current liabilities                                                         2,157      3,545
                                                                               --------   --------

   ACCRUED SEVERANCE PAY                                                            951        794
                                                                               --------   --------

LIABILITIES RELATED TO DISCONTINUED OPERATIONS (Note 1c)                            374      4,131
                                                                               --------   --------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)

SHAREHOLDERS' EQUITY:
   Share capital (Note 12)-
      Ordinary shares of NIS 4.00 par value: Authorized: 8,750,000 shares at
         December 31, 2003 and 2002; Issued 4,167,509 and 3,177,264 shares
         at December 2003 and 2002, respectively; Outstanding: 4,162,126
         and 3,171,881 shares at December 2003 and 2002, respectively             4,309      3,690
   Additional paid-in capital                                                    43,247     41,319
   Treasury shares (5,383 Ordinary shares at December 31, 2003 and 2002)           (150)      (150)
   Accumulated deficit                                                          (36,533)   (36,137)
                                                                               --------   --------

                                                                                 10,873      8,722
                                                                               --------   --------

                                                                               $ 14,355   $ 17,192
                                                                               ========   ========
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       F-4
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

<Table>
<Caption>
                                                                         YEAR ENDED DECEMBER 31,
                                                                     -------------------------------
                                                                       2003       2002        2001
                                                                     --------   --------   ---------
<S>                                                                  <C>        <C>        <C>
Revenues                                                             $  5,728   $  9,441   $   6,042
Cost of revenues                                                        1,794      2,300       2,703
Non recurring royalty reversal (Note 14a)                                (339)         -           -
                                                                     --------   --------   ---------

Gross profit                                                            4,273      7,141       3,339
                                                                     --------   --------   ---------

Operating costs and expenses:
   Research and development                                             2,129      2,182       2,746
   Less - grants and participation                                       (283)         -        (989)
   Sales and marketing                                                  2,178      3,705       4,811
   General and administrative                                           1,317      1,697       1,425
   Restructuring and related costs                                        678          -         132
                                                                     --------   --------   ---------

Total operating costs and expenses                                      6,019      7,584       8,125
                                                                     --------   --------   ---------

Operating loss                                                         (1,746)      (443)     (4,786)
Financial income, net (Note 14b)                                          109        295         427
Other expenses (Note 14c)                                                (795)       (95)       (298)
                                                                     --------   --------   ---------

Net loss from continuing operations                                    (2,432)      (243)     (4,657)
Net income (loss) related to discontinued operations (Note 1c)          2,036     (7,674)     (8,313)
                                                                     --------   --------   ---------

Net loss                                                             $   (396)  $ (7,917)  $ (12,970)
                                                                     ========   ========   =========

Basic and diluted net loss per share from continuing operations
   (Note 14d)                                                        $  (0.66)  $  (0.08)  $   (1.50)
                                                                     ========   ========   =========

Basic and diluted net income (loss) per share from
   discontinued operations (Note 14d)                                $   0.55   $  (2.46)  $   (2.68)
                                                                     ========   ========   =========

Basic and diluted net loss per share NIS 4.00 par value (Note
   14d)                                                              $  (0.11)  $  (2.54)  $   (4.18)
                                                                     ========   ========   =========
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       F-5
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

STATEMENTS OF  SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

<Table>
<Caption>
                                                                                          TREASURY
                                        NUMBER                ADDITIONAL                   SHARES         TOTAL
                                      OF ORDINARY    SHARE     PAID-IN     ACCUMULATED     HELD BY     SHAREHOLDERS'
                                        SHARES      CAPITAL    CAPITAL       DEFICIT      A TRUSTEE       EQUITY
                                      -----------   -------   ----------   -----------   ----------    -------------
<S>                                    <C>          <C>        <C>          <C>            <C>           <C>
Balance at January 1, 2001             3,102,264    $ 3,628    $ 41,216     $ (15,250)     $ (150)       $  29,444

   Stock based compensation                    -          -           4             -           -                4
   Net loss                                    -          -           -       (12,970)          -          (12,970)
                                       ---------    -------    --------     ---------      ------        ---------

Balance at December 31, 2001           3,102,264      3,628      41,220       (28,220)       (150)          16,478

   Issuance of shares                      3,750          3          27             -           -               30
   Issuance of shares related
      to the private placement
      in 2000                             71,250         59          (1)            -           -               58
   Reversal of accrued issuance
      expenses                                 -          -          66             -           -               66
   Stock based compensation
      related to warrants issued
      to service providers                     -          -           7             -           -                7
   Net loss                                    -          -           -        (7,917)          -           (7,917)
                                       ---------    -------    --------     ---------      ------        ---------

Balance at December 31, 2002           3,177,264      3,690      41,319       (36,137)       (150)           8,722

   Issuance of shares related
      to share swap transaction          633,102        537       1,059             -           -            1,596
   Issuance of shares related
      to the private placement
      in 2003                            357,143         82         846             -           -              928
   Stock based compensation
      related to warrants issued
      to service providers                     -          -          23             -           -               23
   Net loss                                    -          -           -          (396)          -             (396)
                                       ---------    -------    --------     ---------      ------        ---------

Balance at December 31, 2003           4,167,509    $ 4,309    $ 43,247     $ (36,533)     $ (150)       $  10,873
                                       =========    =======    ========     =========      ======        =========


</Table>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       F-6
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<Table>
<Caption>
                                                                                          YEAR ENDED    YEAR ENDED   YEAR ENDED
                                                                                         DECEMBER 31,    DECEMBER     DECEMBER
                                                                                             2003        31, 2002     31, 2001
                                                                                         ------------   ----------   ----------
<S>                                                                                        <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES

   Net loss                                                                                $   (396)    $ (7,917)    $ (12,970)
      Adjustments  to reconcile  net loss to net cash  provided by (used in) operating
         activities:
      Net loss (income) from discontinuing operations                                        (2,036)       7,674         8,313
      Depreciation and amortization                                                             307          390           568
      Impairment of property and equipment                                                      110           95             -
      Accrued severance pay, net                                                                 36          (49)          (26)
      Amortization of premium on marketable securities                                          101           89            28
      Interest on investment in affiliate                                                         -            -           (42)
      Impairment of investment in a company                                                     840            -             -
      Capital loss from sale of property and equipment                                            6            -            32
      Gain on sale of marketable securities                                                     (13)           -             -
      Stock based compensation related to warrants issued to service providers                   23            7             4
      Decrease (increase) in trade receivables                                                  448          (28)          832
      Decrease in other accounts receivable and prepaid expenses                                131          186           106
      Increase in inventories                                                                  (106)        (548)        1,024
      Increase (decrease) in trade payables                                                    (580)         596          (500)
      Increase (decrease) in employees and payroll accruals, deferred revenues,
         accrued expenses and other liabilities                                                (808)        (368)          961
                                                                                           --------     --------     ---------
   Net cash flows provided by (used in) continuing operations                                (1,937)         127        (1,670)
   Net cash provided by (used in) operating  activities from  discontinuing operations       (1,032)         728         2,576
                                                                                           --------     --------     ---------

   Net cash provided by (used in) operating activities                                       (2,969)         855           906
                                                                                           --------     --------     ---------

   CASH FLOWS FROM INVESTING ACTIVITIES:

   Purchase of property and equipment                                                           (64)        (163)         (389)
   Proceeds from sale of property and equipment                                                   8            9            23
   Purchase of other assets                                                                       -            -            (4)
   Investment in long-term marketable securities                                               (971)        (196)       (2,912)
   Investment in a company                                                                     (155)           -        (2,000)
   Realization of (investment in) restricted cash                                               700         (700)            -
   Proceeds from sale of marketable securities                                                1,001            -             -
                                                                                           --------     --------     ---------

   Net cash  provided by (used in)  investing  activities  from  continuing operations          519       (1,050)       (5,282)
   Net cash used in investing activities from discontinuing operations                            -         (160)       (1,909)
                                                                                           --------     --------     ---------

   Net cash provided by (used in) investing activities                                          519       (1,210)       (7,191)
                                                                                           --------     --------     ---------

   CASH FLOWS FROM FINANCING ACTIVITIES:

   Repayment of long-term loan                                                                    -         (286)         (429)
   Proceeds from issuance of shares                                                             928           58             -
   Payment for acquisition of a subsidiary                                                        -            -           (66)
   Issuance expenses related to investment in a company                                        (159)           -             -
                                                                                           --------     --------     ---------
   Net cash provided by (used in) financing activities from continuing operations               769         (228)         (495)
   Net cash used in financing activities from discontinuing operations                          (47)      (3,216)       (1,095)
                                                                                           --------     --------     ---------

   Net cash provided by (used in) financing activities                                          722       (3,444)       (1,590)
                                                                                           --------     --------     ---------

   Decrease in cash and cash equivalents                                                     (1,728)      (3,799)       (7,875)
   Decrease  (increase)  in cash  and  cash  equivalents  of  discontinuing operations          354          720          (270)
   Cash and cash equivalents at the beginning of the year                                     5,246        8,325        16,470
                                                                                           --------     --------     ---------

   Cash and cash equivalents at the end of the year                                        $  3,872     $  5,246     $   8,325
                                                                                           ========     ========     =========
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       F-7
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<Table>
<Caption>
                                                             YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                            DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                                2003           2002           2001
                                                            ------------   ------------   ------------
<S>                                                            <C>             <C>           <C>
       Supplemental disclosure of cash flow activities:
(i)    Net cash paid during the year for:
          Interest                                             $     1        $  82          $ 570
                                                               =======        =====          =====

(ii)   Non-cash activities:
       Investment in a company against issuance of shares      $ 1,755        $  30          $   -
                                                               =======        =====          =====

       Reversal of issuance expenses payable                   $     -        $  66          $   -
                                                               =======        =====          =====
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       F-8
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:-  GENERAL

          B.O.S. Better Online Solutions Ltd. is an Israeli corporation together
          with its subsidiaries (hereinafter "the Company" or "BOS"):

          a.   Since January 2002, the Company's structure was re organized by
               transforming the Company into a holding company specializing in
               high tech investments and by merging the Company's connectivity
               operations into BOScom. As such, on January 1, 2002, the net
               assets pertaining to the connectivity operations were transferred
               to BOScom.

               The Company's wholly owned subsidiary, "BOScom" operates in
               connectivity, software utilities and communication solution
               product lines.

               Connectivity - A solutions for seamless integration of personal
               computers and Local Area Networks into the midrange host
               environment. "BOScom" also design, integrate, test, market and
               support superior products that provide efficient solutions to
               personnel connecting personal computers to IBM midrange hosts.

               Software Utilities - Powerful solutions for document design,
               distribution and management solutions for a wide range of
               operating systems, including mainframe and UNIX.

               Communication Solutions - BOScom developed a series of Voice over
               Internet protocol (" VOIP ") communication products designed for
               the corporate market. The gateways enable enterprises to reduce
               or eliminate inter-office communication costs or bypass
               long-distance costs using their private Intranet or the public
               Internet to carry telephone calls. They also provide a powerful
               means to extend Private Branch Exchange ("PBX") functionality to
               the enterprise's branch offices.

               In 2003, the Company reorganized BOScom activity by ceasing the
               operation off all of its wholly owned marketing subsidiaries in
               the UK and France and began to sell its products directly through
               independent distributors. As a result, the Company reduced the
               total worldwide employees by approximately 49 employees and
               incurred $ 678 thousand in restructuring costs in accordance with
               SFAS 146 "Accounting for Costs Associated with Exit or Disposal
               Activities". SFAS No.146 requires that a liability for a cost
               associated with an exit or disposal activity be recognized and
               measured, initially at fair value, only when the liability is
               incurred. The provisions of SFAS No.146 are effective for exit or
               disposal activities that are initiated after December 31, 2002.

          b.   Accounting principles:

               The consolidated financial statements for all years presented are
               prepared in accordance with generally accepted accounting
               principles ("GAAP ") in the United States of America. Prior to
               2003, the consolidated financial statements were prepared in
               accordance with Israeli GAAP with reconciliation to U.S.GAAP.

          c.   Discontinued operation:

               On June 1, 1998, the Company acquired 100% of the share capital
               of Pacinfo ("Pacinfo"), a U.S. corporation. Pacinfo is a reseller
               of computer networking products. In April 2001, Pacinfo acquired
               Dean Technologies Associated LLC. ("DT") Texas limited Liability
               Company, which was also engaged in the computer-networking
               segment.

                                       F-9
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:-  GENERAL (CONT.)

               In May 2002, the Board of Directors of the Company decided to
               sell all Pacinfo activity. During the fourth quarter of 2002,
               following unsuccessful efforts to sell Pacinfo and due to poor
               economic condition and continued operating losses together with a
               loss of key officers and employees, the Company initiated a plan
               to cease operations of Pacinfo and to proceed with a voluntary
               liquidation of the Company.

               The results of operations including revenue, operating expenses
               and other income and expenses of Pacinfo for 2003, 2002 and 2001
               have been reclassified in the accompanying statements of
               operations as discontinued operations.

               The Company's balance sheets at December 31, 2003 and 2002
               reflect the net liabilities of the Pacinfo as liabilities and
               assets related to discontinued operations within liabilities
               related to discontinuing operations and assets related to
               discontinuing operations. The carrying amounts of the major
               classes of assets and liabilities included as part of the
               discontinued operation are:

<Table>
<Caption>
                                                                        DECEMBER 31,
                                                                    -------------------
                                                                      2003       2002
                                                                    --------   --------
<S>                                                                 <C>        <C>
                 Cash                                               $     69   $    423
                 Trade receivables, other receivables and prepaid
                    expenses                                              18        597
                 Property and equipment, net                              32         95
                                                                    --------   --------

                 Assets of discontinued operation                   $    119   $  1,115
                                                                    ========   ========

                 Trade payables                                     $    299   $  2,456
                 Accrued expenses and other liabilities                   75      1,675
                                                                    --------   --------

                 Liabilities of discontinued operation              $    374   $  4,131
                                                                    ========   ========
</Table>

               The results of operations, including revenues, cost of revenues
               and operating expenses of Pacinfo operation for 2003, 2002 and
               2001 have been reclassified in the statements of operations.
               Taxes were not attributed to the discontinued operation due to
               utilization of losses from previous years, for which a valuation
               allowance was provided. Summarized selected financial information
               of the discontinued operation is as follows:

<Table>
<Caption>
                                      YEAR ENDED DECEMBER 31,
                                   ------------------------------
                                     2003      2002        2001
                                   -------   --------    --------
<S>                                <C>       <C>         <C>
               Revenues            $    25   $ 32,912    $ 53,168
                                   =======   ========    ========
               Net income (loss)   $ 2,036   $ (7,674)   $ (8,313)
                                   =======   ========    ========
</Table>

          d.   The Company had one major customer in 2003, which constituted 52
               % of the revenues. This major customer is the Company's master
               distributor in the U.S. In the event that the Company encounters
               problems working with the master distributor, the Company may
               experience an interruption in sales until an alternative source
               of distribution can be found, which may have a material adverse
               effect on the financial statements.

                                      F-10
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES

          a.   Use of estimates:

               The preparation of financial statements in conformity with
               generally accepted accounting principles requires management to
               make estimates and assumptions that affect the amounts reported
               in the financial statements and accompanying notes. Actual
               results could differ from those estimates.

          b.   Financial statements in U.S. dollars ("dollar"):

               A substantial portion of the Company's revenues is generated in
               U.S. dollar ("dollars"). In addition, most of the Company's costs
               are incurred in dollars.

               Company's management believes that the dollar is the primary
               currency of the economic environment in which the Company
               operate. Thus, the functional and reporting currency of the
               Company is the dollar.

               Accordingly, monetary accounts maintained in currencies other
               than the dollar are remeasured into U.S. dollars in accordance
               with Statement No. 52 of the Financial Accounting Standards Board
               ("FASB") "Foreign Currency Translation". All transactions gains
               and losses from the remeasurement of monetary balance sheet items
               are reflected in the statements of operations as financial income
               or expenses as appropriate.

          c.   Principles of consolidation:

               The consolidated financial statements include the accounts of the
               Company and its wholly owned subsidiaries. Inter-company
               transactions and balances including profits from inter-company
               sales not yet realized outside the group have been eliminated
               upon consolidation.

          d.   Cash equivalents:

               Cash equivalents are short-term highly liquid investments that
               are readily convertible to cash originally purchased with
               maturities of less than three months.

          e.   Marketable securities:

               The Company accounts for investments in debt securities in
               accordance with Statement of Financial Accounting Standard
               No.115,"Accounting for Certain Investments in Debt and Equity
               Securities"("SFAS No.115"). Management determines the appropriate
               classification of its investments in debt and equity securities
               at the time of purchase and reevaluates such determinations at
               each balance sheet date. Debt securities are classified as
               held-to-maturity

               When the Company has the positive intent and ability to hold the
               securities to maturity and are stated at amortized cost. The
               amortized cost of held-to-maturity securities is adjusted for
               amortization of premiums and accretion of discounts to maturity.
               Such amortization and decline in value judged to be other than
               temporary and interest are included in financial income, net.

                                      F-11
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          f.   Restricted cash

               Restricted cash is primarily invested in certificates of deposit,
               which mature within one year and was used as security for the
               line of credit granted to Pacinfo in 2002 (see Notes 1c and Note
               3).

          g.   Inventories:

               Inventory write-offs are provided to cover risks arising from
               slow-moving items or technological obsolescence. As of December
               31, 2003, inventory is presented net of $ 300 general provision
               for technological obsolescence and slow moving items (see also
               note 5).

               Inventories are valued at the lower of cost or market value. Cost
               is determined as follows: Raw and packaging materials- Moving
               average cost method.

               Products in progress and finished products - On the production
               costs basis with the addition of allocable indirect manufacturing
               costs.

          h.   Grants and royalty-bearing grants:

               Grants and royalty-bearing grants from the Chief Scientist of the
               Ministry of Industry and Trade in Israel for funding certain
               approved research projects and for funding marketing activities
               are recognized at the time the Company is entitled to such
               grants, on the basis of the related costs incurred, and are
               presented as a deduction of research and development costs.

          i    Investment in a company:

               From 1997 to 1999, the Company had an investment in a company
               which was accounted for according to the equity method. During
               2001, the investment was reduced to zero in the books due to the
               fact that the Company's share in the investee losses exceeded the
               investment and the Company had no additional guaranty for the
               investee's liabilities.

               An additional investment made in that company during 2002 and
               2003 is stated at cost, since the Company does not have the
               ability to exercise significant influence over the operating and
               financial policies of this investee (see Note 7a). The Company's
               investments in a company are reviewed for impairment whenever
               events or changes in circumstances indicate that the carrying
               amount of an investment may not be recoverable, in accordance
               with Accounting Principle Board Opinion No.18 "The Equity Method
               of Accounting for Investments in Common Stock", ("APB No.18"). As
               of December 31, 2003, based on managements' most recent analyses
               supported by external valuation, an impairment loss has been
               recorded in the amount of $ 840.

                                      F-12
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          j.   Property and equipment:

               Property and equipment are stated at cost, net of accumulated
               depreciation. Depreciation is calculated by using the
               straight-line method over the estimated useful lives of the
               assets, at the following annual rates:

<Table>
<Caption>
                                                       %
                                                    -------
<S>                                                 <C>
               Computers and peripheral equipment   20 - 33
               Office furniture and equipment        6 - 15
               Leasehold improvements                 10
</Table>

               The Company's property and equipment are reviewed for impairment
               in accordance with Statement of Financial Accounting Standard No.
               144 "Accounting for the Impairment or Disposal of Long- Lived
               Assets" ("SFAS No. 144") whenever events or changes in
               circumstances indicate that the carrying amount of an asset may
               not be recoverable. Recoverability of assets to be held and used
               is measured by a comparison of the carrying amount of an asset to
               the future undiscounted cash flows expected to be generated by
               the assets. If such assets are considered to be impaired, the
               impairment to be recognized is measured by the amount by which
               the carrying amount of the assets exceeds the fair value of the
               assets. Impairment losses have been recorded amounted to $ 110, $
               95 and $ 0 for the years ended December 31, 2003, 2002 and 2001,
               respectively.

          k.   Goodwill:

               Goodwill represents excess of the costs over the net assets of
               businesses acquired. Under Statement of Financial Accounting
               Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS
               No. 142") goodwill acquired in a business combination on or after
               July 1, 2001, is not amortized.

               SFAS No. 142 requires goodwill to be tested for impairment on
               adoption and at least annually thereafter or between annual tests
               in certain circumstances, and written down when impaired, rather
               than being amortized as previous accounting standards required.
               Goodwill attributable to each of the reporting units is tested
               for impairment by comparing the fair value of each reporting unit
               with its carrying value. Fair value is determined using
               discounted cash flows. Significant estimates used in the
               methodologies include estimates of future cash flows, future
               short-term and long-term growth rates, weighted average cost of
               capital and estimates of market multiples for each of the
               reportable units. As of December 31, 2003, no impairment losses
               have been identified.

          l.   Research and development costs:

               Statement of Financial Accounting Standards No. 86 "Accounting
               for the Costs of Computer Software to be Sold, Leased or
               Otherwise Marketed," ("SFAS No. 86") requires capitalization of
               certain software development costs subsequent to the
               establishment of technological feasibility. Based on the Company
               product development process, technological feasibility is
               established upon completion of a working model. Research and
               development costs incurred in the process of developing product
               improvements or new products, are generally charged to expenses
               as incurred, net of participation of the Office of the Chief
               Scientist of the Israeli Ministry of Industry and Trade. Costs
               incurred by the Company between completion of the working model
               and the point at which the product is ready for general release
               are insignificant.

                                      F-13
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          m.   Severance pay:

               The Company's liability for severance pay for Israeli resident
               employees is calculated pursuant to Israeli severance pay law
               based on the most recent salary of the employees multiplied by
               the number of years of employment as of the balance sheet date.
               Employees are entitled to one month's salary for each year of
               employment or a portion thereof. The Company's liability for its
               Israeli resident employees is covered by insurance policies
               designed solely for distributing severance pay. The value of
               these policies is recorded as an asset in the Company's balance
               sheet.

               The insurance policies include profits accumulated up to the
               balance sheet date. The insurance policies may be withdrawn only
               upon complying with the Israeli severance pay law or labor
               agreements. The value of the deposited funds is based on the cash
               surrendered value of these policies and includes profits.
               Severance expenses for 2003, 2002 and 2001, amounted to $ 178, $
               114, and $ 264, respectively.

          n.   Revenue recognition:

               The Company's products are generally a bundled hardware and
               software solution that are delivered together. The Company sells
               its products primarily through distributors and resellers.

               The Company derives its revenues from the sale of products,
               license fees for its products, maintenance, support and services.

               Revenues from product sales are recognized in accordance with
               Staff Accounting Bulletin No. 104 "Revenue Recognition in
               Financial Statements" ("SAB 104") when delivery has occurred,
               persuasive evidence of an arrangement exists, the vendor's fee is
               fixed or determinable, no further obligation exists, and
               collectibility is reasonably assured. When a right of return
               exists, the Company defers revenues until the right of return
               expires. Revenues subject to certain price protection and stock
               rotation are deferred until distributor sells the products, or
               until the right expires.

               Revenue from license fees is recognized in accordance with
               Statement of Position (SOP 97-2) "Software Revenue Recognition",
               when persuasive evidence of an agreement exists, delivery of the
               product has occurred, no significant obligations with regard to
               implementation remain, the fee is fixed or determinable, and
               collectibility is probable. The Company generally does not grant
               a right of return to its customers. When a right of return
               exists, the Company defers revenue until the right of return
               expires, at which time revenue is recognized provided that all
               other revenue recognition criteria have been met.

               The provision for product returns is based on prior experience
               and is net of estimated manufacturing reimbursements.

               Revenues from maintenance and support are recognized ratably over
               the period of the maintenance contract. Revenues from software
               license that require significant customization, integration and
               installation are recognized as they are completed, in accordance
               with SOP 81-1 "Accounting for Performance of Construction-Type
               and Certain Production-Type Contracts" guidelines.

                                      F-14
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          o.   Warranty:

               The Company provides a warranty between 3 to 36 months at no
               extra charge, whereby defective hardware covered by the warranty
               should be sent back to the Company. The Company estimates the
               costs that may be incurred under its warranty and records a
               liability in the amount of such costs at the time product revenue
               is recognized. Factors that affect the Company's warranty
               liability include the number of installed units, historical and
               anticipated rates of warranty claims, and cost per claim. The
               Company periodically assesses the adequacy of its recorded
               warranty liabilities and adjusts the amounts as necessary.

               Changes in the Company's product warranty during the year 2003
               period are as follows:

<Table>
<S>                                                    <C>
               Balance, beginning of the year          $ 174
               Changes in warranties during the year     (32)
                                                       -----
               Balance, end of the year                $ 132
</Table>

          p.   Income taxes:

               The Company account for income taxes in accordance with Statement
               of Financial Accounting Standards, SFAS 109, "Accounting for
               Income Taxes". This 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. The Company provide a
               valuation allowance, if necessary, to reduce deferred tax assets
               to their estimated realizable value.

          q.   Concentrations of credit risk:

               Financial instruments that potentially subject the Company to
               concentrations of credit risk consist principally of cash and
               cash equivalents, trade receivables, other accounts receivable
               and marketable securities.

               Cash and cash equivalents are invested mainly in U.S. dollars in
               deposits with major banks in Israel. Such deposits may be in
               excess of insured limits and are not insured in other
               jurisdictions. Management believes that the financial
               institutions that hold the investments of the Company are
               financially sound and, accordingly, minimal credit risk exists
               with respect to these investments.

               The trade receivables of the Company derived from sales to
               customers located primarily in the United States, Europe and
               Israel. The Company generally do not require collateral; however,
               in certain circumstances, the Company may require letters of
               credit, other collateral, additional guarantees or advanced
               payments. The Company performs ongoing credit evaluations of its
               customers and to date (except for customer relating to the
               discontinuing operations) has not experienced material losses. An
               allowance for doubtful accounts is determined with respect to
               specific debts that are doubtful of collection.

               Investments in marketable securities are conducted through a bank
               in Israel, and include investments in corporate and governmental
               debentures. Management believes that the financial institutions
               that hold the Company's investments are financially sound, the
               portfolio is well diversified and accordingly, minimal credit
               risk exists with respect to these investments.

               The Company have no off-balance-sheet concentration of credit
               risk such as foreign exchange contracts, option contracts or
               other foreign hedging arrangements.

                                      F-15
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          r.   Basic and diluted net loss per share:

               Basic net loss per share is calculated based on the weighted
               average number of Ordinary shares outstanding during each year.
               Diluted net loss per share is calculated based on the weighted
               average number of Ordinary shares outstanding during each year,
               plus dilutive potential Ordinary shares considered outstanding
               during the year, in accordance with SFAS No. 128, "Earnings Per
               Share".

               The total weighted average number of shares related to the
               outstanding options and warrants excluded from the calculations
               of diluted net loss per share, since they would have an
               anti-dilutive effect, were 505,178, 288,804 and 243,380 for the
               years ended December 31, 2003, 2002 and 2001, respectively.

          s.   Accounting for stock-based compensation:

               The Company has elected to follow Accounting Principles Board
               Opinion No. 25, "Accounting for Stock Issued to Employees"
               ("APB-25"), and Interpretation No. 44, "Accounting for Certain
               Transactions Involving Stock Compensation" ("FIN 44"), in
               accounting for its employee stock option plan. Under APB-25, when
               the exercise price of the Company's employee stock options equals
               or is above than the market price of the underlying shares on the
               date of grant, no compensation expense is recognized.

               The Company applies SFAS No. 123 "Accounting for stock Based
               Compensation" ("SFAS No. 123") and EITF 96-18, "Accounting for
               Equity Instruments that are Issued to Other Than Employees for
               Acquiring, or in Conjunction With, Selling, Goods or Services",
               with respect to warrants issued to non-employees. SFAS No. 123
               requires the use of option valuation models to measure the fair
               value of the warrants at the date of grant.

               Pro-forma disclosure is required by SFAS No. 123 , had the
               compensation expense for stock options granted under the
               Company's plans, been determined based on the fair value at the
               date of grant. The Company's net loss and loss per Ordinary share
               in 2003, 2002 and 2001 would have changed to the pro forma
               amounts shown below:

<Table>
<Caption>
                                                                    YEAR ENDED DECEMBER 31,
                                                                ------------------------------
                                                                 2003       2002       2001
                                                                -------   --------   ---------
<S>                                                             <C>       <C>        <C>
               Net loss as reported                             $  (396)  $ (7,917)  $ (12,970)

               Deduct: stock-based compensation expense
                  determined under fair value method for all
                  awards                                            124        341       1,187
                                                                -------   --------   ---------

               Pro forma net loss                               $  (520)  $ (8,258)  $ (14,157)
                                                                =======   ========   =========

               Pro forma basic and diluted net loss per share   $ (0.14)  $  (2.65)  $   (4.56)
                                                                =======   ========   =========
</Table>

               The fair value of each option granted is estimated on the date of
               grant, using the Black Scholes option pricing model with expected
               volatility of approximately 64%, 71% and 79% in 2003, 2002 and
               2001, respectively and using the following weighted average
               assumptions:

               (1)  Dividend yield of zero percent for each year.

               (2)  Risk-free interest rate of 1.8%, 1.5% and 2% in 2003, 2002
                    and 2001, respectively.

               (3)  Expected average lives of the options of three years from
                    the date of grant as of 2003, 2002 and 2001.

                                      F-16
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          t.   Fair value of financial instruments:

               The following methods and assumptions were used by the Company in
               estimating their fair value disclosures for financial
               instruments:

               The carrying amounts of cash and cash equivalents, restricted
               cash, trade receivables, other accounts receivable and trade
               payables approximate their fair value due to the short-term
               maturities of such instruments.

               The fair value for marketable securities is based on quoted
               market prices.

          u.   Impact of recently issued accounting standards:

               In April 2003, the FASB issued SFAS No. 149, "Amendment of
               Statement 133 on Derivative Instruments and Hedging Activities".
               SFAS No. 149 amends and clarifies (1) the accounting guidance on
               derivative instruments (including certain derivative instruments
               embedded in other contracts) and (2) hedging activities that fall
               within the scope of SFAS No. 133, "Accounting for Derivative
               Instruments and Hedging Activities". SFAS No. 149 amends SFAS No.
               133 to reflect decisions made (1) as part of the Derivatives
               Implementation Group ("DIG") process that effectively required
               amendments to SFAS No. 133, (2) in connection with other projects
               dealing with financial instruments, and (3) regarding
               implementation issues related to the application of the
               definition of a derivative. SFAS No. 149 is effective (1) for
               contracts entered into or modified after June 30, 2003, with
               certain exceptions, and (2) for hedging relationships designated
               after June 30, 2003. The guidance is to be applied prospectively.

               Generally, SFAS No. 149 improves financial reporting by (1)
               requiring that contracts with comparable characteristics be
               accounted for similarly and (2) clarifying when a derivative
               contains a financing component that warrants special reporting in
               the statement of cash flows. SFAS No. 149 is not expected to have
               a material impact on the Company's financial statements.

               In November 2002, the FASB issued FASB Interpretation No. 45,
               "Guarantor's Accounting and Disclosure Requirements for
               Guarantees, Including Indirect Guarantees of Indebtedness of
               Others, an interpretation of FASB Statements No. 5, 57, and 107
               and Rescission of FASB Interpretation No. 34" ("FIN No. 45"). FIN
               No. 45 elaborates on the disclosures to be made by a guarantor in
               its interim and annual financial statements about its obligations
               under certain guarantees that it has issued. It also clarifies
               that a guarantor is required to recognize, at the inception of a
               guarantee, a liability for the fair value of the obligation
               undertaken in issuing the guarantee. FIN No. 45 does not
               prescribe a specific approach for subsequently measuring the
               guarantor's recognized liability over the term of the related
               guarantee. It also incorporates, without change, the guidance in
               FASB Interpretation No. 34, "Disclosure of Indirect Guarantees of
               Indebtedness of Others," which is being superseded. The
               disclosure provisions of FIN No. 45 are effective for financial
               statements of interim or annual periods that end after December
               15, 2002, and the provisions for initial recognition and
               measurement are effective on a prospective basis for guarantees
               that are issued or modified after December 31, 2002, irrespective
               of a guarantor's year-end. The adoption of FIN No. 45 did not
               have a material impact on the results of operations or financial
               position.

                                      F-17
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (CONT.)

               In January 2003, the FASB issued Interpretation No. 46,
               Consolidation of Variable Interest Entities" ("FIN 46"). The
               objective of FIN No. 46 is to improve financial reporting by
               companies involved with variable interest entities. A variable
               interest entity is a corporation, partnership, trust, or any
               other legal structure used for business purposes that either (a)
               does not have equity investors with voting rights or (b) has
               equity investors that do not provide sufficient financial
               resources for the entity to support its activities. FIN No. 46
               requires a variable interest entity to be consolidated by a
               company if that company is subject to a majority of the risk of
               loss from the variable interest entity's activities or entitled
               to receive a majority of the entity's residual returns or both.
               FIN No. 46 also requires disclosures about variable interest
               entities that the company is not required to consolidate but in
               which it has a significant variable interest. The consolidation
               requirements of FIN No. 46 apply immediately to variable interest
               entities created after January 31, 2003. The consolidation
               requirements apply to older entities in the first fiscal year or
               interim period ending after March 15, 2004. Certain of the
               disclosure requirements apply in all financial statements issued
               after January 31, 2003, regardless of when the variable interest
               entity was established. As of December 31, 2003, the Company does
               not expect the adoption of FIN No. 46 to have a material impact
               on its consolidated financial statements.

               In November 2002, Emerging Issues Task Force ("EITF") reached a
               consensus on Issue No. 00-21, "Revenue Arrangements with Multiple
               Deliverables". EITF Issue No. 00-21 provides guidance on how to
               account for arrangements that involve the delivery or performance
               of multiple products, services and/or rights to use assets. The
               provisions of EITF Issue No. 00-21 applied to revenue
               arrangements entered into in fiscal periods beginning after June
               15, 2003. Additionally, companies will be permitted to apply the
               consensus guidance in this issue to all existing arrangements as
               the cumulative effect of a change in accounting principle in
               accordance with APB Opinion No. 20, "Accounting Changes". The
               adoption of EITF Issue No. 00-21 did not have a material impact
               upon the Company's financial position, cash flows or results of
               operations.

          v.   Reclassification:

               Certain amounts from prior years have been reclassified to
               conform to the current year presentation. As a result of the
               decision of the Board of Directors to cease the operations of
               Pacinfo (the Computer Networking Segment), the financial
               statements of the Company classify the assets, liabilities and
               operations of Pacinfo as a discontinued operations.

NOTE 3:-  RESTRICTED CASH

          As of December  31,  2003, a fixed charge that was granted in order to
          secure the line of credit to Pacinfo has expired.

                                      F-18
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 4:-  OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

<Table>
<Caption>
                                                            DECEMBER 31,
                                                          ---------------
                                                           2003     2002
                                                          ------   ------
<S>                                                       <C>      <C>
          Government authorities                          $   62   $  104
          Prepaid expenses                                   107      189
          Other                                              148       89
                                                          ------   ------

                                                          $  317   $  382
                                                          ======   ======
</Table>

NOTE 5:-  INVENTORIES

<Table>
<Caption>
                                                            DECEMBER 31,
                                                          ---------------
                                                           2003     2002
                                                          ------   ------
<S>                                                       <C>      <C>
          Raw materials (including packaging materials)   $  299   $  429
          Products in progress                               277      228
          Finished products                                  385      198
                                                          ------   ------

                                                          $  961   $  855
                                                          ======   ======
</Table>

          The inventories are presented net of provision for technological
          obsolescence and slow-moving items of $ 300 as of December 31, 2003
          and 2002.

NOTE 6:-  MARKETABLE SECURITIES

          The following is a summary of held-to-maturity securities:

<Table>
<Caption>
                                                                         DECEMBER 31,
                              -------------------------------------------------------------------------------------------------
                                                   2003                                              2002
                              -----------------------------------------------   -----------------------------------------------
                                                                    ESTIMATED                                         ESTIMATED
                                            GROSS        GROSS         FAIR                   GROSS        GROSS         FAIR
                              AMORTIZED   UNREALIZED   UNREALIZED     MARKET    AMORTIZED   UNREALIZED   UNREALIZED     MARKET
                                COST        GAINS        LOSSES       VALUE       COST        GAINS        LOSSES       VALUE
                              ---------   ----------   ----------   ---------   ---------   ----------   ----------   ---------
<S>                            <C>           <C>          <C>        <C>         <C>           <C>         <C>         <C>
          HELD-TO-MATURITY:

          Government debts     $   612       $  9         $  -       $   621     $ 1,036       $ 17        $   -       $ 1,053
          Corporate
             debentures          2,264         50            -         2,314       2,009          8          (35)        1,982
                               -------       ----         ----       -------     -------       ----        -----       -------

                               $ 2,876       $ 59         $  -       $ 2,935     $ 3,045       $ 25        $ (35)      $ 3,035
                               =======       ====         ====       =======     =======       ====        =====       =======
</Table>

          Aggregate maturities of held-to-maturity securities for years
          subsequent to December 31, 2003 are:

<Table>
<Caption>
                                                                    ESTIMATED FAIR
                                                   AMORTIZED COST    MARKET VALUE
                                                   --------------   --------------
<S>                                                    <C>              <C>
          HELD-TO-MATURITY:

          2004(short-term marketable securities)       $ 1,014          $ 1,027
          2005                                           1,568            1,604
          2006                                             294              304
                                                       -------          -------

                                                       $ 2,876          $ 2,935
                                                       =======          =======
</Table>

                                      F-19
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 7:-  INVESTMENT IN A COMPANY

          a.   Investment in Surf

               In November 2001, the Company invested $ 1,000 as part of a
               private placement in Surf Communication System Ltd. ("Surf"). At
               the same time, the Company converted its convertible loan in the
               amount of $ 1,042 (principal and accrued interest) into Preferred
               shares in Surf at an exercise price equal to Surf's fair value as
               determined in the investment agreement. As a result of this
               private placement, the Company's holding in Surf was diluted to
               17%, Accordingly the investment was accounted based on the cost
               accounting method. In March 2003, the Company engaged with
               Catalyst Investors L.P. ("Catalyst"), in order to purchase
               additional 191,548 series C Preferred shares of Surf. In
               consideration, the Company issued to Catalyst Ordinary Shares,
               representing 19.90% of the issued and outstanding share capital
               of the Company immediately prior to the transaction and prior to
               the issuance of the shares, at a purchase price of $2.776,
               aggregating to $ 1,755. Catalyst also granted the Company, at no
               additional consideration, an option to purchase on or prior to
               January 31, 2006, any shares of Surf then held by Catalyst at an
               exercise price of $9.1632 plus interest of 4.75%. In the event
               that Catalyst will sell its remaining shares in Surf prior to
               January 1, 2006, the Company will be entitled to the gain that
               will be realized in such sale.

               As a result of this investment, the Company's holding in Surf
               increased to 19.8%. The Company's management believes that
               following the investment the Company is still unable to exercise
               a significant influence over Surf's operating and financial
               policies. The carrying amount of the investment based on the cost
               accounting method was $ 3,112.

          b.   Impairment

               Under APB 18, a loss in value of an investment accounted for
               under the cost method, which is other than a temporary decline,
               should be recognized as a realized loss, establishing a new
               carrying value for the investment. Factors the Company considered
               in making this evaluation included: the length of time and the
               extent to which the market value has been less than cost, the
               financial condition and near-term prospects of the investee,
               including cash flows of the investee and any specific events
               which may influence the operations of the investee and the intent
               and ability of the Company to retain its investments for a period
               of time sufficient to allow for any anticipated recovery in
               market value. As of December 31, 2003, the fair value of the
               investment was less than its carrying amount. Therefore based on
               managements' analyses (supported by external valuation) the
               Company recorded a provision for loss on its investments in Surf
               of $ 840, during the year ended December 31, 2003. This provision
               has been presented as "Other expenses", in the consolidated
               statement of operations.

                                      F-20
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 8:-  PROPERTY AND EQUIPMENT

<Table>
<Caption>
                                                        DECEMBER 31,
                                                    -------------------
                                                      2003       2002
                                                    --------   --------
<S>                                                 <C>        <C>
          Cost:
             Computers and software                 $  1,798   $  1,816
             Office furniture and equipment              532        682
             Leasehold improvements                      778        774
             Vehicles                                      6          6
                                                    --------   --------

                                                       3,114      3,278
                                                    --------   --------
          Accumulated depreciation:
             Computers and software                    1,561      1,398
             Office furniture and equipment              351        385
             Leasehold improvements                      598        526
             Vehicles                                      6          4
                                                    --------   --------

                                                       2,516      2,313
                                                    --------   --------

          Depreciated cost                          $    598   $    965
                                                    ========   ========
</Table>

          Depreciation expenses amounted to $ 307, $ 390 and $ 386 for the years
          ended December 31, 2003, 2002 and 2001, respectively.

NOTE 9:-  GOODWILL

          a.   Purchase of additional holdings in BOScom:

               In February 2002, the Company purchased additional 3% of the
               share capital of BOScom in consideration of $ 30. The
               consideration was paid by the issuance of 3,750 Ordinary shares
               of the Company. Consequently, BOScom became a wholly owned
               subsidiary. As a result of the purchase, the Company recorded an
               additional amount $ 30 as goodwill.

               As of December 31, 2002 and 2003 the amortized goodwill amounted
               to $ 741.

          b.   The pro forma results of operations presented below for the years
               ended December 31, 2001, 2002 and 2003, reflect the impact on
               results of operations had the Company adopted the
               non-amortization provisions of SFAS No. 142 effective January 1,
               2001:

<Table>
<Caption>
                                                             YEAR ENDED DECEMBER 31,
                                                         -------------------------------
                                                           2003       2002        2001
                                                         --------   --------   ---------
<S>                                                      <C>        <C>        <C>
               Reported net loss                         $   (396)  $ (7,917)  $ (12,970)
               Goodwill amortization                            -          -         182
                                                         --------   --------   ---------

               Adjusted net loss                         $   (396)  $ (7,917)  $ (12,788)
                                                         ========   ========   =========

               Basic net loss per share:
                  Reported net loss                      $  (0.11)  $  (2.54)  $   (4.18)
                  Goodwill amortization                         -          -        0.06
                                                         --------   --------   ---------

               Adjusted basic and diluted net loss per
                  share                                  $  (0.11)  $  (2.54)  $   (4.12)
                                                         ========   ========   =========
</Table>

                                      F-21
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 10:- ACCRUED EXPENSES AND OTHER LIABILITIES

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              ----------------
                                                               2003      2002
                                                              ------   -------
<S>                                                           <C>      <C>
          Government of Israel                                $  635   $   882
          Provision for warranty                                 132       174
          Other                                                  144       237
                                                              ------   -------

                                                              $  911   $ 1,293
                                                              ======   =======
</Table>

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES

          a.   Commitments:

               1.   Royalty commitments:

                    i)   Under the Company's research and development agreements
                         with the Office of the Chief Scientist ("OCS") and
                         pursuant to applicable laws, the Company is required to
                         pay royalties at the rate of 3.5% of sales of products
                         developed with funds provided by the OCS, up to an
                         amount equal to 100% of the research and development
                         grants (dollar-linked) received from the OCS. The
                         obligation to pay these royalties is contingent upon
                         actual sales of the products. Royalties payable with
                         respect to grants received under programs approved by
                         the OCS after January 1, 1999, are subject to interest
                         on the U.S. dollar-linked value of the total grants
                         received at the annual rate of LIBOR applicable to U.S.
                         dollar deposits at the time the grants are received.

                         As of December 31, 2003, the Company has an outstanding
                         contingent obligation to pay royalties in the amount of
                         approximately $ 5,621, in respect of these grants.

                    ii)  The Israeli Government, through the Overseas Marketing
                         Fund, awarded the Company grants for participation in
                         expenses for overseas marketing. The Company is
                         committed to pay royalties to the Fund for
                         Encouragement of Marketing Activities at the rate of 3%
                         of the increase in export sales, up to the amount of
                         the grants received by the Company linked to the dollar
                         and bearing interest of LIBOR (for a period of six
                         months).

                         As of December 31, 2003, the Company had outstanding
                         contingent obligations to pay royalties of $ 144 with
                         respect to these grants.

               2.   Other commitments:

                    The premises occupied by the Company and the Company's motor
                    vehicles are rented under various operating lease
                    agreements. The lease agreements for the premises and the
                    motor vehicles expire on various dates ending in 2005.

                                      F-22
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

                    Minimum future rental payments due under the above leases,
                    at rates in effect at December 31, 2003, are as follows:

<Table>
<Caption>
                    YEAR ENDED DECEMBER 31,
                    -----------------------
<S>                                            <C>
                    2004                       $ 286
                    2005                         185
                                               -----

                                               $ 471
                                               =====
</Table>

                    Rental payments in 2003, 2002 and 2001 amounted to $ 426, $
                    383 and $ 283, respectively.

          b.   In July 2002, the Company received a claim letter from Operate
               Lease Ltd., under which it claims that the Company's termination
               notice of the leasing agreement in March 2002 constitutes a
               breach of the agreement and Operate Lease is demanding
               compensation in which the nominal claim amount of $ 292. No legal
               proceeding has yet been filed. At this stage, according to the
               Company's counsel assessment, the prospects of Operate Lease to
               prevail and recover a significant amount, seem remote. The
               financial statements do not include any provision in that regard.

          c.   In 1998, as part of Pacinfo Share Purchase Agreement between the
               Company and Mr. Jacob Lee (the seller of Pacinfo who became a
               shareholder of the Company), certain actions involving
               PacInfoSystems, if occurring before the end of 2003, may trigger
               a tax event for Mr. Jacob Lee. The Company may be obligated,
               under the purchase agreement, to grant Mr. Lee a loan on a full
               recourse basis for certain tax payments Mr. Lee may be liable
               for, currently estimated at approximately $1,500. The Company
               will receive a security interest in shares of the Company that
               Mr. Lee holds at the time of the loan with a fair market value as
               of the date of the loan of at least 125% of the amount of the
               loan as security for the repayment of the loan. In addition, in
               the event the Company is required to loan such sum to Mr. Lee,
               the Company may also be required to reimburse Mr. Lee for certain
               interest on taxes that he may owe. It is possible that the windup
               of PacInfoSystems during 2002 and 2003 may have triggered such a
               tax event for Mr. Lee, which would result in an obligation by the
               Company to loan Mr. Lee such amount and to reimburse him for
               interest expenses incidental to the tax event.

NOTE 12:- SHAREHOLDERS' EQUITY

          a.   In February 2003, the Board of Directors resolved to effect a
               one-to-four reverse split. The reverse split was approved by the
               shareholders in May 2003 and became effective on May 29, 2003.
               Upon effecting the reverse split; 4 Ordinary shares of NIS 1 par
               value each, have been converted and reclassified as one Ordinary
               share of NIS 4 par value.

               All shares, options and earnings per share amounts have been
               retroactively adjusted for all periods presented to reflect the
               stock splits.

          b.   In December 2003, the Company completed a private placement for
               the Company's Ordinary Shares with two European private
               investors. The Company issued to the investors 357,143 shares at
               a purchase price of $ 2.80, for consideration of $ 928 thousand
               (net of $ 72 issuance expenses).

                                      F-23
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 12:- SHAREHOLDERS' EQUITY (CONT.)

          c.   Stock options plan:

               During 1994, 1995, 1999, 2000, 2001 the Board of Directors of the
               Company adopted stock option plans ("the Plans") pursuant to
               which 656,250 options for the purchase of the Company's Ordinary
               shares may be granted to officers, directors, consultants and
               employees of the Company. The Board of Directors has resolved
               that no further grants shall be made from the existing plans
               which, as of December 31, 2003, had in the aggregate 337,902
               options left for issuance from the existing option pools
               previously approved by the shareholders. In May 2003 the
               Company's shareholders approved the adoption of the 2003 Stock
               Option Plan, pursuant to which 625,000 Ordinary Shares are
               reserved for purchase by employees, directors, consultants and
               service providers of the Company. As of December 31, 2003, an
               aggregate to 414,424 of these options are still available for
               future grant.

               Each option granted under the plans expires between 5-10 years
               from the date of the grant. The options vest gradually over a
               period ranging between two to three years. Any options, which are
               cancelled or forfeited before expiration, become available for
               future grants.

               The following is a summary of the Company's stock options granted
               to officers, directors, and employees among the various plans:

<Table>
<Caption>
                                                                  YEAR ENDED DECEMBER 31,
                                           ---------------------------------------------------------------------
                                                   2003                    2002                    2001
                                           ---------------------   ---------------------   ---------------------
                                                        WEIGHTED                WEIGHTED                WEIGHTED
                                                         AVERAGE                 AVERAGE                 AVERAGE
                                             NUMBER     EXERCISE     NUMBER     EXERCISE     NUMBER     EXERCISE
                                           OF OPTIONS     PRICE    OF OPTIONS     PRICE    OF OPTIONS     PRICE
                                           ----------   --------   ----------   --------   ----------   --------
<S>                                          <C>          <C>        <C>          <C>        <C>          <C>
               Options outstanding at
                  beginning of year          211,929      16.00      243,380      16.48      224,740      21.16
               Changes during the
                  year:
                  Granted                    278,076       8.97       55,000       6.76       98,048       8.20
                  Forfeited or cancelled     (63,753)     12.53      (86,451)     11.40      (79,408)     19.48
                                           ----------              ----------              ----------

               Options outstanding at
                  end of year                426,252      11.93      211,929      16.00      243,380      16.48
                                           ==========   ========   ==========   ========   ==========   ========

               Options exercisable at
                  the end of the year        194,926      20.36      169,054      16.24      127,293      18.32
                                           ==========   ========   ==========   ========   ==========   ========
</Table>

               The options outstanding as of December 31, 2003, have been
               separated into ranges of exercise price as follows:

<Table>
<Caption>
                                                                                           WEIGHTED
                                    OPTIONS                   WEIGHTED       OPTIONS       AVERAGE
                                  OUTSTANDING    WEIGHTED     AVERAGE      EXERCISABLE     EXERCISE
                   RANGE OF          AS OF       AVERAGE     REMAINING        AS OF        PRICE OF
                   EXERCISE       DECEMBER 31,   EXERCISE   CONTRACTUAL    DECEMBER 31,     OPTIONS
                    PRICE            2003         PRICE     LIFE (YEARS)       2003       EXERCISABLE
               ---------------    ------------   --------   ------------   ------------   -----------
<S>                                 <C>            <C>          <C>          <C>             <C>
                  1.84-2.00         203,076         1.95        8.07               -             -
                    6.80             39,168         6.80        7.78          35,918           6.8
                    10.60             3,695        10.60        3.76           3,695         10.60
                    14.00            14,000        14.00        3.27          14,000         14.00
                 17.00-18.00         45,988        17.83        5.27          45,988         17.83
                    28.00           120,325        28.00        3.84          95,325         28.00
                                  ------------                             ------------

                                    426,252        11.93        6.13         194,926         20.36
                                  ============              ============   ============   ===========
</Table>

                                      F-24
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 12:- SHAREHOLDERS' EQUITY (CONT.)

               Options granted to employees in 2003, 2002 and 2001, have an
               exercise price equal to the fair market value of Ordinary share
               at the grant date. The weighted average fair values of the
               options granted during 2003, 2002 and 2001 were $ 3.91, $ 3.2 and
               $ 4.27, respectively.

          h.   Options issued to service providers:

               The Company accounts for these options in accordance with the
               provisions of SFAS 123 and EITF 96-18. The fair value for these
               options was estimated at the date of grant using an option
               pricing model with the following assumptions: risk-free interest
               rate of 1.5%, dividend yields of 0% volatility of 0.7, and an
               expected life of 2.5 year.

               The compensation expense that has been recorded in the
               consolidated financial statements regarding these warrants for
               the years 2003, 2002 and 2001 were $ 23, $ 7 and $ 4,
               respectively.

               The Company's outstanding warrants to service providers as of
               December 31, 2003 are as follows:

<Table>
<Caption>
                                  WARRANTS FOR
                                    ORDINARY     EXERCISE PRICE      WARRANTS     EXERCISABLE
                ISSUANCE DATE        SHARES         PER SHARE      EXERCISABLE      THROUGH
               ----------------   ------------   ---------------   -----------   -------------
<S>                                  <C>             <C>             <C>         <C>
               October 2002          75,000          $  4.00         31,250        June 2011
               December 2002            938          $  8.00            938      December 2005
               December 2002            937          $  4.00            937      December 2005
               March 2003             1,025          $  8.00          1,025      December 2005
               March 2003             1,026          $  4.00          1,026      December 2005
                                  ------------                     -----------

                                     78,926                          35,176
                                  ============                     ===========
</Table>

NOTE 13:- TAXES ON INCOME

          a.   Tax benefits under the Law for the Encouragement of Capital
               Investments, 1959:

               The Company's production facilities have been granted an
               "Approved Enterprise" status under the above Law under four
               separate investment programs. According to the Capital
               Investments Law, the Company has elected to receive for the first
               program state-guaranteed loans and grants, for the second and
               third programs, the Company has elected to receive only
               state-guaranteed loans. As for the fourth program, the Company
               has elected the "alternative benefits" and has waived Government
               grants in return for a tax exemption.

               The Company is also a "Foreign Investors' Company", as defined by
               the abovementioned law, and as such, is entitled to a 10-year
               period of benefits and to an additional reduction in tax rates,
               up to 10% or 25% (based on the percentage of foreign ownership in
               each taxable year).

               Income from the second, third, fourth programs, which commenced
               operations in 1992, 1994, 1997, respectively, are exempt from
               income tax for a period of ten years commencing with the first
               year in which they generate taxable income. During 2002, as part
               of the transfer of operations from the Company to BOScom, all tax
               benefits that were related to the Approved Enterprise of the
               Company, were transferred to BOScom. In addition, since 2002, the
               Company's investment are not subject to Approved Enterprise
               program. Accordingly, taxable income generated in that period
               will be split by the assets ratio into a taxable income that is
               entitled to the benefits of the approved enterprise and into an
               income that will be taxed at the 36% corporate tax rate.

                                      F-25
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 13:- TAXES ON INCOME (CONT.)

               BOScom has also a production facility, which was granted an
               "Approved Enterprise" status and had a separate investment
               program. BOScom elected to receive the "alternative benefits".
               Income derived from BOScom investment program, which commenced
               operations in 1997 and 2002, are exempt from income tax for a
               period of ten years commencing with the first year in which
               taxable income is generated.

               The period of tax benefits detailed above is subject to limits of
               the earlier of 12 years from commencement of production, or 14
               years from receiving the approval. Accordingly, the period of
               benefits relating to all investment programs expire in the years
               2001 through 2014.

               The entitlement to the above benefits is conditional upon the
               Company's and BOScom's fulfilling the conditions stipulated by
               the above law, regulations published thereunder and the
               instruments of approval for the specific investments in "Approved
               Enterprises". In the event of failure to comply with these
               conditions, the benefits may be canceled and the Company and
               BOScom may be required to refund the amount of the benefits, in
               whole or in part, including interest.

               The tax-exempt income attributable to the "Approved Enterprise"
               can be distributed to shareholders without imposing tax liability
               on the Company only upon the complete liquidation of the Company.
               In the event of a distribution of such tax-exempt income as a
               cash dividend in a manner other than in the complete liquidation
               of the Company and BOScom, the Company and BOScom will be
               required to pay tax at the rate of 10% to 25% on the amount
               distributed. In addition, these dividends will be subject to 15%
               withholding tax.

               The Company's Board of Directors has determined that such
               tax-exempt income will not be distributed as dividends.
               Accordingly, no deferred taxes have been provided on income
               attributable to the Company "Approved Enterprise".

               If the Company and BOScom derive income from sources other than
               an "Approved Enterprise", such income will be taxable at the
               regular corporate tax rate of 36%.

          b.   Loss carryforwards:

               Domestic:

               The Company and its Israeli subsidiary have accumulated losses
               for Israel income tax purposes as of December 31, 2003, in the
               amount of approximately $ 14,000. These losses may be
               carryforward (linked to the Israeli Consumer Price Index ("CPI"))
               and offset against taxable income in the future for an indefinite
               period.

               Foreign:

               As of December 31, 2003, the U.S. subsidiaries which were
               classified as discontinuing operations had U.S. Federal and State
               net operating loss carryforward of approximately $ 11,300, that
               can be carried forward and offset against taxable income and
               expire through 2021. Utilization of U.S. net operating losses may
               be subject to substantial annual limitations due to the "change
               in ownership" provisions of the Internal Revenue Code of 1986 and
               similar state law provisions. The annual limitations may result
               in the expiration of net operating losses before utilization.

               As of December 31, 2003, B.O.S. U.K. had net operating loss
               carryforward of approximately $ 3,900, which can be carried
               forward indefinitely and offset against taxable income.

                                      F-26
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 13:- TAXES ON INCOME (CONT.)

          c.   Taxable income under the Inflationary Income Tax (Inflationary
               Adjustments) Law 1985:

               Results of the Company and its Israeli subsidiary for tax
               purposes are measured and reflected in real terms in accordance
               with the changes in the Israeli CPI. As explained in Note 2b, the
               financial statements are presented in U.S. dollars. The
               difference between the change in the Israeli CPI and in the
               NIS/U.S. dollar exchange rate causes a difference between taxable
               income or loss and the income or loss before taxes reflected in
               the financial statements. In accordance with FASB 109, the
               Company has not provided deferred income taxes on this difference
               between the reporting currency and the tax bases of assets and
               liabilities.

          d.   Deferred income taxes:

               Deferred income taxes reflect the net tax effects of temporary
               differences between the carrying amounts of assets and
               liabilities for financial reporting purposes and the amounts used
               for income tax purposes. Significant components of the Company's
               deferred tax assets are as follows:

<Table>
<Caption>
                                                                       DECEMBER 31,
                                                                   -------------------
                                                                     2003       2002
                                                                   --------   --------
<S>                                                                <C>        <C>
               Net operating loss carryforward                     $  5,975   $  4,013
               Reserves and allowances                                  105        598
                                                                   --------   --------

               Net deferred tax asset before valuation allowance      6,080      4,611
               Valuation allowance                                   (6,080)    (4,611)
                                                                   --------   --------

               Net deferred tax asset                              $      -   $      -
                                                                   ========   ========
</Table>

               The Company has provided valuation allowances in respect of
               deferred tax assets resulting from tax loss carryforwards and
               other reserves and allowances due to its history of operating
               losses and current uncertainty concerning its ability to realize
               these deferred tax assets in the future.

          e.   Tax assessments:

               The Company and BOScom received final assessments through the
               1997 tax year.

NOTE 14:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF OPERATIONS

          a.   Non recurring royalty reversal:

               Certain research and development activities of the Company are
               supported by the OCS. In return for the OCS's participation, the
               Company was committed to pay royalties as described in Note
               11a.1. During the third quarter of 2003, the OCS completed its
               examination of the Company's technology and use of grant funding
               for the years 1991 through 1999, which reduced the royalties'
               expenses provision. Accordingly, the Company reversed $339 of
               accrued royalties as a reduction in cost of sales during the
               third quarter of 2003.

                                      F-27
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 14:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF OPERATIONS (CONT.)

<Table>
<Caption>
                                                                   YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                2003        2002         2001
                                                              --------    --------    ---------
<S>                                                           <C>         <C>         <C>
          b.   Financial income:

               Interest on bank deposits and marketable
                  securities                                  $    158    $    243    $     504
               Other (mainly translation gains)                     48         140          330
                                                              --------    --------    ---------
                                                                   206         383          834
                                                              --------    --------    ---------
               Financial expenses:
               In respect of long-term loans                         -         (14)         (46)
               Other (mainly translation losses)                   (97)        (74)        (361)
                                                              --------    --------    ---------
                                                                   (97)        (88)        (407)
                                                              --------    --------    ---------
                                                              $    109    $    295    $     427
                                                              ========    ========    =========
          c.   Other expenses:

               Capital loss from sale of property and
                  equipment                                   $     (6)   $      -    $     (32)
               Impairment of property and equipment                  -         (95)           -
               Impairment of investment in a company              (840)          -            -
               Prior year's royalties to the Israeli Chief
                  Scientist                                          -           -         (100)
               Legal settlement                                      -           -         (111)
               Other                                                51           -          (55)
                                                              --------    --------    ---------
                                                              $   (795)   $    (95)   $    (298)
                                                              ========    ========    =========
          d.   Loss per share:

               1. Numerator:
                  Numerator for basic and diluted net
                     earnings (loss) per share -
                  Net loss from continuing operations         $ (2,432)   $   (243)   $  (4,657)
                                                              ========    ========    =========

                  Net income (loss) from discontinued
                     operation                                $  2,036    $ (7,674)   $  (8,313)
                                                              ========    ========    =========

                  Net loss available to Ordinary
                     shareholders                             $   (396)   $ (7,917)   $ (12,970)
                                                              ========    ========    =========

               2. Denominator (in thousands):
                  Denominator for basic and diluted net
                     earnings (loss) per share -

                  Weighted average number of shares              3,683       3,117        3,102
                                                              ========    ========    =========
</Table>

                                      F-28
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 15:- RELATED PARTIES

          The Company has entered an engagement with an Investment House, to
          provide non-exclusive investment-banking services and business
          development services to the Company, effective April 15, 2003. The
          Investment House is a company indirectly controlled by the Chairman of
          our Board of Directors, and is a co-manager of the Catalyst Fund, the
          Company's largest shareholder. For its services, The Investment House
          is paid a monthly sum of $10, in addition to a success fee of 4-6% for
          a consummated private placement. According to its terms the Company
          may terminate the agreement at any time, by giving one month prior
          written notice.

NOTE 16:- SEGMENTS AND GEOGRAPHICAL INFORMATION

          a.   Subsequent to the liquidation of Pacinfo operation, the Computer
               Networking Segment, the Company manages its business on a basis
               of one reportable segment, which consists of three product lines.
               See Note 1 for a description of the Company's business. Total
               revenues are attributed to geographic areas based on the location
               of customers in accordance with Statement of Financial Accounting
               No. 131, "Disclosures about Segments of an Enterprise and Related
               Information": ("SFAS 131").

               The following presents total revenues and long-lived assets for
               the years ended December 31, 2003, 2002 and 2001:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                               ---------------------------------------------------------------------------
                                         2003                     2002                      2001
                               -----------------------   -----------------------   -----------------------
                                 TOTAL    * LONG-LIVED     TOTAL    * LONG-LIVED     TOTAL    * LONG-LIVED
                               REVENUES      ASSETS      REVENUES      ASSETS      REVENUES      ASSETS
                               --------   ------------   --------   ------------   --------   ------------
<S>                            <C>          <C>          <C>          <C>          <C>          <C>
               United States   $  2,974     $      5     $  4,989     $     10     $  3,184     $    134
               Europe             1,198            -        2,148          154        1,491          184
               Israel             1,556        1,334        2,294        1,542        1,255        1,689
               Other                               -           10            -          112            -
                               --------     --------     --------     --------     --------     --------

                               $  5,728     $  1,339     $  9,441     $  1,706     $  6,042     $  2,007
                               ========     ========     ========     ========     ========     ========
</Table>

               *)   Long-lived assets comprise goodwill and property and
                    equipment.

          b.   Product lines:

               Total revenues from external customers divided on the basis of
               the Company's product lines are as follows:

<Table>
<Caption>
                                                         YEAR ENDED DECEMBER 31,
                                                      ------------------------------
                                                        2003       2002       2001
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
               Connectivity                           $  4,670   $  7,156   $  5,028
               Software Utilities                          492      1,387        428
               Voice over IP                               566        898        586
                                                      --------   --------   --------

                                                      $  5,728   $  9,441   $  6,042
                                                      ========   ========   ========

          c.   Major customers data as a percentage
               of total revenues:

               Customer A                                   52%         -          -
                                                      ========   ========   ========
               Customer B                                    2%        13%         -
                                                      ========   ========   ========
</Table>

                                      F-29
<Page>

                                             B.O.S. BETTER ONLINE SOLUTIONS LTD.
                                                            AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE

NOTE 17:- SUBSEQUENT EVENT (UNAUDITED)

          On June 10, 2004 the Company has entered into a Securities Purchase
          Agreement (the "Purchase Agreement"), with Laurus Master Fund Ltd.
          (the "Investor"), under which the Company issued to the Investor in a
          private placement (i) a Secured Convertible Term Note of a $2,000
          principal amount, due June 10, 2007 (the "Note"). The Note is
          convertible into Ordinary Shares at a price of $3.08 per share
          (subject to adjustment). The principal amount of the Note is repayable
          in monthly installments, commencing as of October 1, 2004, in the
          initial amount of $20 eventually increasing to $74, and may be paid in
          cash or, subject to certain conditions, in Ordinary Shares. Interest
          on the Note is payable monthly and may be paid in cash or, subject to
          certain conditions, in Ordinary Shares. The Note is secured by a
          security interest in certain assets of the Company, and (ii) a warrant
          to purchase 130,000 Ordinary Shares at an exercise price of $4.04 per
          share (the "Warrant"). The Warrant is exercisable, in whole or in
          part, until June 10, 2011. The Note bears interest at a fluctuating
          interest rate equal at all times to the prime rate plus 3%, subject to
          reduction if the average closing price of the Company's Ordinary
          Shares exceeds certain benchmarks.

                                   ----------

                                      F-30

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>2
<FILENAME>exhibit_4-2.txt
<TEXT>
                                                                     EXHIBIT 4.2


                            SHARE PURCHASE AGREEMENT


     THIS SHARE PURCHASE AGREEMENT (this "AGREEMENT") is made as of February 23,
2003 (the "EFFECTIVE Date"), by and between B.O.S. Better Online Solutions Ltd.,
a company organized under the laws of Israel ("BOS"), and Catalyst Investments,
L.P., a limited partnership registered under the laws of Israel ("Catalyst").
BOS and Catalyst shall be referred to herein collectively as the "PARTIES".



                                    RECITALS

     WHEREAS, BOS is a holder of (i) 465,000 Ordinary Shares of Surf
Communication Solutions Ltd., a company organized under the laws of Israel
("SURF"), and (ii) 222,883 Preferred C Shares of Surf; and

     WHEREAS, Catalyst is a holder of (i) 316,484 Preferred C Shares of Surf
(the "SURF PREFERRED C Shares", and (ii) a warrant to purchase 79,121 Preferred
C Shares of Surf (the "WARRANTS");

     WHEREAS, the Board of Directors of BOS believes it in the best interests of
BOS to purchase (i) 191,548 Preferred C Shares of Surf (the "SURF SHARES"), (ii)
an option to purchase on or prior to January 31, 2006 any shares of Surf then
held by Catalyst, which are owned by it on the date hereof or issued with
respect thereto, and the right to receive any proceeds in excess of the option
exercise price pursuant to a disposition of such shares prior to the option
exercise date, all subject to the terms and conditions of the Option Agreement
(as defined below), and (iii) the Surf Warrants (as defined below) which will be
transferred to BOS under this Agreement and under the Option Agreement pro rata
to the number of the Surf Preferred C Shares to be transferred to BOS hereunder
and thereunder in exchange for 2,529,100 Ordinary Shares of BOS (the "BOS
SHARES"), and

     WHEREAS, the Board of Directors of Catalyst believes it in the best
interests of Catalyst to purchase 2,529,100 Ordinary Shares of BOS in exchange
for 191,548 Preferred C Shares of Surf held by Catalyst; and

     WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and inducement to enter into this Agreement, Catalyst shall
grant BOS (i) Warrants to purchase 47,887 Surf Shares (the "SURF WARRANTS",
together with the Surf Shares, the "SURF SECURITIES"), (ii) an option to
purchase additional Surf Preferred C Shares held by Catalyst under the terms and
conditions set forth herein and under the Option Agreement (as defined below);
and

     WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and inducement to enter into this Agreement, BOS shall grant
Catalyst registration rights with respect to the BOS Shares under the terms and
conditions set forth herein and under the BOS Registration Rights Agreement (as
defined below); and

<PAGE>


     WHEREAS, the Parties wish to define the respective rights and obligations
of the Parties in connection with the exchange of the transactions contemplated
hereby.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the Parties hereby agree as follows:

                                   ARTICLE 1

                                  THE EXCHANGE

1.01 TRANSACTIONS AT CLOSING

     Subject to the terms and conditions of this Agreement, at the Closing (as
defined below), the following transactions shall occur, which transactions shall
be deemed to take place simultaneously and no transaction shall be deemed to
have been completed or any document delivered until all such transactions have
been completed and all required documents delivered:

     (1) PURCHASE AND SALE OF BOS SHARES Catalyst shall purchase, and BOS shall
sell and issue to Catalyst the BOS Shares, representing 19.90% of the issued and
outstanding share capital of BOS immediately prior to the Closing and prior to
the issuance of the BOS Shares, at a purchase price of $0.694 per share, which
equals to the average of the closing prices of the BOS Shares on NASDAQ in the
last thirty days immediately prior to November 27, 2002, the date of the term
sheet entered into by the Parties, and which equals to a purchase price of
$1,755,195 (the "BOS SHARES PURCHASE PRICE"), PROVIDED, HOWEVER, that BOS shall
set-off the BOS Shares Purchase Price due by Catalyst to BOS under this
Subsection 1.01(1) against payment of the Surf Shares Purchase Price due to
Catalyst from BOS under Subsection 1.01(2). The BOS Shares shall have the
rights, preferences, privileges and restrictions set forth in the Articles of
Association of BOS (the "BOS ARTICLES OF ASSOCIATION").

     (2) PURCHASE AND SALE OF SURF SHARES BOS shall purchase, and Catalyst shall
sell and transfer to BOS the Surf Shares, representing, immediately prior to the
Closing, (i) 5.24% of the issued and outstanding Preferred C Shares of Surf, and
(ii) 3.48% of the share capital of Surf on an as converted basis, assuming
conversion of all Preferred Shares of Surf into Ordinary Shares of Surf at a
ratio of 1 to 1, at a purchase price of $9.1632 per share, which is the original
purchase price paid by Catalyst to Surf on November 14, 2001 and on November 17,
2002 for the Surf Shares, and which equals to $1,755,195 (the "SURF SHARES
PURCHASE PRICE", and together with the BOS Shares Purchase Price, the "PURCHASE
PRICE"). Catalyst shall assign to BOS all rights attached to the Surf Shares,
and all rights held by Catalyst immediately prior to the date hereof by virtue
of its holdings of the Surf Shares, in each case, under the Shareholders Rights
Agreement dated as of November 14, 2001 among Surf, the New Shareholders and the
Existing Shareholders (as such terms are defined therein) (the "SURF
SHAREHOLDERS AGREEMENT") and under the Registration Rights Agreement dated as of
November 14, 2001 among Surf, the Preferred C Holders, the Preferred A+B Holders
and the Ordinary Holders (as such terms are defined therein) (the "SURF
REGISTRATION RIGHTS AGREEMENT"). Catalyst shall set-off the BOS Shares Purchase
Price due by it to BOS under Subsection 1.01(1) against payment of the Surf
Shares Purchase Price due to it from BOS under this Subsection 1.01(2). Catalyst
covenants to BOS that immediately after the Closing (i) the Surf Shares shall
have the rights, preferences, privileges and restrictions set forth in the
Articles of Association of Surf (the "SURF ARTICLES OF ASSOCIATION"), the Surf
Shareholders Agreement and the Surf Registration Rights Agreement, and (ii) BOS
shall have, by virtue of its holdings of the Surf Shares, the rights,
preferences, privileges and restrictions under the Surf Shareholders Agreement,
and under the Surf Registration Rights Agreement.

<PAGE>


     (3) SET-OFF For the avoidance of doubt, the Parties' intention is that the
Surf Shares Purchase Price shall be fully set-off against the BOS Shares
Purchase Price, and that the respective Purchase Prices will be paid by both
Parties in equity and not in cash, PROVIDED, HOWEVER, that in the event that any
third party exercises its right of first refusal with respect to the Surf
Shares, then (i) the number of Surf Shares which BOS shall purchase hereunder
shall be reduced by the number of shares purchased by such third party pursuant
to exercise of its right of first refusal, and (ii) Catalyst shall purchase the
BOS Shares in exchange for (a) the Surf Shares which were not purchased by such
third parties pursuant to exercise of right of first refusal, and (b) cash
payment equals to the Surf Shares sold to such third parties pursuant to
exercise of such right of first refusal times the Surf Shares Purchase Price.

     (4) OPTION In order to induce BOS to enter into this Agreement, subject to
the terms and conditions of this Agreement, at the Closing, Catalyst shall grant
BOS, for no additional consideration, an option to purchase on or prior to
January 31, 2006, any shares of Surf then held by Catalyst subject to the terms
and conditions of the Option Agreement in the form attached hereto as EXHIBIT A
(the "OPTION AGREEMENT"), including without limitation, the right of BOS to
receive for no additional consideration any after-tax proceeds to Catalyst in
excess of the exercise price of the option derived from any disposition by
Catalyst of Preferred C Shares held by it prior to the option exercise date or
within eighteen months thereafter, all in accordance with the terms and
conditions of the Option Agreement.

     (5) SURF WARRANTS In order to induce BOS to enter into this Agreement,
subject to the terms and conditions of this Agreement, at the Closing, Catalyst
shall transfer to BOS, for no additional consideration, the Surf Warrants

     (6) SURF COMMITTEES Catalyst hereby undertakes and covenants to BOS that,
in the event that BOS wishes to appoint a representative of BOS as a member of
the Board committees of Surf, then Catalyst shall support such appointment, and
shall use its best efforts to perform such further acts and execute such further
documents as may required to effect such appointment.

     (7) BOS REGISTRATION RIGHTS In order to induce Catalyst to enter into this
Agreement, subject to the terms and conditions of this Agreement, BOS shall
grant Catalyst, by virtue of its holdings of the BOS Shares, certain
registration rights, which shall be subject to the terms and conditions of the
Registration Rights Agreement in the form attached hereto as EXHIBIT B (the "BOS
REGISTRATION RIGHTS AGREEMENT").

<PAGE>


1.02 CLOSING

     The closing of the transactions contemplated hereby (the "CLOSING"), shall
take place at the offices of Catalyst not later than April 6, 2003 (the "CLOSING
DATE"). The Closing shall be effective as of, and the consummation of the
transactions contemplated hereby shall be deemed to occur at, the close of
business on the Closing Date.

                                   ARTICLE 2

                                   TERMINATION

2.01 TERMINATION PRIOR TO CLOSING

     The transactions contemplated herein may be terminated at any time but not
later than the Closing Date:

     (1) by mutual consent of all of the Parties; or

     (2) by and at the option of (i) BOS, if prior to April 6, 2003, the closing
conditions set out in Articles 6 hereunder have not been fulfilled, and (ii)
Catalyst, if prior to April 6, 2003, the closing conditions set out in Articles
7 hereunder have not been fulfilled, and, in each case, as a result the Closing
shall not have occurred on or before the Closing Date; or

     (3) by and at the option of any Party, if any order, decree, ruling, or
charge of any court, forbidding any of the Parties to approve and/or adopt,
and/or enter into, this Agreement or the Ancillary Agreements, or otherwise
forbidding and/or preventing the consummation of any of the transactions
contemplated by this Agreement and the Ancillary Agreements, will be in force
and effect on the Closing Date.

2.02 PROCEDURE UPON TERMINATION PRIOR TO CLOSING

     In the event of termination by any of the Parties or both Parties, pursuant
to Section 2.01 hereof, written notice thereof shall forthwith be given to the
other Party and the transactions contemplated by this Agreement shall be
terminated, without further action by the Parties hereto. If the transactions
contemplated by this Agreement are terminated as provided herein, no Party and
none of its directors, officers, stockholders, affiliates, controlling persons,
agents or advisors (including, without limitation, attorneys, accountants,
consultants, financial advisors and any representatives of your agents and
advisors) shall have any liability or further obligation to any other Party to
this Agreement, and each Party shall bear its own fees and expenses incurred in
preparation and negotiation of this Agreement and the Ancillary Agreements,
(including without limitation legal and accounting).

<PAGE>


                                   ARTICLE 3

                   REPRESENTATIONS AND WARRANTIES OF CATALYST

     Catalyst represents and warrants to BOS that the statements contained in
this Section 2 are true, correct and complete in all material respects as of the
date of this Agreement and acknowledges that BOS is relying on such
representations and warranties in entering into this Agreement:

3.01 CORPORATE ORGANIZATION AND STANDING

     Catalyst is a limited partnership duly organized, validly existing under
the laws of Israel and has all corporate power and authority to conduct its
business and to own and use its property, except where the failure to be so
qualified would not have a material adverse effect on the business, operations,
results of operations or financial condition of Catalyst, or the ability of
Catalyst to consummate the transactions contemplated by this Agreement (for the
purpose of this Article 3, a "CATALYST MATERIAL ADVERSE EFFECT").

3.02 CORPORATE AUTHORIZATION; BINDING AGREEMENT

     Catalyst has all corporate power to enter into this Agreement, the Option
Agreement, the BOS Registration Rights Agreement and all exhibits hereto and
thereto (the "ANCILLARY AGREEMENTS") and to transfer the Surf Warrants. This
Agreement and the Ancillary Agreements have been, or will have been, at the time
of their respective execution and delivery, duly executed and delivered by a
duly authorized officer of Catalyst. Prior to the execution of this Agreement
and the Ancillary Agreements, Catalyst shall have acted to complete all
corporate action on the part of Catalyst necessary for the authorization,
execution and delivery of this Agreement and the Ancillary Agreements, and the
sale and delivery of the Surf Shares. Prior to the execution of this Agreement,
Catalyst shall have completed all actions, and obtained all consents, required
under the Surf Shareholders Agreement and the Surf Registration Rights Agreement
for the transfer and assignment to BOS of any rights (a) granted to Catalyst by
virtue of the Surf Securities, and (b) attached to the Surf Securities pursuant
to the Surf Shareholders Agreement and the Surf Registration Rights Agreement.
This Agreement and the Ancillary Agreements constitute the valid and legally
binding obligation of Catalyst, enforceable in accordance with their terms,
except as (i) such enforceability may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or similar laws relating to or affecting
the rights of creditors generally, and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defences and to the discretion of the court before which any proceeding therefor
may be brought.

3.03 NO CONFLICT

     Neither the execution and delivery of this Agreement and the Ancillary
Agreements, nor the consummation of the transactions or the performance of the
obligations contemplated hereby and thereby will result in any violation or
breach of the constating documents, by-laws, policy, board resolution or
shareholders resolution of Catalyst.

<PAGE>


3.04 NO CONSENT

     To Catalyst's best knowledge, no consent of any governmental body or
(except for rights of first refusal of Surf's shareholders with respect to the
Surf Preferred C Shares and Surf's Board of Directors' approval) third party is
required to be made or obtained by Catalyst in connection with the execution and
delivery of this Agreement and the Ancillary Agreements by Catalyst or the
consummation by Catalyst of the transactions or the performance of the
obligations contemplated hereby and thereby by Catalyst.

3.05 COMPLIANCE WITH LAW

     To Catalyst's knowledge, it has been and is currently conducting its
business in all material respects in accordance with all applicable laws, rules,
regulations, orders, decrees and other requirements of all applicable
governmental bodies, except for failures to so comply which, could not,
individually or in the aggregate, affect Catalyst's ability to consummate the
transactions contemplated hereby.

3.06 SHARE CAPITAL

     To the best of Catalyst's knowledge, the authorized share capital of Surf
consists as of the date hereof of: 15,631,286 Ordinary Shares, par value NIS0.01
per share (the "ORDINARY SHARES"), of which (i) 2,341,666 Ordinary Shares are
issued and outstanding, (ii) 883,208 Ordinary Shares are reserved for issuance
upon the exercise of employee, director and consultant options granted under
Surf's Option Plan, of which 851,904 are issued and outstanding, and 31, 304 are
reserved for future issuance, (i) 340,000 have been designated Preferred A
Shares, all of which are issued and outstanding, (ii) 130,000 have been
designated Preferred A1 Shares, all of which are issued and outstanding, (iii)
169,500 have been designated Preferred B Shares, all of which are issued and
outstanding, (iv) 18,834 have been designated Preferred B1 Shares, all of which
are issued and outstanding, and (v) 3,710,380 have been designated Preferred C
Shares, of which 3,655,094 are issued and outstanding, including 316,484 which
are held by Catalyst, and 55, 286 are reserved for future issuance. To
Catalyst's actual knowledge, except as set forth in the Surf Articles of
Association, the Surf Registration Rights Agreement and the Surf Shareholders
Agreement, except as set forth on the capitalization table of Surf attached
hereto as SCHEDULE 3.06, and except for options issued under Surf's employee
stock option plan, there are no other equity securities, preemptive rights,
rights of first refusal, convertible securities, equity securities having any
rights and privileges in preference to the Surf Shares, exchange rights,
outstanding warrants, options or other rights to subscribe for, purchase or
acquire from Surf and/or Catalyst any equity securities of Surf and there are
not any contracts, agreements, undertakings, promises or binding commitments
providing for the issuance of, sale of, or the granting of rights to acquire,
any equity securities of Surf or under which Surf and/or Catalyst is, or may
become, obligated to issue, sale or otherwise to become outstanding any Surf
securities.

<PAGE>


3.07 SURF SHARES AND SURF WARRANTS

     Catalyst has good and valid title to the Surf Preferred C Shares and the
Warrants. The Surf Preferred C Shares have been duly and validly authorized, and
are issued and outstanding and fully paid and nonassessable. The Surf Shares,
transferred and sold in accordance with this Agreement and the Option Agreement,
will be duly and validly authorized and issued, fully paid, nonassessable, and
free of any right of first refusal (which was waived or will be waived prior to
the Closing), and a copy of such waivers or notices of right of first refusal
with delivery confirmation, which were unanswered (and consequently, the holders
of the right of first refusal are deemed to have waived such right) shall be
delivered to BOS prior to the Closing. The Surf Shares will have the rights,
preferences, privileges and restrictions set forth in the Surf Articles of
Association, and will be free and clear of any liens, claims, encumbrances or
third party rights of any kind (except as specified in the Surf Articles of
Association, the Surf Registration Rights Agreement and in the Surf Shareholders
Agreement) and at the closing will have been duly registered in the name of BOS
in Surf's share register. The Warrants have been duly and validly authorized and
issued, and the Surf Warrants are transferred free of any right of first refusal
and at the closing will be duly registered in the name of BOS in Surf's share
register. The shares issuable upon exercise of the Surf Warrants, if issued on
the Effective Date, would be duly authorized and reserved for issuance by all
necessary corporate action and, when issued in accordance with the terms of the
Surf Articles of Association, would be duly and validly issued, fully paid and
non-assessable, and would have the rights, preferences, privileges and
restrictions set forth in the Surf Articles of Association, and will be free and
clear of any liens, encumbrances, claims, or third party rights of any kind
(except as specified in the Surf Articles of Association, the Surf Registration
Rights Agreement and in the Surf Shareholders Agreement). Catalyst is a
shareholder of Surf and is the record owner of the Surf Preferred C Shares and
the Warrants and all rights thereto, free and clear of all liens, claims,
charges, encumbrances, restrictions, rights, options to purchase, proxies,
voting trust and other voting agreements, understandings, calls or commitments
of any kind. Other than the Surf Shareholders Agreement, Catalyst is not a party
or subject to any agreement or understanding which affects or relates to the
voting of any security of Surf (including, without limitation, Surf Preferred C
Shares and the Warrants). As of the Closing, BOS shall have the same rights as
Catalyst has prior to the Closing, under the Surf Registration Rights Agreement
and the Surf Shareholders Agreement, with respect to the Surf Shares and the
Surf Warrants.

3.08 KNOWLEDGE AND EXPERIENCE

     Catalyst recognizes that its purchase of the BOS Shares involves a high
degree of risk, and has evaluated the merits and risks of the purchase of the
BOS Shares. Catalyst has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in BOS.

3.09 RECEIPT OF INFORMATION

     Without derogating from any representations and warranties made by BOS
hereunder, Catalyst acknowledges that it has conducted a due diligence
examination of BOS and its subsidiaries and has been furnished by BOS with the
documents and information regarding BOS and its subsidiaries which it has
requested, and has had an opportunity to ask questions and receive answers from
the duly authorized officers or other representatives of BOS and its
subsidiaries regarding BOS', and its subsidiaries', business, assets and
financial position and the terms and conditions of the BOS Shares.

<PAGE>


3.10 DISCLOSURE

     Article 3 of this Agreement does not contain any untrue statement of a
material fact in view of the circumstances in which they were made. BOS has the
right to rely fully upon the representations, warranties, covenants and
agreements of Catalyst contained in this Agreement.

3.11 SECURITIES LAWS


     (1) Catalyst is purchasing the BOS Shares for investment purposes, for its
own account and not with a view to, or for sale in connection with, any
distribution thereof in violation of federal or state US securities laws or
Israeli Securities Law, and Catalyst agrees that it will not divide its interest
in the BOS Shares with others, resell, or otherwise distribute the BOS Shares in
violation of federal or state US securities laws or Israeli Securities Law;

     (2) Catalyst is (and will be as of the Closing) an "accredited investor" as
defined in Rule 501 of Regulation D under the Securities Act as presently in
effect; and

     (3) Catalyst's principal place of business or primary residence for purpose
of federal and state securities laws is as listed in its respective signature
block.

3.12 LEGENDS

     It is understood that the certificates evidencing the BOS Shares may bear
one or all of the following legends or similar legends:

     (1) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN
OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE
SAID ACT."

     (2) Any legend required by the securities laws of any state within the U.S.
or other jurisdiction.

     (3) Any legend required pursuant to the BOS Registration Rights Agreement.

                                   ARTICLE 4

                      REPRESENTATIONS AND WARRANTIES OF BOS

     BOS represents and warrants to Catalyst that except as set forth on the BOS
Schedule of Exceptions attached hereto as EXHIBIT C (the "SCHEDULE OF
EXCEPTIONS"), the statements contained in this Article 4 are true, correct and
complete in all material respects as of the date of this Agreement, and
acknowledges that Catalyst is relying on such representations and warranties in
entering into this Agreement:

<PAGE>


4.01 CORPORATE ORGANIZATION AND STANDING

     BOS is a corporation duly organized, validly existing under the laws of
Israel and has all corporate power and authority to conduct its business and to
own and use its property, except where the failure to be so qualified would not
have a material adverse effect on the business, operations, results of
operations or financial condition of BOS, or the ability of BOS to consummate
the transactions contemplated by this Agreement (for the purpose of this Article
3, a "BOS MATERIAL ADVERSE EFFECT"). Boscom Ltd. ("BOSCOM") is a wholly owned
subsidiary of BOS and a corporation duly organized, validly existing under the
laws of Israel and has all corporate power and authority to conduct its business
and to own and use its property, except where the failure to be so qualified
would not have a Material Adverse Effect. Pacific Information Systems Inc.
("PACIFIC") is a wholly owned subsidiary of Lynk USA, Inc., ("LYNK"), which is a
wholly owned subsidiary of BOS, and both Pacific and Lynk are corporations duly
organized, validly existing under the laws of Delaware and has all corporate
power and authority to conduct its business and to own and use its property,
except where the failure to be so qualified would not have a BOS Material
Adverse Effect. BOS's Ordinary Shares are currently listed on the NASDAQ and the
TASE.

4.02 CORPORATE AUTHORIZATION; BINDING AGREEMENT

     BOS has all corporate power to enter into this Agreement and the Ancillary
Agreements. This Agreement and the Ancillary Agreements have been, or will have
been, at the time of their respective execution and delivery, duly executed and
delivered by a duly authorized officer of BOS. Prior to the Closing of this
Agreement and the Ancillary Agreements, BOS shall have acted to complete all
corporate action on the part of BOS, necessary for the authorization, execution
and delivery of this Agreement and the Ancillary Agreements, and the issuance,
sale and delivery of the BOS Shares. This Agreement and the Ancillary Agreements
constitute the valid and legally binding obligation of BOS, enforceable in
accordance with their terms, except as (i) such enforceability may be limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws
relating to or affecting the rights of creditors generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defences and to the discretion of the court before which
any proceeding therefor may be brought.

4.03 NO CONFLICT

     Neither the execution and delivery of this Agreement and the Ancillary
Agreements, nor the consummation of the transactions or the performance of the
obligations contemplated hereby and thereby will result in any violation or
breach of the constating documents, by-laws, policy, board resolution or
shareholders resolution of BOS.

4.04 NO CONSENT

     To BOS's best knowledge, except for reporting obligations and approvals
required under applicable security laws and market regulations, no consent of
any governmental body or third party is required to be made or obtained by BOS
in connection with the execution and delivery of this Agreement and the
Ancillary Agreements by BOS or the consummation by BOS of the transactions or
the performance of the obligations contemplated hereby and thereby by BOS.

<PAGE>


4.05 COMPLIANCE WITH LAW

     To BOS's knowledge, it has been and is currently conducting its business in
all material respects in accordance with all applicable laws, rules,
regulations, orders, decrees and other requirements of all applicable
governmental bodies, except for failures to so comply which, could not,
individually or in the aggregate affect BOS' ability to consummate the
transactions contemplated hereby, except for compliance with continued listing
requirements on the NASDAQ, which has been disclosed to Catalyst by BOS as part
of Catalyst's due diligence investigation. BOS is not aware of any
non-compliance with any disclosure requirements under applicable security laws.

4.06 SHARE CAPITAL

     Except as set forth on the Schedule of Exceptions, the authorized share
capital of BOS will consist immediately prior to the Closing of: 35,000,000
Ordinary Shares, par value NIS 1.00 per share, of which (i) 12,709,056 Ordinary
Shares are issued and outstanding, (ii) 2,244,316 Ordinary Shares are reserved
for issuance upon the exercise of employee, director and consultant options
granted under BOS's Option Plan, of which as of 31.12.02, 1,147,716 were issued
and outstanding, and 1,096,600 were reserved for future issuance. Except as set
forth on the Schedule of Exceptions, there are no other equity securities,
convertible securities, outstanding warrants, options or other rights to
purchase from BOS any equity securities of BOS and there are not any contracts
or binding commitments providing for the issuance of, sale of, or the granting
of rights to acquire, any equity securities of BOS. Israel Gal, CEO of BOS and
Boscom holds options to purchase securities of Boscom under terms approved by
the shareholders at the annual General Meeting shareholders held March 13, 2002.

4.07 ORWER TRANSACTION

On March 13, 2002, the BOS shareholders approved an issuance of 1 million
Ordinary Shares of BOS, at a price of $2 per share, and the grant of an option
to purchase within 1 year an additional 1 million Ordinary Shares of BOS at a
purchase price of $3 per share, to Orwer Ltd., an Israeli company, wholly owned
by Mr. Aviram Wertheim and his spouse ("Orwer"). In May 2002, Mr. Wertheim
announced that Orwer would not be purchasing the shares, and therefore in July
2002 the Company terminated the private placement agreement.

4.08 BOS SHARES

The BOS Shares, when issued and sold in accordance with this Agreement, will be
duly and validly authorized and issued, fully paid, nonassessable, and free of
any right of first refusal, and will have the rights, preferences, privileges
and restrictions set forth in the BOS Articles of Association and in Section
3.12, and will be free and clear of any liens, claims, encumbrances (except as
specified in the BOS Articles of Association), and duly registered in the name
of Catalyst.

<PAGE>


4.09 FINANCIAL INFORMATION.

     (a) The audited consolidated financial statements of BOS as of December 31,
2001, and the related statements, and unaudited financial statements of BOS as
of September 30, 2002, are true, correct and complete and present truly and
fairly the financial position of BOS as of the respective dates thereof, all in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered therein on a basis consistent with those applied
in prior periods, and have been prepared in accordance with the books and
records of BOS as at the applicable dates and for the applicable periods.

     (b) Subject to section 4.15 hereunder, and other than as reported in BOS'
current reports, since September 30, 2002, there has not been any event or
material adverse change in the conditions of BOS as reflected in the Financial
Statements which, individually or collectively with other events or changes
could have a BOS Material Adverse Effect.

4.10 KNOWLEDGE AND EXPERIENCE

     BOS recognizes that its purchase of the Surf Securities involves a high
degree of risk, and has evaluated the merits and risks of the purchase of the
Surf Securities. BOS has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in Surf.

4.11 INVESTMENT INTENT

     BOS represents that its purchase of the Surf Securities is made solely for
its own account, for investment, and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act or the Israel Securities Law. BOS furthermore has no
current commitment or obligation, contingent or otherwise, to anyone to dispose
of the Surf Securities, and has no current plan or intent to dispose of the Surf
Securities.

4.12 BOS' RELATIONSHIP WITH SURF

     Without derogating from any representations and warranties made by Catalyst
hereunder, BOS hereby acknowledges that as of the date hereof, it holds shares
in Surf.

4.13 NASDAQ LISTING

     BOS had a hearing before the Nasdaq Listing Qualification Panel to review
the Nasdaq delisting notice. While there can be no assurance that the Panel will
grant the Company's request for continued listing, the Company is exploring
possible avenues to preserve the Nasdaq listing.

4.14 REGISTRATION RIGHTS

     Except as set out on the Schedule of Exceptions, the Company has not
granted any registration rights with respect to any of its shares.

<PAGE>


4.15 DISCLOSURE

     BOS is in compliance with all current disclosure requirements under (i) the
United States Securities Exchange Act of 1934, and all regulations promulgated
thereunder, and (ii) the Israel Securities Law, 5728-1968, and all regulations
promulgated thereunder, to the extent applicable to BOS. All materials disclosed
by BOS pursuant to the aforementioned securities laws are correct. This Article
4 does not contain any untrue statements of a material fact, in view of the
circumstances in which they were made. Changes in the conditions of BOS,
subsequent to September 30, 2002, have been specifically disclosed to Catalyst
pursuant to this Agreement or as set forth on the Schedule of Exceptions
(Exhibit C hereto). Catalyst has the right to rely fully upon the
representations, warranties, covenants and agreements of BOS contained in this
Agreement. Notwithstanding the foregoing, except as explicitly provided in
Section 4.01 and 4.09(a) hereunder, the information regarding Pacific and BOS'
liabilities with respect to Pacific is given on an 'AS IS' basis, and it is
understood and agreed that no warranties of any kind are given by BOS with
respect to the potential exposure of BOS to liabilities arising from and/or
relating to Pacific.

                                   ARTICLE 5

                            COVENANTS OF THE PARTIES

5.01 THIRD PARTY CONSENTS


5.01.1 CATALYST THIRD PARTY CONSENTS

     Catalyst has taken and delivered, or immediately after the date hereof,
shall take and deliver, all notices and take all actions required to be taken by
it under the Surf Articles of Association, the Surf Shareholders Agreement and
the Surf Registration Rights Agreement for the transfer of the Surf Securities
to BOS, and the transfer and assignment to BOS of all rights attached to the
Surf Securities, and all rights granted to Catalyst as a holder of the Surf
Securities, under the Surf Articles of Association, the Surf Shareholders
Agreement and the Surf Registration Rights Agreement.

5.01.2 BOS THIRD PARTY CONSENTS

     BOS shall take all actions required for the issuance of the BOS Shares to
Catalyst.

5.02 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS

     Both before and after the Closing Date or the termination of this Agreement
for any reason, the Parties will consult with each other before issuing any
press release or news media release or otherwise making any public statements
with respect to this Agreement and/or the Ancillary Agreements and the
transactions contemplated hereby.

<PAGE>


5.03 ACCESS TO INFORMATION AND CONFIDENTIALITY

     (1) During the course of negotiating this Agreement and after the execution
thereof, and until the Closing and thereafter, each of the parties (the
"DISCLOSING PARTY") shall provide and have provided to the other party (the
"RECEIVING PARTY"), its counsel and consultants (collectively, the
"REPRESENTATIVES") access to confidential information of the Disclosing Party.

     (2) Any information disclosed to the Receiving Party or to its
Representative, which has not previously been made available to the general
public by the Disclosing Party, shall be considered confidential (individually
and collectively, the "INFORMATION").

     (3) The Receiving Party acknowledges the confidential character of the
Information and agrees that the Information is the valuable property of the
Disclosing Party. The Receiving Party agrees not to reproduce any of the
Information without the prior written consent of the Disclosing Party, not to
use any Information for any purpose except as permitted by and in the
performance of this Agreement, and not to divulge all or any part of the
Information to any third party.

     (4) In the event that any of the Parties is requested or becomes legally
compelled to disclose the terms of this Agreement or the transactions
contemplated hereby in contravention of Sections 5.02 or 5.03, such Party shall
provide the other Party with prompt written notice of that fact so that the
appropriate Party may seek (with the co-operation and reasonable efforts of the
other Party) a protective order, confidential treatment or other appropriate
remedy. In such event, such Party shall furnish only that portion of the
information, which is legally required and shall exercise reasonable efforts to
obtain reliable assurance that confidential treatment will be accorded such
information to the extent reasonably requested by the other Party.

     (5) All Non-Disclosure Agreements and confidentiality obligations
undertaken by the Parties, if any, will remain in full force and effect
regardless of the execution and consummation or termination of this Agreement.


                                   ARTICLE 6

                             BOS CLOSING CONDITIONS

     The obligations of BOS to effect the transactions contemplated hereby shall
be subject to the satisfaction of BOS, at or before the Closing, of each of the
following conditions any one of which may be waived in writing, in whole or in
part, by BOS:

6.01 REPRESENTATIONS AND WARRANTIES TRUE

     The representations and warranties of Catalyst set forth in this Agreement
shall each be true, complete and accurate as of the date of this Agreement

<PAGE>


6.02 PERFORMANCE

     Catalyst shall have performed and complied with all agreements, obligations
and conditions required by this Agreement to be performed or complied with by it
on or prior to the Closing, including, without limitation, completion of the
sale and transfer of the Surf Shares to BOS, and the assignment of all rights
attached to the Surf Shares, and all rights held by Catalyst immediately prior
to the date hereof by virtue of its holdings of the Surf Shares, in each case,
under the Surf Articles of Association, the Surf Shareholders Agreement and
under the Surf Registration Rights Agreement.

6.03 CONSENTS

     Catalyst shall have duly obtained and secured all permits, approvals,
consents and authorizations necessary or required lawfully to consummate this
Agreement and the Ancillary Agreements, and to sell and transfer the Surf
Shares, the Surf Warrants. Without limiting the generality of the foregoing,
Catalyst shall provide (i) a certified copy of the decision of Surf's Board of
Directors approving the transfer of the Surf Securities to BOS, and (ii) a
certified copy of Surf's register of shareholders, registering BOS as the holder
of the Surf Securities.

     BOS shall have duly obtained the following permits, approvals, consents and
authorizations necessary or required lawfully to consummate this Agreement and
the Ancillary Agreements: (i) approval by NASDAQ of issuance of the BOS Shares,
(ii) approval by TASE of issuance of the BOS Shares, and (iii) issuance of the
BOS Shares certificates by the transfer agent of BOS.

6.04 SHARE CERTIFICATES; WARRANTS

     (A) Catalyst shall have delivered to BOS validly executed (i) share
certificates representing the Surf Shares, issued in the names of BOS, and (ii)
the Surf Warrants issued in the name of BOS; and (B) Surf shall have duly
registered in the share register of Surf the transfer of (a) the Surf Shares,
and (b) the Surf Warrants to BOS.

6.05 OPTION AGREEMENT AND PROXY; REGISTRATION RIGHTS AGREEMENT

     The Option Agreement and the irrevocable proxy attached thereto as Exhibit
B, and the Registration Rights Agreement shall have been executed by Catalyst
and delivered to BOS.

6.06 WAIVER OF RIGHTS; NOTICES.

     Catalyst shall have delivered to BOS a copy of the notices of right of
first refusal with respect to the Surf Securities that Catalyst delivered to
Surf, requesting that Surf deliver same to all holders of such right of first
refusal with respect to the Surf Securities, and a confirmation that all such
notices were delivered to the holders of such right of first refusal and were
unanswered or rejected (and consequently, the holders of the right of first
refusal are deemed to have waived such right).

<PAGE>


6.07 NO ACTION

No order, decree, ruling, or charge of any court, forbidding any of the Parties
to approve and/or adopt, and/or enter into, this Agreement or the Ancillary
Agreements, or otherwise forbidding and/or preventing the consummation of any of
the transactions contemplated by this Agreement and the Ancillary Agreements,
will be in force and effect on the Closing Date.

6.08 CATALYST COMPLIANCE CERTIFICATE

     Catalyst shall have delivered to BOS a duly executed Compliance
Certificate, dated as of the Closing Date, in the form attached hereto as
EXHIBIT D.

6.09 LEGAL OPINION

     Catalyst shall have delivered to BOS a legal opinion in the forms attached
hereto as EXHIBIT E.

6.10 PURCHASE PRICE

     To the extent not fully set-off in accordance with the provisions of
Section 1.01(3) (as a result of exercise of any right of first refusal with
respect to the Surf Shares), Catalyst shall have transferred to BOS the Purchase
Price in United States Dollars by wire transfer to a bank account or such other
form of payment as is mutually agreed by BOS and Catalyst to a bank account
designated in writing by BOS.

                                   ARTICLE 7

                           CATALYST CLOSING CONDITIONS

     The obligations of Catalyst to effect the transactions contemplated hereby
shall be subject to the satisfaction of Catalyst, at or before the Closing, of
each of the following conditions any one of which may be waived in writing, in
whole or in part, by Catalyst:

7.01 REPRESENTATIONS AND WARRANTIES TRUE.

     The representations and warranties of BOS set forth in this Agreement shall
each be true, complete and accurate as of the date of this Agreement.

7.02 PERFORMANCE.

     BOS shall have performed and complied with all agreements, obligations and
conditions required by this Agreement to be performed or complied with by it on
or prior to the Closing, including, without limitation, completed the issuance,
sale and delivery of the BOS Shares to Catalyst.

<PAGE>


7.03 CONSENTS.

     BOS shall have duly obtained and secured all permits, approvals, consents
and authorizations that shall be necessary or required lawfully to consummate
this Agreement and the Ancillary Agreements and to issue and sell the BOS
Shares. Without limiting the generality of the foregoing, BOS shall provide
Catalyst with a copy of the decision of BOS' Board of Directors approving the
issuance of the BOS Shares to Catalyst.

7.04 SHARE CERTIFICATES

     BOS shall have delivered to Catalyst validly executed share certificates
representing the BOS Shares, issued in the names of Catalyst. Surf shall have
delivered to either of BOS or Catalyst validly executed (i) share certificates
representing the Surf Shares, issued in the names of BOS, and (ii) the Surf
Warrants issued in the name of BOS; and Surf shall have duly registered in the
share register of Surf the transfer of (a) the Surf Shares, and (b) the Surf
Warrants to BOS.

7.05 NO ACTION

     No order, decree, ruling, or charge of any court, forbidding any of the
Parties to approve and/or adopt, and/or enter into, this Agreement or the
Ancillary Agreements, or otherwise forbidding and/or preventing the consummation
of any of the transactions contemplated by this Agreement and the Ancillary
Agreements, will be in force and effect on the Closing Date.

7.06 OPTION AGREEMENT AND PROXY; REGISTRATION RIGHTS AGREEMENT

     The Option Agreement and the irrevocable proxy attached thereto as Exhibit
B, and the Registration Rights Agreement shall have been executed by BOS and
delivered to Catalyst.

7.07 BOS COMPLIANCE CERTIFICATE

     BOS shall have delivered to Catalyst a duly executed Compliance
certificate, dated as of the Closing Date, in the form attached hereto as
EXHIBIT F.

7.08 LEGAL OPINION

     BOS shall have delivered to Catalyst a legal opinion in the forms attached
hereto as EXHIBIT G.

<PAGE>


                                   ARTICLE 8


                             LIMITATION ON REMEDIES

8.01 BREACH OF THE OPTION AGREEMENT

     In the event of a breach of the Option Agreement, at any time after the
Closing, BOS may proceed to protect and enforce its rights, whether for the
specific performance of any term contained in the Option Agreement or for an
injunction against the breach of any such term, or to enforce any other legal or
equitable right of BOS, or to claim any monetary remedy with regard to any
direct and indirect damages caused to BOS by such breach, PROVIDED that in the
event of a claim for monetary remedy, the sole remedy of BOS shall be paid by
means of the Option Shares calculated according to the Exercise Price (as such
terms are defined in the Option Agreement), PROVIDED HOWEVER, that only in the
event that such transfer of Surf Shares is impossible for any reason, BOS will
be compensated in cash.

8.02 BREACH OF THIS AGREEMENT

     In the event of a breach of this Agreement, including without limitation,
liabilities, damages, deficiencies, judgments, settlements, costs of
investigation or other expenses (including but not limited to interest,
penalties and reasonable attorneys' fees and disbursements) resulting from or
arising out of any act or omission of either party, or any breach of any
representation or warranty contained in this Agreement and all exhibits attached
hereto, and the Ancillary Agreements, both Parties and/or their successors may
proceed to protect and enforce their rights, provided that in the event of a
claim for monetary remedy, the sole remedy of the plaintiff shall be restitution
of the Surf Shares or the BOS Shares sold hereunder, as the case may be,
calculated according to the Surf Shares Purchase Price and the BOS Shares
Purchase Price, as applicable, provided however, that only in the event that
such restitution is impossible for any reason, the plaintiff will be compensated
in cash, which shall not exceed the Purchase Price, and further provided, that
such claim has been filed within one year of the Effective Date hereunder.

                                    ARTICLE 9

                                  MISCELLANEOUS

9.01 PAYMENT OF EXPENSES

     Except as otherwise provided hereunder, each Party shall pay its own fees
and expenses incurred in preparation, negotiation, execution and delivery of
this Agreement and the Ancillary Agreements, and the performance of its
obligations hereunder and thereunder (including, without limitation, legal,
accounting and travel).

<PAGE>


9.02 NOTICES

     All notices and other communications required or permitted hereunder to be
given to any Party shall be in writing and shall be faxed or mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger, addressed to such party's address as set forth below:

If to B.O.S. Better Online Solutions Ltd., to the addresses set forth in its
signature block, with a copy to:

         Ephraim Abramson & Co., Advocates
         16 B King George Street
         Ninth Floor
         Jerusalem 94229
         Israel
         Facsimile: (02) 623-3694
                    (02) 625-9264

         and:

         Zvi Firon, Adv
         Firon, Karni, Sarov and Firon, Renato Jarach
         111 Arlozorov Street
         Tel Aviv, Israel If to Catalyst Investments, L.P., to the addresses set
forth in its signature block, with a copy to:

         Fischer, Behar, Chen & Co.
         3 Daniel Frisch St.
         Tel Aviv 64731
         Israel
         Facsimile: (03) 609-1116


Or such other address with respect to a Party as such Party shall notify each
other Parties in writing as above provided. Any notice sent in accordance with
this Section 9.02 shall be effective (i) if mailed, seven (7) business days (and
fourteen (14) business days for international mail) after mailing, (ii) if sent
by messenger, upon delivery, (iii) if sent via telecopier, upon transmission and
electronic confirmation of receipt or (if transmitted and received on a
non-business day) on the first business day following transmission and
electronic confirmation of receipt), and (iv) one (1) business day (and three
(3) business days for international mail) after the business day of deposit with
Federal Express or similar overnight courier, freight prepaid, PROVIDED,
HOWEVER, that any notice change of address shall only be valid upon receipt
thereof.

9.03 ASSIGNMENT

     This Agreement may not be assigned in whole or in part by any Party without
the prior written consent of the other Parties.

9.04 AMENDMENT

     This Agreement may be modified, supplemented or amended only by a written
instrument executed by all of the Parties.

<PAGE>


9.05 SURVIVAL

     The provisions of Sections 5.02, 5.03, Article 8 and this Article 9 shall
survive the termination of this Agreement for any reason.

9.06 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE

     The rights and remedies of the Parties shall be cumulative (and not
alternative). Each Party acknowledges and agrees that the other Party may be
damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Each Party agrees that the other Party may be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court having competent jurisdiction, in addition to any
other right or remedy to which they may be entitled, at law or in equity.

9.07 WAIVER

     Any Party may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other Party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
Party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such Party contained herein. Any agreement on the part of a Party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such Party.

9.08 GOVERNING LAW

     This Agreement shall be exclusively governed by and construed according to
the laws of Israel, without regard to the conflict of laws provisions thereof.

9.09 ARBITRATION

     Any controversy or claim arising under, out of, or in connection with this
Agreement, its validity, its interpretation, its execution or any breach or
claimed breach thereof, shall be settled by a single arbitrator, who shall be
Mr. Yossi Shahak, and if Mr. Yossi Shahak is unwilling or unavailable to serve
as an arbitrator, the arbitrator shall be an attorney with experience in complex
corporate transactions to be mutually selected by the Parties' legal counsels
(the "ARBITRATOR"), and if the Parties are unable to reach an agreement on the
identity of the arbitrator with in thirty (30) days, the arbitrator shall be
appointed by court having competent jurisdiction. The arbitration shall take
place in Tel Aviv, Israel, in the Hebrew language. The Arbitrator shall be
exempt from the civil procedure rules and the rules of evidence, but shall be
bound by substantive law and by the duty of citing grounds for his ruling. The
Arbitrator shall be authorized to issue injunctions and interim orders. The
execution of this Agreement by the parties shall be deemed the execution of an
arbitration agreement as required by the Israeli Arbitration Law, 5728-1968.

<PAGE>


9.10 FURTHER ASSURANCES

     Each of the Parties shall perform such further acts and execute such
further documents as may reasonably be necessary to carry out and give full
effect to the provisions of this Agreement and the Ancillary Agreements and the
intentions of the parties as reflected hereby and thereby.

9.11 BINDING EFFECT; BENEFITS

     This Agreement shall inure to the benefit of, and be binding upon, the
Parties and their respective successors and permitted assigns. Nothing contained
in this Agreement, express or implied, is intended to confer upon any person or
entity other than the Parties' respective successors and permitted assigns any
rights or remedies under or by reason of this Agreement.

9.12 SEVERABILITY

     If any provision of this Agreement is held by a court of competent
jurisdiction to be unenforceable under applicable law, then such provision shall
be excluded from this Agreement and the remainder of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms; PROVIDED, HOWEVER, that in such event this Agreement
shall be interpreted so as to give effect, to the greatest extent consistent
with and permitted by applicable law, to the meaning and intention of the
excluded provision as determined by such court of competent jurisdiction.

9.13 COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, and all of which together shall constitute one and
the same instrument.

9.14 ENTIRE AGREEMENT

     This Agreement, together with all schedules and exhibits hereto, constitute
the full and entire understanding and agreement between the Parties with regard
to the subject matters hereof and thereof, and shall replace any previous
agreement between the Parties, whether or not separate or together with other
parties.

9.15 RULES OF CONSTRUCTION

     The Parties agree that they have been represented by counsel during the
negotiation, preparation and execution of this Agreement, and therefore, waive
the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or other document be construed
against the party drafting such agreement or document. Words denoting the
singular include the plural and vice versa and words denoting any gender include
all genders. Any reference to a statute shall mean the statute in force as at
the date hereof, unless otherwise expressly provided. The use of headings is for
convenience of reference only and shall not affect the construction of this
Agreement. When calculating the period of time within which or following which
any act is to be done or step taken, the date which is the reference day in
calculating such period shall be excluded. If the last day of such period is not
a business day, the period shall end on the next business day.

<PAGE>


            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

<PAGE>


     IN WITNESS WHEREOF this Share Purchase Agreement has been executed by duly
authorized officers of each of the Parties as of the date first above written.



         B.O.S. BETTER ONLINE SOLUTIONS LTD.



         By:      ________________________
         Name:
         Title:

         Address:



         CATALYST INVESTMENTS, L.P.



         By:      ________________________
         Name:
         Title:

         Address:

<PAGE>


EXHIBITS
<TABLE>
<CAPTION>

<S>            <C>     <C>
Exhibit A      -       Option Agreement

Exhibit B      -       BOS Registration Rights Agreement

Exhibit C      -       Schedule of Exceptions [omitted]

Exhibit D      -       Catalyst Compliance Certificate [omitted]

Exhibit E      -       Catalyst Legal Opinion [omitted]

Exhibit F      -       BOS Compliance Certificate [omitted]

Exhibit G      -       BOS Legal Opinion [omitted]
</TABLE>



SCHEDULES

Schedule 3.06 -   Surf Capitalization Table [omitted]

<PAGE>

                                OPTION AGREEMENT


     THIS OPTION AGREEMENT (this "AGREEMENT") is made as of March 30, 2003 (the
"EFFECTIVE DATE"), by and between B.O.S. Better Online Solutions Ltd., a company
organized under the laws of Israel ("BOS"), and Catalyst Investments, L.P.
("CATALYST"). BOS and Catalyst shall be referred to herein collectively as the
"PARTIES".



                                    RECITALS

     WHEREAS, Catalyst, prior to consummating the transactions contemplated
hereby and under the Share Purchase Agreement (as defined below), is a holder of
(i) 316,484 Preferred C Shares (the "PREFERRED C Shares") of Surf Communication
Solutions Ltd., a company organized under the laws of Israel ("SURF"), and (ii)
warrants to purchase 79,121 Preferred C Shares of Surf (the "WARRANTS"); and

     WHEREAS, concurrently with the execution and delivery of this Agreement,
BOS and Catalyst are entering into a Share Purchase Agreement (the "SHARE
PURCHASE AGREEMENT"), which provides that, upon the terms and conditions
thereof, Catalyst will sell to BOS certain equity securities of Surf owned by
it; and

     WHEREAS, as a condition to BOS's willingness to enter into the Share
Purchase Agreement, Catalyst agrees to grant BOS (i) a right to receive any
Surplus (as defined below) received by Catalyst as a result of the sale of any
Preferred C Shares of Surf held by it and not sold to BOS under the Share
Purchase Agreement, and (ii) an option to purchase such and or all Preferred C
Shares in the event not sold by Catalyst prior to the Option Expiration Date (as
defined below), in each case, under the terms and conditions set forth herein;
and

     WHEREAS, this Agreement is entered into as, and forms, an integral part of
the Share Purchase Agreement; and

     WHEREAS, the Parties wish to define the respective rights and obligations
of the Parties in connection with the option grant contemplated hereby.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the Parties hereby agree as follows:

<PAGE>


1.   NUMBER OF ORDINARY SHARES AVAILABLE FOR PURCHASE

Catalyst hereby grants BOS an irrevocable option (the "OPTION") to purchase, at
any time and from time to time on or prior to January 31, 2006 (the "OPTION
EXPIRATION DATE") on one or a number of occasions, any or all of the 124,936
Preferred C Shares owned by Catalyst on the Effective Date, or hereafter
acquired by Catalyst pursuant to exercise of the Warrant, to purchase 31,234
Preferred C Shares which are held by Catalyst on the Effective Date (the "OPTION
SHARES"), including all associated rights under (a) the Registration Rights
Agreement, dated as of November 14, 2001 among Surf, the Preferred C Holders,
the Preferred A+B Holders and the Ordinary Holders (as such terms are defined
therein) (the "REGISTRATION RIGHTS AGREEMENT") and (b) the Shareholders
Agreement dated as of November 14, 2001 among Surf, the New Shareholders and the
Existing Shareholders (as such terms are defined therein) (the "SHAREHOLDERS
AGREEMENt"), at an exercise price of US$9.1632 plus interest at a rate of 4.75%
per annum, accrued from the Effective Date until the Option exercise date, per
Preferred C Share, or a higher exercise price at the sole discretion of BOS,
subject to adjustments under Section 6 (the "EXERCISE PRICE"), PROVIDED,
HOWEVER, that in the event that any third party exercises its right of first
refusal with respect to the Option Shares, then the number of Option Shares
which BOS shall purchase pursuant to the exercise of the Option shall be reduced
by the number of shares purchased by such third party pursuant to exercise of
its right of first refusal. BOS hereby acknowledges that any transactions
consummated pursuant to this Agreement are subject to applicable rights of first
refusal of Surf shareholders.

2.   TRANSFER OF PREFERRED C SHARES BY CATALYST

2.1  CATALYST UNDERTAKING.

     (a)  Insofar as Catalyst sells or otherwise disposes (a "DISPOSITION") of
          any Preferred C Shares of Surf owned by Catalyst on the Effective
          Date, or hereafter acquired by Catalyst pursuant to the exercise of
          the Warrants, at any time after the Effective Date, and prior to the
          Option Expiration Date (the "UPSIDE PERIOD") at a price greater than
          the Exercise Price, then Catalyst shall pay BOS such sale price less
          (x) U.S. $9.1632 per share and (y) any applicable tax as stated in
          writing by Catalyst's accountants (the "SURPLUS"). BOS shall have a
          right to appeal to the tax authorities with respect to the tax imposed
          on Catalyst pursuant to such transaction. In the event that Catalyst
          purchases Preferred C Shares of Surf after the Effective Date other
          than pursuant to the exercise of the Warrants (the "NEW SHARES"), and
          subsequently sells Preferred C Shares of Surf, then the number of
          shares to be subject to this Section 2.1 shall be pro-rated between
          the Option Shares and the New Shares, unless otherwise agreed by the
          Parties. For purposes of this section 2.1(a), the above shall also
          apply in the event of a Disposition by Catalyst of any Preferred C
          Shares or Surf Warrants consummated on or prior to July 31, 2007,
          PROVIDED that the negotiations with respect thereto commenced before
          the Option Expiration Date, and such Disposition will be deemed for
          all purposes as a "Disposition" hereunder. .

     (b)  Subject to the terms of this Agreement, Catalyst agrees and covenants
          to BOS that it shall sell the Option Shares within the Upside Period
          to any purchaser designated by BOS (including without limitation, BOS,
          an affiliate of BOS or any third party), PROVIDED that the purchase
          price of the Option Shares pursuant to such sale shall be in excess of
          (x) the Exercise Price plus (y) any applicable taxes paid by Catalyst
          pursuant to such sale.

<PAGE>


3.   EXERCISE OF OPTION.

     The Option may be exercised by delivering to Catalyst at its principal
     office the Notice of Exercise attached hereto as EXHIBIT A duly completed
     and duly executed by BOS. The exercise of Option in connection with the
     following events, may be made conditional upon the completion of such
     events:

     (a) acquisition of Surf by another entity by means of any transaction or
     series of related transactions (including, without limitation, a merger,
     consolidation or reorganization of Surf with or into another corporation),
     or a sale of all, or substantially all of the assets of Surf (including,
     without limitation, intellectual property rights which in the aggregate
     constitute substantially all of Surf's material assets);

     (b) a firmly underwritten public offering pursuant to a registration
     statement filed by Surf under the Securities Act of 1933 or a similar act
     of another jurisdiction; or

     (c) either Catalyst or Surf (1) makes an assignment for the benefit of
     creditors, admits in writing its inability to pay its debts as they become
     due, or files a voluntary petition in bankruptcy, (2) is adjudicated as
     bankrupt or insolvent, (3) files any petition or answer seeking for itself
     any reorganization, arrangement, composition, readjustment, liquidation,
     dissolution or similar relief under any present or future statute, law, or
     regulation, (4) files any answer admitting or not contesting the material
     allegations of a petition filed against Catalyst, as applicable in any such
     proceeding, or (5) seeks, consents to, or acquiesces in, the appointment of
     any trustee, receiver, or liquidator of Catalyst or of all or any
     substantial part of the assets of Catalyst; (6) the commencement of an
     action against Catalyst seeking any reorganization, arrangement,
     composition, readjustment, liquidation, dissolution, or similar relief
     under any present or future statute, law or regulation, such action shall
     not have been dismissed within ninety (90) days.

4.   CLOSING.

     Upon exercise of the Option hereunder, promptly following expiration or
     exercise of the right of first refusal with respect to the Option Shares,
     (the "CLOSING"), (a) Catalyst shall deliver to BOS (i) a duly executed
     share transfer deed; (ii) a share certificate representing the number of
     Option Shares specified in the Exercise Notice held by it; (iii) a pro-rata
     portion of the Warrants held by Catalyst on the date of such exercise; and
     (iv) a copy of any notices of exercise of rights of first refusal or all
     waivers, consents or approvals by third party having rights of first
     refusal with respect to the Option Shares, whereby each such third party
     waives such right of first refusal or confirmation of Surf, stating that
     such rights have been waived or expired; against delivery of (b) payment by
     BOS to Catalyst of the Purchase Price for the Option Shares so transferred
     and being purchased by delivery of a certified check or bank check in
     immediately available funds.

<PAGE>


5.   OPTION CONFERS VOTING RIGHTS.

     As long as the Option is outstanding and unexercised, BOS shall have a
     right to vote all except for one of the Option Shares as a shareholder of
     Surf at its sole and absolute discretion at any meeting of the shareholders
     of Surf and in any written resolution of the shareholders of Surf, and for
     that purpose Catalyst shall grant BOS a proxy to vote all minus one Option
     Shares in the form attached hereto as EXHIBIT B. The Parties agree that
     Catalyst shall retain voting rights with respect to one of the Option
     Shares, and Catalyst hereby agrees and covenants to BOS that it will vote
     such share in the same manner as BOS votes the Option Shares at BOS's sole
     discretion.

     Notwithstanding BOS' rights hereunder, BOS undertakes not to vote the
     Option Shares in such a manner that will cause Catalyst to be subject to a
     financial obligation without Catalyst's prior written consent to assume
     such obligation, unless BOS has agreed in writing to personally assume such
     financial obligation.

6.   ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF OPTION SHARES

     The number and kind of securities purchasable upon the exercise of the
     Option and the Exercise Price shall be subject to adjustment from time to
     time upon the occurrence of the following events:

     In the event of any change in Surf's equity securities by reason of stock
     dividends, stock splits, reverse stock splits, mergers, recapitalizations,
     combinations, exchange of shares and the like, the type and number of
     Option Shares and/or the Exercise Price, as the case may be, shall be
     adjusted appropriately, so BOS shall receive, upon exercise of the Option,
     the number and class of shares or other securities or property that BOS
     would have received in respect of the Option Shares if the Option had been
     exercised immediately prior to such event or the record date therefore, as
     applicable.

7.   EXERCISE OF WARRANTS.

     Catalyst hereby covenants to BOS that during the term of this Agreement it
     shall not exercise the Warrants without the prior written consent of BOS,
     which may be granted or withheld at BOS's discretion. In addition, Catalyst
     hereby agrees and covenants to BOS that it will exercise the Warrants if so
     directed by BOS, at its sole discretion, and such exercise shall be deemed
     exercise of the Option with respect to the shares underlying such Warrant,
     PROVIDED that BOS shall bear the exercise price of the Warrants and any tax
     imposed on Catalyst with respect thereto, if any such tax is imposed, and
     such exercise price shall be deemed the Exercise Price of such shares.

     Notwithstanding the foregoing, if BOS shall have not exercised the Option
     in full on or prior to the date which is 45 days prior to the Warrant's
     termination date, (November 14, 2005) (hereinafter: the "WARRANT
     TERMINATION DATE"), Catalyst shall have a right to notify BOS of its wish
     to exercise the Warrant. BOS shall then notify Catalyst in writing no later
     than 30 days prior to the Warrant Termination Date whether or not it
     intends to exercise the Warrant, and if BOS indicated that is does not
     intend to exercise the Warrant, Catalyst will then have a right to exercise
     the Warrant at its own expense. . For further clarity, in the event that
     Catalyst exercises such Warrant, the shares issued by Catalyst pursuant to
     such exercise shall be deemed to be Option Shares hereunder.

<PAGE>


8.   PAYMENT OF EXPENSES.

     Except as otherwise provided hereunder, each Party shall pay its own fees
     and expenses incurred in preparation, negotiation, execution and delivery
     of this Agreement and the, and the performance of its obligations
     hereunder.

9.   NOTICES

     All notices and other communications required or permitted hereunder to be
     given to any Party shall be in writing and shall be faxed or mailed by
     registered or certified mail, postage prepaid, or otherwise delivered by
     hand or by messenger, addressed to such party's address as set forth below:

          If to B.O.S. Better Online Solutions Ltd., to the addresses set forth
     in its signature block, with a copy to:

          Ephraim Abramson & Co., Advocates
          16 B King George Street
          Ninth Floor
          Jerusalem 94229
          Israel
          Facsimile: (02) 623-3694
                     (02) 625-9264

          and:

          Zvi Firon, Adv
          Firon, Karni, Sarov and Firon, Renato Jarach
          111 Arlozorov Street
          Tel Aviv, Israel
          Facsimile:  (03) 695-3802

          If to Catalyst Investments, L.P., to the addresses set forth in its
     signature block, with a copy to:

          Fischer, Behar, Chen & Co.
          3 Daniel Frisch St.
          Tel Aviv 64731
          Israel
          Facsimile: (03) 609-1116

     Or such other address with respect to a Party as such Party shall notify
     each other Parties in writing as above provided. Any notice sent in
     accordance with this Section 9 shall be effective (i) if mailed, seven (7)
     business days (and fourteen (14) business days for international mail)
     after mailing, (ii) if sent by messenger, upon delivery, (iii) if sent via
     telecopier, upon transmission and electronic confirmation of receipt or (if
     transmitted and received on a non-business day) on the first business day
     following transmission and electronic confirmation of receipt), and (iv)
     one (1) business day (and three (3) business days for international mail)
     after the business day of deposit with Federal Express or similar overnight
     courier, freight prepaid, PROVIDED, HOWEVER, that any notice change of
     address shall only be valid upon receipt thereof.

<PAGE>


10.  ASSIGNMENT

     This Agreement may not be assigned in whole or in part by any Party without
     the prior written consent of the other Parties.

11.  AMENDMENT; WAIVER

     This Agreement may be modified, supplemented or amended only by a written
     instrument executed by each Party. The terms and conditions hereto may be
     waived by a written instrument executed by the Party waiving compliance.

12.  REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE

     The rights and remedies of the Parties shall be cumulative (and not
     alternative). Each Party acknowledges and agrees that the other Party may
     be damaged irreparably in the event any of the provisions of this Agreement
     are not performed in accordance with their specific terms or otherwise are
     breached. Each Party agrees that the other Party may be entitled to an
     injunction or injunctions to prevent breaches of the provisions of this
     Agreement and to enforce specifically this Agreement and the terms and
     provisions hereof in any action instituted in any court having competent
     jurisdiction, in addition to any other right or remedy to which they may be
     entitled, at law or in equity. In the event of termination or breach of the
     Share Purchase Agreement, the Parties hereto shall have available to them
     the remedies set forth in the Share Purchase Agreement in addition to the
     remedies available to them by law.

13.  GOVERNING LAW

     This Agreement shall be exclusively governed by and construed according to
     the laws of Israel, without regard to the conflict of laws provisions
     thereof.

14.  ARBITRATION.

     Any controversy or claim arising under, out of, or in connection with this
     Agreement, its validity, its interpretation, its execution or any breach or
     claimed breach thereof, shall be settled by a single arbitrator, who shall
     be Mr. Yossi Shahak, and if Mr. Yossi Shahak is unwilling or unavailable to
     serve as an arbitrator, the arbitrator shall be an attorney with experience
     in complex corporate transactions to be mutually selected by the Parties'
     legal counsels (the "ARBITRATOR"), and if the Parties are unable to reach
     an agreement on the identity of the Arbitrator within thirty (30) days, the
     Arbitrator shall be appointed by a court having competent jurisdiction. The
     arbitration shall take place in Tel Aviv, Israel, in the Hebrew language.
     The Arbitrator shall be exempt from the civil procedure rules and the rules
     of evidence, but shall be bound by substantive law and by the duty of
     citing grounds for his ruling. The Arbitrator shall be authorized to issue
     injunctions and interim orders. The execution of this Agreement by the
     parties shall be deemed the execution of an arbitration agreement as
     required by the Israeli Arbitration Law, 5728-1968.

<PAGE>


15.  FURTHER ASSURANCES.

     Each of the Parties shall provide all such further information, perform
     such further acts and execute such further documents as may reasonably be
     necessary to carry out and give full effect to the provisions of this
     Agreement and the intentions of the parties as reflected thereby.

16.  BINDING EFFECT; BENEFITS

     This Agreement shall inure to the benefit of, and be binding upon, the
     Parties and their respective successors and permitted assigns. Nothing
     contained in this Agreement, express or implied, is intended to confer upon
     any person or entity other than the Parties' respective successors and
     permitted assigns any rights or remedies under or by reason of this
     Agreement.

17.  SEVERABILITY.

     If any provision of this Agreement is held by a court of competent
     jurisdiction to be unenforceable under applicable law, then such provision
     shall be excluded from this Agreement and the remainder of this Agreement
     shall be interpreted as if such provision were so excluded and shall be
     enforceable in accordance with its terms; PROVIDED, HOWEVER, that in such
     event this Agreement shall be interpreted so as to give effect, to the
     greatest extent consistent with and permitted by applicable law, to the
     meaning and intention of the excluded provision as determined by such court
     of competent jurisdiction.

18.  COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
     shall be deemed an original, and all of which together shall constitute one
     and the same instrument.

19.  ENTIRE AGREEMENT

     This Agreement, together with all exhibits hereto and the Share Purchase
     Agreement constitute the full and entire understanding and agreement
     between the Parties with regard to the subject matters hereof and thereof,
     and shall replace any previous agreement between the Parties, whether or
     not separate or together with other parties.

<PAGE>


20.  RULES OF CONSTRUCTION

     The Parties agree that they have been represented by counsel during the
     negotiation, preparation and execution of this Agreement, and therefore,
     waive the application of any law, regulation, holding or rule of
     construction providing that ambiguities in an agreement or other document
     be construed against the party drafting such agreement or document. Words
     denoting the singular include the plural and vice versa and words denoting
     any gender include all genders. Any reference to a statute shall mean the
     statute in force as at the date hereof, unless otherwise expressly
     provided. The use of headings is for convenience of reference only and
     shall not affect the construction of this Agreement. When calculating the
     period of time within which or following which any act is to be done or
     step taken, the date which is the reference day in calculating such period
     shall be excluded. If the last day of such period is not a business day,
     the period shall end on the next business day.

<PAGE>


     IN WITNESS WHEREOF this Option Agreement has been executed by duly
authorized officers of each of the Parties as of the date first above written.








         B.O.S. BETTER ONLINE SOLUTIONS LTD.



         By:      ________________________
         Name:
         Title:

         Address:





         CATALYST INVESTMENTS, L.P.



         By:      ________________________
         Name:
         Title:

         Address:

<PAGE>


                                    EXHIBIT A

                               NOTICE OF EXERCISE

                                    [omitted]

<PAGE>


                                    EXHIBIT B

                                      PROXY

                                    [omitted]

<PAGE>

                          REGISTRATION RIGHTS AGREEMENT



     THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made as of March
30, 2003, by and between B.O.S. Better Online Solutions Ltd., a company
organized under the laws of Israel ("BOS" or the "COMPANY"), and Catalyst
Investments, L.P., a limited partnership organized under the laws of Israel
("CATALYST"). BOS and Catalyst shall be referred to herein collectively as the
"PARTIES".



                                   WITNESSETH



     WHEREAS, concurrently with the execution and delivery of this Agreement,
BOS and Catalyst are entering into a Share Purchase Agreement (the "SHARE
PURCHASE AGREEMENT"), which provides that, upon the terms and conditions
thereof, BOS will sell to Catalyst 2,529,100 Ordinary Shares of BOS (the "BOS
SHARES"); and

     WHEREAS, as a condition to Catalyst's willingness to enter into the Share
Purchase Agreement, BOS agrees to grant Catalyst registration rights with
respect to the BOS Shares under the terms and conditions set forth herein; and

     WHEREAS, BOS is a party to that certain Registration Rights Agreement Made
as of May 3, 2000, by and among BOS, Mr. Israel Gal, Mrs. Yael Gal, Mr. Jacob
Lee and Mrs. Miran Lee and the persons and corporation listed on Schedule 1
thereto (the "EXISTING SHAREHOLDERS") (the "EXISTING REGISTRATION RIGHTS
AGREEMENT"), providing, among other things that the Company may not, without the
prior written consent by holders of at least a majority of the then outstanding
Registrable Securities (as defined therein), enter into an agreement for the
grant of (i) registration rights senior to or in parity with the rights of the
holders under the Existing Registration Rights Agreement, or (ii) demand
registration; and

     WHEREAS, BOS, Catalyst, Mr. Israel Gal, holders of a majority of the
outstanding Registrable Securities (as defined in the Existing Registration
Rights Agreement) and others are parties to that certain Settlement Agreement,
dated February 10, 2003 (the " SETTLEMENT AGREEMENT"), which has been approved
by the District Court of Tel-Aviv, providing, among other things for the grant
of piggyback registration rights in parity with the rights of the holders under
the Existing Registration Rights Agreement and two demand registrations. A copy
of the Settlement Agreement is attached hereto as EXHIBIT A.

     WHEREAS, the Parties wish to define the respective rights and obligations
of the Parties in connection with the grant of registration rights contemplated
hereby.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the Parties hereby agree as follows:

<PAGE>


1.   CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
     have the following respective meanings:

     "ACT" means the Securities Act of 1933, as amended, or any successor
     federal statute, and the rules and regulations of the Commission
     thereunder, all as the same shall be in effect at the time.

     "COMMISSION" means the Securities and Exchange Commission, or any other
     Federal agency at the time administering the Act.

     "ORDINARY SHARES" shall mean the Company's Ordinary Shares NIS 1- par value
     per share.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934 as amended, or any
     successor federal statute and the rules and regulations of the Commission
     thereunder, all as the same shall be in effect at the time.

     "HOLDER" means any person who is then the record owner of Registrable
     Securities which have not been sold to the public.

     "REGISTRABLE SECURITIES" shall mean all Ordinary Shares of the Company
     issued to Catalyst pursuant to the Share Purchase Agreement, excluding
     Ordinary Shares which (a) have been registered under the Securities Act
     pursuant to an effective registration statement filed thereunder and
     disposed of in accordance with the registration statement covering them,
     (b) have been publicly sold pursuant to Rule 144 under the Securities Act,
     or (c) are then immediately available for sale pursuant to Rule 144 under
     the Securities Act. For the avoidance of doubt, should the Company modify
     its share capital in any way (e.g. stock spit, reverse stock split, etc.),
     any additional shares issued to Catalyst as a result of such modification
     shall also constitute Registrable Securities as defined hereunder. If
     Catalyst purchases after the date hereof additional Ordinary Shares of BOS
     from Mr. Jacob Lee and/or Ms. Miran Lee, then Catalyst shall have a right
     at its sole discretion to determine that such Ordinary Shares shall be
     deemed Registrable Securities under this Agreement, subject to the
     limitations set forth in Sections (a), (b) and (c) above.

     The term "REGISTER" means to register under the Act and applicable state
     securities laws for the purpose of effecting a public sale of securities.

2.   REQUIRED REGISTRATION

          (a) At any time commencing 60 days after the closing Catalyst may
     request, once a year, that the Company register under the Securities Act
     all or any portion of the Registrable Securities held by Catalyst for sale
     in the manner specified in such notice, PROVIDED HOWEVER that the
     registration is requested for at least 200,000 Registrable Securities (as
     adjusted upon any recapitalization event).

     Notwithstanding anything to the contrary contained herein, no request may
     be made under this Section 2 within 180 days after the effective date of a
     registration statement filed by the Company covering a firm commitment
     underwritten public offering in which the Holders of Registrable Securities
     under this Agreement and under the Existing Registration Rights Agreement
     shall have been entitled to join pursuant to Sections 3 or 4 hereof and in
     which there shall have been effectively registered all shares of
     Registrable Securities as to which registration shall have been requested.


                                       2
<PAGE>


          (b) Following receipt of any notice under this Section 2, the Company
     shall immediately notify all Holders of Registrable Securities under this
     Agreement and under the Existing Registration Rights Agreement from whom
     notice has not been received and shall use its best efforts to register
     under the Securities Act, for public sale in accordance with the method of
     disposition specified in such notice from requesting Holder, the number of
     Registrable Securities specified in such notice (and in all notices
     received by the Company from other holders within 30 days after the giving
     of such notice by the Company). If such method of disposition shall be an
     underwritten public offering, the Company shall designate the managing
     underwriter of such offering, subject to the approval of the Holders, which
     approval shall not be unreasonably withheld or delayed. The Company shall
     shall not be obligated to effect, or take any action to effect, any
     registration pursuant to this Section 2 after the Company has effected two
     (2) registrations pursuant to this Section 2, PROVIDED, HOWEVER that unless
     (i) the registration statement is withdrawn and such withdrawal is not
     attributable to adverse information concerning the Company's operations,
     condition or prospects or (ii) the number of Registrable Securities covered
     thereby is reduced, in either case at the request of Holders of Registrable
     Securities covered thereby, such obligation shall be deemed satisfied only
     when the registration statement covering all Registrable Securities
     specified in notices received as aforesaid, for sale in accordance with the
     method of disposition specified by the requesting Holders, shall become
     effective and, if such Registrable Securities shall have been sold pursuant
     thereto. The company not more than once in any period of twelve consecutive
     months, may defer the effectiveness of such registration for up to one
     hundred eighty (180) days from the date of the notice of request is
     received, upon determination by the Board of Directors that such
     registration would be detrimental to the Company.

          (c) The Company shall be entitled to include in any registration
     statement referred to in this Section 2 for sale in accordance with the
     method of disposition specified by the requesting Holders. Ordinary Shares
     to be sold by the Company for its own account, except and to the extent
     that in the opinion of the managing underwriter (if such method of
     disposition shall be an underwritten public offering), such inclusion would
     adversely affect the marketing of the Registrable Securities to be sold. If
     Ordinary Shares are included by the Company for its own account and such
     Ordinary Shares constitute at least 51% of the total shares covered by the
     registration statement filed pursuant to this Section 2, such registration
     will be deemed to have been completed pursuant to Section 3 hereof and not
     this Section 2. Except for registration statements on Form S-4 or Form S-8
     or any successor thereto, the Company will not file with the Commission any
     other registration statement with respect to its Ordinary Shares, whether
     for its own account or that of other Holders, from the date of receipt of a
     notice from requesting Holders pursuant to this Section 2 until the
     completion of the period of distribution of the registration contemplated
     thereby.


                                       3
<PAGE>


3.   INCIDENTAL REGISTRATION. If the Company at any time (other than pursuant to
     Section 2 or Section 4) proposes to register any of its securities under
     the Securities Act for sale to the public, for its own account (except with
     respect to registration statements on Form S-1, Form S-8, their respective
     successor forms, or another form not available for registering the
     Registrable Securities for sale to the public), each such time it will give
     written notice to all Holders of outstanding Registrable Securities of its
     intention so to do. The Company shall, upon the written request of any such
     Holder, received by the Company within 20 days after the giving of any such
     notice by the Company, to register any of its Registrable Securities (which
     request shall state the intended method of disposition thereof) use its
     best efforts to cause the Registrable Securities as to which registration
     shall have been so requested to be included in the securities to be covered
     by the registration statement proposed to be filed by the Company all to
     the extent requisite to permit the sale or other disposition by the Holder
     (in accordance with its written request) of such Registrable Securities so
     registered. In the event that any registration pursuant to this Section 3,
     shall be, in whole or in part, an underwritten public offering of Ordinary
     Shares, the number of Ordinary Shares to be included in such underwriting
     may be reduced (pro rata among the requesting Holders under this Agreement
     and under the Existing Registration Agreement, based upon the numbers of
     Ordinary Shares owned by such Holders) subject to any registration rights;
     if and to the extent that the managing underwriter shall be of the opinion
     that such inclusion would adversely affect the marketing of the securities
     to be sold by the Company therein. Notwithstanding the foregoing
     provisions, the Company may withdraw any registration statement referred to
     in this Section 3 without thereby incurring any liability to the Holders of
     Registrable Securities (other than as provided in Section 6).

4.   FORM F-3 REGISTRATION. If at any time (i) a Holder or Holders of
     Registrable Securities under this Agreement and under the Existing
     Registration Rights Agreement requests that the Company file a registration
     statement on Form S-3 or any successor thereto for a public offering of all
     or part of the Registrable Securities held such requesting Holder or
     Holders, the reasonably anticipated aggregate price to the public of which
     would exceed $1,000,000, and (ii) the Company is a registrant entitled to
     use Form S-3 or any successor thereto to register such shares, then the
     Company shall use its reasonable best efforts to register under the
     Securities Act on Form S-3 or any successor thereto, for public sale in
     accordance with the method of disposition specified in such notice, the
     number of Registrable Securities specified in such notice. Whenever the
     Company is required by this Section 4 to use its reasonable best efforts to
     effect the registration of Registrable Securities, each of the procedures
     and requirements of Section 2 (including but not limited to the requirement
     that the Company notify all Holders of Registrable Securities under this
     Agreement and under the Existing Registration Rights Agreement from whom
     notice has not been received and provide them with the opportunity to
     participate in the offering) shall apply to such registration: PROVIDED
     HOWEVER that there shall be no limitation on the number if registrations on
     Form S-3 which may be issued and obtained under this Section 4: and
     PROVIDED FURTHER HOWEVER, that the requirements contained in the first
     sentence of Section 2(a) shall not apply to any registration on Form S-3
     which may be requested under this Section 4.


                                       4
<PAGE>


(b)  The Company shall not be obliged to effect any registration, qualification
     or compliance, pursuant to this Section 4 if: (i) Form S-3 (or any
     successor form to Form S-3 regardless of its designation) is not available
     for such offering by the Holders; (ii) the aggregate net offering price
     (after deduction of underwriting discounts and commissions) of the
     Registrable Securities specified in such request is less than $1,000,000;
     (iii) the Company has already effected one registration on Form S-3 within
     the previous six-month period; or (iv) the Company shall furnish to the
     Holders a certificate signed by the president of the Company stating that,
     in good faith judgment of the Board of directors, it would not be in the
     best interests of the Company and its stockholders for such Form S-3
     registration to be effected at such time, in which event the Company shall
     have the right to defer the filing of the Form S-3 registration for a
     period of not more than one hundred eighty (180) days after receipt of the
     request of the Holder or Holders under this Section 4; provided however
     that the Company shall not utilize this right more than once in any twelve
     month period.

5.   EXPENSES. The Company shall pay all out-of-pocket costs in connection with
     any registration pursuant to this Agreement. The costs and expenses of any
     such registration shall include, without limitation, the fees and expenses
     of the Company's counsel and its accountant and all other out-of-pocket
     costs and expenses of the Company incident to the preparation, printing and
     filing under the Securities Act of the registration statement and all
     amendments and supplements thereto; and the cost of furnishing copies of
     each preliminary prospectus, each final prospectus and each amendment or
     supplement thereto to underwriters, dealers and other purchasers of the
     securities so registered under the "blue sky" laws of various
     jurisdictions, the fees and expenses of the Company's transfer agent, the
     fees and expenses of one counsel for the Holders, expenses of all marketing
     and promotional efforts requested by the managing underwriter and all other
     costs and expenses of complying with the foregoing provisions hereof with
     respect to such legislation. The Holders shall bear underwriting discounts,
     selling commissions and transfer taxes with respect to the shares sold by
     them pursuant to the registration.


                                       5
<PAGE>


6.   REGISTRATION PROCEDURES. In the case of each registration effected by the
     Company pursuant to this Agreement, the Company will keep each Holder of
     Registrable Securities included in such registration advised in writing as
     to the initiation of each registration and as to the completion thereof. At
     its expense, the Company will do the following for the benefit of such
     Holders:

     (a)  Keep such registration effective for a period of 90 days or until the
          Holder or Holders have completed the distribution described in the
          registration statement relating thereto, whichever first occurs and
          amend or supplement such registration statement and the prospectus
          contained therein from time to time to the extent necessary to comply
          with the Act and applicable state securities laws. If at any time the
          Commission should institute or threaten to institute any proceedings
          for the purpose of issuing or should issue a stop order suspending the
          effectiveness of any such registration statement, the Company will
          promptly notify the Holder and will use reasonable efforts to prevent
          the issuance of any such stop order or to obtain the withdrawal
          thereof as soon as possible.

     (b)  Use its best efforts to register or qualify the Registrable Securities
          covered by such registration under the applicable securities or "blue
          sky" laws of such jurisdictions as the selling shareholders may
          reasonably request; PROVIDED that the Company shall not be obligated
          to qualify to do business in any jurisdiction where it is not then so
          qualified or otherwise required to be so qualified or to take any
          action which would subject it to the service of process in suits other
          than those arising out of such registration.

     (c)  Furnish such number of prospectuses and other documents incident
          thereto as a Holder or underwriter from time to time may reasonably
          request.

     (d)  To the extent required, the Company will enter into any underwriting
          agreement reasonably necessary to effect the offer and sale of
          Ordinary Shares PROVIDED that such underwriting agreement contains
          customary underwriting provisions and is entered into by the Holder
          and PROVIDED further that, if the underwriter so requests, the
          underwriting agreement will contain customary contribution provisions
          on the part of the Company.

     (e)  To the extent then permitted under applicable professional guidelines
          and standards, use its best efforts to obtain a comfort letter from
          the Company's independent public accountants in customary form and
          covering by comfort letters and an opinion from the Company's counsel
          in customary form and covering such matters of the type customarily
          covered in a public issuance of securities, in each case addressed to
          the Holders and provide copies thereof to the Holders.

     (f)  Permit the counsel to the selling shareholders whose expenses are
          being paid pursuant to Section 4 hereof to inspect and copy such
          corporate documents as he may reasonably request.


                                       6
<PAGE>


7.   INDEMNIFICATION

     (a)  The Company will and hereby does, indemnify and hold harmless each
          Holder, each of its officers, directors and partners and each person
          controlling such Holder within the meaning of the Act, with respect to
          which registration, qualification or compliance has been effected
          pursuant to this Agreement, and each underwriter, if any, and each
          person who controls such underwriter within the meaning of the Act,
          against all claims, losses, damages and liabilities (or actions in
          respect thereof) arising out of or based on any untrue statement (or
          alleged untrue statement) of a material fact in any prospectus,
          offering, circular or other document (including any related
          registration statement, modification or the like) incident to any such
          registration, qualification or compliance, or based on any omission
          (or alleged omission) to state therein a material fact required to be
          stated therein or necessary to make the statements therein not
          misleading, or any violation by the Company of the Act or the Exchange
          Act or securities act of any state or any rule or regulation
          thereunder applicable to the Company in connection with any such
          registration, qualification or compliance, and will reimburse each
          such Holder, each of its officers, directors and partners and each
          person controlling such Holder, each such underwriter and each person
          who controls any such underwriter, for any legal and any other
          expenses reasonably incurred in connection with investigating and
          defending any such claim, loss, damage, liability or action, whether
          or not resulting in any liability, PROVIDED that the Company will not
          be liable in any such case to the extent that any such claim, loss
          damage, liability or expense arises out of or is (x) based upon any
          such untrue statement or omission or alleged untrue statement or
          omission made in reliance upon information furnished in writing to the
          Company by the Holders or any underwriter or any controlling person of
          the Holders or any such underwriter specifically for use therein or
          (y) made in any preliminary prospectus if the prospectus contained in
          the registration statement as declared effective or in the form filed
          by the Company with the Commission pursuant to Rule 424 under the
          Securities Act shall have corrected such statement or omission, ample
          copies of such prospectus (together with a statement that such
          corrected prospectus must be used in lieu of all prior prospectuses)
          shall have been provided by the Company to the Holders or underwriter,
          and a copy of such prospectus shall not have been sent or otherwise
          delivered to such person by the Holders or underwriter at or prior to
          the confirmation of such sale to such person.

     (b)  By requesting confirmation under this Agreement, each Holder shall
          agree in the same manner and to the same extent as set forth in the
          preceding paragraph, to indemnify and to hold harmless the Company and
          its directors, officers and each person, if any, who controls the
          Company within the meaning of the Securities Act and any underwriter
          (as defined in the Securities Act) of any shares offered by the
          Holders, against any such claim, loss, damage, liability or expense,
          joint or several, to which any such persons may be subject under the
          Securities Act or otherwise, and to reimburse any of such persons for
          any legal or other expenses reasonably incurred by them in connection
          with investigating or defending against any such claim, loss, damage,
          liability or expense, but only to the extent it arises out of or is
          based upon an untrue statement or alleged untrue statement or omission
          or alleged omission of a material fact in any registration statement
          under which the Holders' shares were registered under the Securities
          Act pursuant to this Agreement, any prospectus contained therein, or
          any amendment or supplement thereto, which was based upon and made in
          conformity with information furnished in writing to the Company by the
          Holders or such underwriter expressly for use therein, provided
          HOWEVER, that payments by each Holder hereunder shall be limited to an
          amount equal to the net proceeds received by such Holder upon the
          sales of the securities.

                                       7
<PAGE>


     (c)  Each party entitled to indemnification under this Section 7 (the
          "INDEMNIFIED PARTY") shall give notice to the party required to
          provide indemnification (the "INDEMNIFYING PARTY") promptly after such
          Indemnified Party has actual knowledge of any claim as to which
          indemnity may be sought. The failure of any Indemnified Party to give
          such notice shall not relieve the Indemnifying Party of its
          obligations under this Section 7, except and to the extent the
          Indemnifying Party has been prejudiced as a consequence thereof and in
          no event shall such failure relieve the underlying party from any
          other liability which it may have to such indemnified party. The
          Indemnifying Party will be entitled to participate in, and to the
          extent that it may elect by written notice delivered to the
          Indemnified Party promptly after receiving the aforesaid notice from
          such Indemnified Party, at its own expense to assume the defense of
          any such claim or any litigation resulting therefrom, with counsel
          reasonably satisfactory so such Indemnified Party, PROVIDED that the
          Indemnified Party may participate in such defense at its expense,
          notwithstanding the assumption of such defense by the Indemnifying
          Party, and PROVIDED, further, that if the defendants in any such
          action shall include both the Indemnified Party and the Indemnifying
          Party and the Indemnified Party shall have reasonably concluded that
          there may be legal defenses available to it and/or other Indemnified
          Parties which are different form or additional to those available to
          the Indemnifying Party, the Indemnified Party or Parties shall have
          the right to select separate counsel to assert such legal defenses and
          to otherwise participate in the defense of such action on behalf of
          such Indemnified Party or Parties and the fees and expenses of such
          counsel shall be paid by the Indemnifying Party. No Indemnifying
          Party, in the defense of any such claim or litigation, shall, except
          with the consent of each Indemnified Party, consent to entry of any
          judgment or enter into any settlement which does not include as an
          unconditional term thereof the giving by the claimant or plaintiff to
          such Indemnified Party of a release from all liability in respect to
          such claim or litigation. Each Indemnified Party shall (i) furnish
          such information regarding itself of the claim in question as an
          Indemnifying Party may reasonably request in writing and as shall be
          reasonably required in connection with defense of such claims and
          litigation resulting therefrom and (ii) shall reasonably assist the
          Indemnifying Party in any such defense, PROVIDED that the Indemnified
          Party shall not be required to expend its funds in connection with
          such assistance.


                                       8
<PAGE>


     (d)  No Holder shall be required to participate in a registration pursuant
          to which it would be required to execute an underwriting agreement in
          connection with a registration effected under Section 2 or 3 which
          imposes indemnification or contribution obligations on such Holder
          more onerous than those imposed hereunder: PROVIDED HOWEVER that the
          Company shall not be deemed to breach those provisions of Section 2 or
          3 if a Holder is not permitted to participate in a registration on
          account of his refusal to execute an underwriting agreement on the
          basis of this sub-section (d).

8.   LOCK-UP AGREEMENT. If requested by the underwriter in any registered public
     offering by the Company, the Holder agrees not to sell or otherwise
     transfer any Registrable Securities for such period of time after the date
     of such offering as may be requested by the underwriter, but in no event to
     exceed 180 days from the close of the initial public offering and 90 days
     from the close of any subsequent registered public offering, PROVIDED that
     all executive officers and directors of the Company enter into similar
     agreements.

9.   INFORMATION BY HOLDER. Each Holder of Registrable Securities included in
     any registration shall furnish to the Company such information regarding
     such Holder and the distribution proposal by such Holder as the Company may
     reasonably request in writing and as shall be reasonably required in
     connection with any registration, qualification or compliance referred to
     in this Agreement or otherwise required by applicable state or federal
     securities laws.

10.  LIMITATIONS ON REGISTRATION RIGHTS. From and after the date of this
     Agreement, the Company shall not, without the prior written consent of the
     Holders of a majority of the Registrable Securities under this Agreement
     enter into any agreement with any holder or prospective holder of any
     securities of the Company, not having any registration rights on the date
     hereof, which would give any such holder or prospective holder the right to
     require the Company, upon any registration of any of its securities, to
     include, among the securities which the Company is then registering,
     securities owned by such holder, unless under the terms of such agreement,
     such holder or prospective holder may include such securities in any such
     registration only to the extent that the inclusion of its securities will
     not limit the number of Registrable Securities sought to be included by the
     Holders of Registrable Securities hereunder.

11.  EXCEPTION TO REGISTRATION. The Company shall not be required to effect a
     registration under this Agreement if (i) in the written opinion of counsel
     for the Company, which counsel and the opinion so rendered shall be
     reasonably acceptable to the Holders of the Registrable Securities, such
     Holders may sell without registration under the Act all Registrable
     Securities for which they requested registration under the provisions of
     the Act and in the manner and in the quantity in which the Registrable
     Securities were proposed to be sold, or (ii) the Company shall have
     obtained from the Commission a "no action: letter to that effect; PROVIDED
     that this Section 11 shall not apply to sales made under Rule 144 (k) or
     any successor rule promulgated by the Commission until after the effective
     date of the Company's initial registration of shares under the Act.


                                       9
<PAGE>


12.  RULE 144 REPORTING. With a view to making available the benefits of certain
     rules and regulations of the Commission which may permit the sale of
     restricted securities (as that term is used in Rule 144 under the Act) to
     the public without registration, the Company agrees to:

     (a)  make and keep public information available as those terms are
          understood and defined in Rule 144 under the Act, at all times from
          and after ninety days following the effective date of the first
          registration under the Act filed by the Company for an offering of its
          securities to the public;

     (b)  use its best efforts to file with the Commission in a timely manner,
          all reports and other documents required of the Company under the Act
          and the Exchange Act at any time after it has become subject to such
          reporting requirements; and

     (c)  so long as a Holder owns any restricted securities, furnish to the
          Holder forthwith upon request a written statement by the Company as to
          its compliance with the reporting requirements of Rule 144 (at any
          time from and after ninety days following the effective date of the
          first registration statement filed by the Company for an offering of
          its securities to the general public), and of the Act and Exchange Act
          (at any time after it has become subject to such reporting
          requirements), a copy of the most recent annual or quarterly report of
          the Company, and such other reports and documents so filed by the
          Company as the Holder may reasonably request in availing itself of any
          rule or regulation of the Commission allowing the Holder to sell any
          such securities without registration.

13.  LISTING APPLICATION. If share of any class of stock of the Company shall be
     listed on a national securities exchange, the Company shall, at its
     expense, include in its listing application all of the shares of the listed
     class then owned by any Holder.

14.  ASSIGNMENT OF REGISTRATION RIGHTS. Any of the Holders may assign its rights
     (but only with all related obligations) to cause the Company to register
     Shares hereunder to (i) a transferee or assignee of such securities who,
     after such assignment or transfer, holds at least thirty three percent
     (33%) of the Registrable Securities held by such transferring Holder on the
     date hereof, or (ii) any amount of Registrable Securities to a limited
     liability company or corporation, in any transfer to an affiliated entity
     and any current and former constituent partners, members, shareholders and
     affiliates of such Holder or an affiliated entity, PROVIDED HOWEVER that
     such transfer or assignment is made pursuant to the provisions of the
     Company's Articles of Association, including without limitation, the
     provisions relating to transfer of securities, and FURTHER PROVIDED that
     (a) the Company is, as soon as practicable and in any event within twenty
     one (21) days after such transfer, is furnished with a written notice of
     the name and address of such transferee or assignee and a description of
     the securities with respect to which such registration rights are being
     assigned; (b) such transferee or assignee agrees in writing to be bound by
     and subject to the terms and conditions of this Agreement; and (c) such
     assignment shall be effective only if immediately following such transfer
     the further disposition of such securities by the transferee or assignee is
     restricted under the Act.


                                       10
<PAGE>


15.  MISCELLANEOUS.

     (a)  All covenants and agreements contained in this Agreement by or on
          behalf of any of the parties hereto shall bind and inure to the
          benefit of the respective successors and assigns of the parties hereto
          (including without limitation transferees of any Registrable
          Securities) whether so expressed or not.

     (b)  All notices, requests, consents and other communications hereunder
          shall be in writing and shall be mailed by certified or registered
          mail, return receipt requested, postage pre-paid, or telecopied or
          sent by facsimile method addressed as follows:

          If to the Company, or a Holder, at the address of such party as set
          forth on the signature block or the most recent address as is shown on
          the stock records of the Company; and

          If to any subsequent Holder of Registrable Securities, to it at such
          address as may have been furnished to the Company in writing by such
          party, or, in case, at such other address or addresses as shall have
          been furnished in writing to the Company (in the case of a Holder of
          registrable Securities) or to the Holders of Registrable Securities
          (in the case of the Company) in accordance with the provisions of this
          paragraph.

     (c)  This Agreement shall be governed by and construed in accordance with
          the state of New York, without giving effect to the conflicts of laws
          thereof.

     (d)  This Agreement may not be amended or modified, and no part hereof may
          be waived, without the written consent of the Company and the holders
          of at least a majority of the then outstanding Registrable Securities.

     (e)  This Agreement may be executed in two or more counterparts, each of
          which shall be deemed an original, but all of which shall constitute
          one and the same instrument.

                                       11
<PAGE>


     (f)  If any provision of this Agreement shall be held to be illegal,
          invalid or unenforceable, such illegality, invalidity or
          unenforceability shall attach only to such provision and shall not in
          any manner affect or render illegal, invalid or unenforceable, any
          other provision of this Agreement, and this Agreement shall be carried
          out as if any such illegal, invalid or unenforceable provision were
          not contained herein.

     (g)  This Agreement contains the entire agreement between the parties
          hereto with respect to registration rights, and supersedes all prior
          agreements relating to the same subject matter.





            (THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)


                                       12
<PAGE>


     IN WITNESS WHEREOF this Registration Rights Agreement has been executed by
duly authorized officers of each of the Parties as of the date first above
written.



       B.O.S. BETTER ONLINE SOLUTIONS LTD.



       By:    ________________________
       Name:
       Title:

       Address:



       CATALYST INVESTMENTS, L.P.



       By:    ________________________
       Name:
       Title:

       Address:


                                       13
<PAGE>


                                    EXHIBIT A



                              SETTLEMENT AGREEMENT

                                    [omitted]



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>3
<FILENAME>exhibit_4-3.txt
<TEXT>


                                                                     EXHIBIT 4.3

                            SHARE PURCHASE AGREEMENT

     This SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of December 14, 2003, by and among B.O.S Better Online Solutions Ltd., an
Israeli company (the "Company"), and the other parties listed on SCHEDULE 1
hereto (each an "Investor" and collectively, the "Investors").

     WHEREAS, subject to the terms and conditions herein, the Investors desire
to acquire from the Company, and the Company desires to issue to the Investors
Ordinary Shares of the Company, par value NIS 4.00 each (each, a "Share" and
collectively, the "Shares", and when referred to the shares to be purchased by
each Investor, such number of shares as set forth opposite such Investor's name
in the column labeled "No. of Shares" on SCHEDULE 1 hereto) for the amounts set
forth in SCHEDULE 1 hereto.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:

     1. PURCHASE AND SALE OF SHARES.

          1.1 Subject to the satisfaction of the terms and conditions described
     in this Agreement, at the Closing (as defined below) the Company agrees to
     sell to each Investor, and each Investor severally agrees to purchase from
     the Company, such number of Shares, against such amount, as is set forth
     opposite such Investor's name in the columns labeled "No. of Shares" and
     "Purchase Amount", respectively, on SCHEDULE 1 hereto.

     2. CLOSING. The execution and delivery of this Agreement shall occur upon
delivery by facsimile of executed signature pages of this Agreement and all
other documents, instruments and writings required to be delivered pursuant to
this Agreement to Amit, Pollak, Matalon & Co., NYP Tower, 17 Yitzhak Sadeh St.,
Tel-Aviv 67775 Israel attn: Yonatan Altman, Adv., Fax: (972) 3 561-3620. The
closing of the purchase and sale of the Shares will take place eight (8) days
after the date hereof (or, if such date is not a business day, on the next
business day thereafter), on which date the conditions for Closing set forth in
Sections 6 and 7 herein shall be satisfied in full or waived by the appropriate
party thereunder, or at such different date as may be mutually acceptable to the
Investors and the Company (the "Closing"). At the Closing, each Investor shall
deliver to the Company payment in full for the Shares to be purchased by such
Investor in the amount set forth opposite such Investor's name in the column
labeled "No. of Shares" on SCHEDULE 1, via wire transfer of immediately
available funds or bank or cashier's check. At the Closing, the Company will
deliver to an Investor representative in Israel, designated for this purpose by
each Investor in writing, a duly executed share certificate reflecting such
number of shares set forth opposite such Investor's name in column labeled "No.
of Shares".

     3. USE OF PROCEEDS. The Company shall use the proceeds from the
transactions contemplated hereby to enhance the general working capital of the
Company, to finance potential acquisitions or as otherwise decided by the
Company's Board of Directors.

<PAGE>


     4. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby
represents and warrants to each Investor that:

          4.1 CORPORATE ORGANIZATION. The Company is a corporation duly
     organized and validly existing under the laws of Israel, and has the
     corporate power to own its property and to carry on its business as now
     being conducted. The Company's shares are traded on the Nasdaq National
     Market and on the Tel-Aviv Stock Exchange and as such it is subject to both
     US and Israeli Securities Laws.

          4.2 DUE AUTHORIZATION AND VALID ISSUANCE. The Company has the
     corporate power to enter into this Agreement and the Registration Rights
     Agreement (as defined below) (collectively, the "Transaction Documents").
     The Transaction Documents have been, or will have been, at the time of
     their respective execution and delivery, duly executed and delivered by a
     duly authorized officer of the Company. Prior to the Closing of this
     Agreement, the Company shall have acted to complete all corporate action
     necessary on its part for the issuance, sale and delivery of the Shares.
     The Shares being purchased by the Investors hereunder will, upon issuance
     and payment therefore pursuant to the terms hereof, be duly authorized,
     validly issued, fully-paid and nonassessable.

          4.3 BINDING AGREEMENT. The Transaction Documents constitute valid and
     legally binding obligations of the Company enforceable against the Company
     in accordance with their terms, except as (i) such enforceability may be
     limited by bankruptcy, insolvency, reorganization, arrangement, moratorium
     or similar laws relating to or affecting the rights of creditors and
     contracting parties generally, (ii) the remedy of specific performance and
     injunctive and other forms of equitable relief may be subject to equitable
     defenses and to the discretion of the court before which any proceeding
     therefore may be brought, and (iii) rights to indemnity and contribution
     may be limited by Israeli or U.S. state or federal securities laws
     applicable to the Company or by the public policy underlying such laws.

          4.4 NON-CONTRAVENTION. Neither the execution and delivery of the
     Transaction Documents, nor the consummation of the transactions or the
     performance of the obligations contemplated hereby and thereby will result
     in any violation or breach of Company's articles of association, by-laws,
     board resolutions or shareholders resolutions.

          4.5 NO CONSENT. To the Company's best knowledge, and in reliance on
     the representations of the Investors given in Section 5 hereof, except for
     reporting obligations and approvals required under applicable security laws
     and market regulations in Israel and the United States and for approvals by
     the Office of the Chief Scientist and the Investment Center of the Ministry
     of Industry, Trade and Labor (if required), no consent of any governmental
     body or third party is required to be made or obtained by the Company in
     connection with the execution and delivery of the Transaction Documents by
     the Company or the consummation by the Company of the transactions or the
     performance of the obligations contemplated hereby and thereby by the
     Company.


                                     - 2 -
<PAGE>


          4.6 CAPITALIZATION. The authorized share capital of the Company
     consists as of the date hereof: 8,750,000 Ordinary Shares, par value NIS
     4.00 per share, of which, as of September 30, 2003, 3,810,366 Ordinary
     Shares are issued and outstanding, 515,272 Ordinary shares are reserved for
     issuance upon the exercise of warrants and of employee, director and
     consultant options already granted by the Company and further 421,924
     Ordinary Shares are reserved for issuance under the Company's 2003 Israeli
     Share Option Plan, upon the exercise of options to be granted thereunder.
     Any change in the above capitalization between the date hereof and the date
     of the Closing shall not constitute a default under this Agreement,
     provided, however, that such change is the result of the conversion or
     exercise of convertible securities, options or warrants of the Company.

          4.7 FINANCIAL STATEMENTS.

               (a) The audited consolidated financial statements of the Company
          as of December 31, 2002 and the related notes thereto, as filed by the
          Company with the Securities and Exchange Commission under Form 20-F
          for the year ending December 31, 2002, and the Consolidated Balance
          Sheets and Consolidated Statements of Operations of the Company as of
          September 30, 2003, as published by the Company on November 17, 2003,
          are true, correct and complete in all material respects and fairly
          present the financial position of the Company as of their respective
          dates, and have been prepared in accordance with the books and records
          of the Company as at the applicable dates and for the applicable
          periods. Such financial statements have been prepared in accordance
          with generally accepted accounting principles applied on a consistent
          basis throughout the periods therein specified, except as may be
          disclosed in the notes to such financial statements, or as may be
          permitted by the Securities and Exchange Commission and except as
          disclosed in the filings the Company made in connection with such
          statements, if any.

               (b) Other than as reported in the Company's current reports,
          since September 30, 2003, there has not been any event or material
          adverse change in the financial conditions of the Company as reflected
          in the financial statements which, individually or collectively with
          other events or changes, could have a material adverse effect on the
          Company.

          4.8 LEGAL PROCEEDINGS. Except as disclosed in the Company's public
     filings, there is no material legal or governmental proceeding pending or,
     to the knowledge of the Company, threatened to which the Company is or may
     be a party.

          4.9 INTELLECTUAL PROPERTY. The Company, either directly or through its
     subsidiaries, owns or possesses sufficient rights to use all material
     patents, patent rights, trademarks, copyrights, licenses, inventions, trade
     secrets, trade names and know-how (collectively, "Intellectual Property")
     described or referred to in the Company's public filings as owned or
     possessed by it, except where the failure to currently own or possess would
     not have a material adverse effect on the Company, (ii) to the knowledge of
     the Company, the Company is not infringing, nor has it received any notice
     of, any asserted infringement of, any rights of a third party with respect
     to any Intellectual Property that, individually or in the aggregate, would
     have a material adverse effect on the Company.

          4.10 COMPLIANCE WITH LAW. To the knowledge of the Company, the
     business of the Company is conducted in accordance with applicable laws,
     except to extent that, individually or in the aggregate, would not cause a
     material adverse effect on the Company.


                                     - 3 -
<PAGE>


          4.11 DISCLOSURE. The representations and warranties of the Company
     contained in this Section 4 as of the date hereof and as of the Closing, do
     not contain any untrue statement of a material fact or omit to state a
     material fact necessary to make the statements herein, in light of the
     circumstances under which they are made, not misleading.

     5. REPRESENTATIONS OF THE INVESTORS. Each of the Investors severally
represents to the Company that:

          5.1 ENFORCEABILITY. If such Investor is a corporation, partnership,
     limited liability company, trust or other entity, (i) it is authorized and
     qualified and has full right and power to become an investor in the
     Company, is authorized to purchase the Shares and to perform its
     obligations pursuant to the provisions hereof, (ii) the person signing the
     Transaction Documents to which such Investor is a party and any other
     instrument executed and delivered therewith on behalf of such Investor has
     been duly authorized by such entity and has full power and authority to do
     so, and (iii) such Investor has not been formed for the specific purpose of
     acquiring an interest in the Company.

          5.2 RESTRICTIONS ON TRANSFERABILITY AND HEDGING.

               5.2.1 Such Investor understands that (i) the Shares have not yet
          been registered under the Securities Act of 1933, or under the laws of
          any other jurisdiction; (ii) such Shares cannot be sold, transferred
          or otherwise disposed of unless they are subsequently registered under
          the Securities Act and, where required, under the laws of other
          jurisdictions or unless an exemption from registration is then
          available; (iii) there is now no registration statement on file with
          the Securities and Exchange Commission with respect to the Shares to
          be purchased by the Investor.

               5.2.2 Such Investor acknowledges and agrees that the certificates
          representing the Shares shall bear restrictive legends as counsel to
          the Company may determine are necessary or appropriate, including
          without limitation, legends under applicable securities laws similar
          to the following:

               "The shares represented by this certificate have not been
               registered under the Securities Act of 1933. The shares have been
               acquired for investment and may not be sold, transferred,
               assigned or otherwise disposed of in the absence of an effective
               registration statement with respect to the shares evidenced by
               this certificate, filed and made effective under the Securities
               Act of 1933, or an opinion of the Company's counsel that
               registration under such Act is not required."

               5.2.3 The Company will not register any transfer of Shares not
          made pursuant to registration under the Securities Act, or pursuant to
          an available exemption from registration.

               5.2.4 Such Investor agrees not to engage in hedging transactions
          with regard to the Shares sold pursuant to the Transaction Documents.


                                     - 4 -
<PAGE>


          5.3 OFFSHORE TRANSACTION. Such Investor is not a "U.S. Person", as
     such term is defined in Regulation S under the Securities Act of 1933, its
     principal address is outside the United States and it has no present
     intention of becoming a resident of (or moving its principal place of
     business to) the United States. Such Investor was located outside the
     United States at the time any offer to sell and any other action in
     connection with such offer and sale was made to such Investor and at the
     time that the buy order was originated by the Investor. The Shares are
     being acquired solely for such Investor's own account, and in no event and
     without derogating from the foregoing, for the account or the benefit of a
     U.S. person.

          5.4 INVESTMENT PURPOSES. The Shares are being acquired for investment
     purposes. The Shares are not being purchased with a view to, or for sale in
     connection with, any distribution or other disposition thereof. The
     Investor has no present plans to enter into any contract, undertaking,
     agreement or arrangement for any such resale, distribution or other
     disposition and it will not divide its interest in the Company's Shares
     with others, resell or otherwise distribute the Shares in violation of
     federal or state US Securities laws or the Israeli Securities Law.

          5.5 INFORMATION AND ADVICE.

               5.5.1 Such Investor has carefully reviewed and understands the
          risks of a purchase of the Shares. In connection with such Investor's
          investment in the Company, it has obtained the advice of its own
          investment advisors, counsel and accountants (the "Advisors"). Such
          Investor and its Advisors have reviewed the Company's public filings
          and have been furnished with all materials relating to the Company or
          the offering of the Shares (the "Offering") that they have requested.
          Such Investor and its Advisors have been afforded the opportunity to
          ask questions of the Company concerning the financial and other
          affairs of the Company and the conditions of the Offering and to
          obtain any additional information necessary to verify the accuracy of
          any representations or information set forth with respect to the
          Shares.

               5.5.2 The Company has answered all reasonable inquiries that such
          Investor and its Advisors have made concerning the Company or any
          other matters relating to the creation and operations of the Company
          and the terms and conditions of the Offering.

          5.6 SOPHISTICATION AND RISK.

               5.6.1 It has such knowledge and experience in financial and
          business matters, that it is capable of evaluating, and has evaluated,
          the merits and risks of the Offering. By reason of its business or
          financial experience, it has the capacity to protect its interests in
          connection with an investment in the Company.

               5.6.2 It understands that no Israeli or U.S. federal or state
          agency has passed upon the Shares or made any finding or determination
          as to the fairness of the transactions contemplated in the Transaction
          Documents.

               5.6.3 It understands that the Shares are speculative investments
          which involve a high degree of risk, including the risk that such
          Investor might lose its entire amount invested in the Company.


                                     - 5 -
<PAGE>


               5.6.4 It understands that any tax benefits that may be available
          to such Investor may be lost through adoption of new laws, amendments
          to existing laws or regulations, or changes in the interpretation of
          existing laws and regulations.

               5.6.5 It has the financial ability to bear the economic risk of
          its investment in the Company and has adequate net worth and means of
          providing for the Investor's current needs and contingencies to
          sustain a complete loss of the Investor's investment and has no need
          for liquidity in the Investor's investment in the Company.

               5.6.6 It is an "Accredited Investor," as such term is defined in
          Rule 501 of Regulation D under the Securities Act of 1933.

          5.7 NO SOLICITATION. At no time was such Investor presented with or
     solicited by any leaflet, public promotional meeting, newspaper or magazine
     article, radio or television advertisement or any other form of general
     advertising or general solicitation concerning the Offering.

          5.8 BROKER-DEALER. The Investor is not a broker-dealer, nor is it an
     affiliate of any broker-dealer.

          5.9 FURTHER INDEBTEDNESS. Such Investor acknowledges that no provision
     of the Transaction Documents executed and delivered by the Company in
     connection with this Agreement restricts, or shall be construed to
     restrict, in any way the ability of the Company to incur indebtedness or to
     issue share capital or other equity securities (or securities convertible
     into equity securities) of the Company or to grant liens on its property
     and assets.

          5.10 VOTING AND/OR INVESTMENT CONTROL OVER THE INVESTOR. Each Investor
     has made available to the Company a list of individuals who have or share
     voting and/or investment control over such Investor. The Investor shall
     update such list as reasonably requested by the Company to comply with
     request for such information from any regulatory body.

          5.11 INDEPENDENT INVESTMENT. No Investor has agreed to act with any
     other Investor for the purpose of acquiring, holding, voting or disposing
     of the Shares purchased hereunder, and each Investor is acting
     independently with respect to its investment in the Shares. Nothing
     contained herein or in any Transaction Document, and no action taken by any
     Investor pursuant thereto, shall be deemed to constitute the Investors, or
     any of them, as a partnership, an association, a joint venture or any other
     kind of entity, or create a presumption that the Investors, or any of them,
     are in any way acting in concert or as a group with respect to such
     obligations or the transactions contemplated by the Transaction Documents.

          5.12 NO CONTROL. Such Investor has a minority limited partnership
     interest in Catalyst Fund L.P. ("Catalyst") and pursuant to the Catalyst
     Partnership Agreement, it does not partake in any way, directly or
     indirectly, in the control over Catalyst. For the purpose of this section
     "control" shall include the ability to direct the activity of Catalyst, the
     holding of 25 percent or more of the partnership interest in Catalyst, the
     holding of any interest in the General Partner of Catalyst, the holding of
     a position in Catalyst's Investment Committee, Advisory Board or any other
     similar body.


                                     - 6 -
<PAGE>


          5.13 HOLDINGS. SCHEDULE 1 attached hereto reflects the holdings of the
     Company's shares by each Investor and its affiliates as of the date hereof,
     and as of the Closing.

          5.14 AVAILABILITY OF EXEMPTIONS. The Investor understands that the
     Shares are being offered and sold in reliance on a transactional exemption
     or exemptions from the registration requirements of Israeli and U.S.
     Federal and state securities laws and the Company is relying upon the truth
     and accuracy of the representations, warranties, agreements,
     acknowledgments and understandings of such Investor set forth herein in
     order to determine the applicability of such exemptions and the suitability
     of such Investor to acquire the Shares.

          5.15 DISCLOSURE. The representations and warranties of the Investor
     contained in this Section 5 as of the date hereof and as of the Closing, do
     not contain any untrue statement of a material fact or omit to state a
     material fact required to be stated herein or necessary to make the
     statements herein, in light of the circumstances under which they are made,
     not misleading. Each Investor understands and confirms that the Company
     will rely on the foregoing representations in effecting the transaction
     contemplated in the Transaction Documents and other transactions in
     securities of the Company.

     6. CONDITIONS OF EACH INVESTOR'S OBLIGATION AT THE CLOSING. The obligation
of each Investor to purchase its respective Shares is subject to the fulfillment
or waiver by such Investor prior to or on the date of the Closing of the
conditions set forth in this Section 6. In the event that any such condition is
not satisfied to the satisfaction of an Investor, then such non-satisfied
Investor shall not be obligated to proceed with the purchase of such securities.

          6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
     of the Company under this Agreement shall be true in all material respects
     as of the Closing, with the same effect as though made on and as of such
     date.

          6.2 COMPLIANCE WITH AGREEMENTS. The Company shall have performed and
     complied in all material respects with all agreements or conditions
     required by this Agreement to be performed and complied with by it prior to
     or as of the Closing.

          6.3 REGISTRATION RIGHTS AGREEMENT. As of the Closing, the Registration
     Rights Agreement in the form attached hereto as EXHIBIT A (the
     "Registration Rights Agreement") shall have been executed and delivered by
     the Company and each Investor.

          6.4 NO INJUNCTION. No statute, rule, regulation, executive order,
     decree, ruling or injunction shall have been enacted, entered, promulgated
     or endorsed by any court or governmental authority of competent
     jurisdiction which prohibits the consummation of any of the transactions
     contemplated by this Agreement

          6.5 MINIMUM INVESTMENT. The aggregate Purchase Amount committed to by
     the Investors hereunder shall be no less than $1,000,000.


                                     - 7 -
<PAGE>


     7. CONDITIONS OF THE COMPANY'S OBLIGATION AT THE CLOSING. The obligation of
the Company to issue the Shares to the Investors at the Closing is subject to
the fulfillment or waiver by the Company prior to or on the Closing of the
conditions set forth in this Section 7. In the event that any such condition is
not satisfied to the satisfaction of the Company, then the Company shall not be
obligated to proceed with the sale of the securities under this Agreement.

          7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
     of all Investors under this Agreement shall be true in all material
     respects as of the Closing, with the same effect as though made on and as
     of such date.

          7.2 COMPLIANCE WITH AGREEMENTS. All Investors shall have performed and
     complied in all respects with all agreements or conditions required by this
     Agreement to be performed and complied with by it prior to or as of the
     Closing.

          7.3 REGISTRATION RIGHTS AGREEMENT. As of the Closing, the Registration
     Rights Agreement shall have been executed and delivered by all of the
     Investors.

          7.4 NO INJUNCTION. No statute, rule, regulation, executive order,
     decree, ruling or injunction shall have been enacted, entered, promulgated
     or endorsed by any court or governmental authority of competent
     jurisdiction which prohibits the consummation of any of the transactions
     contemplated by this Agreement.

          7.5 DELIVERY OF PURCHASE AMOUNT. Each of the Investors shall have
     delivered to the Company its respective Purchase Amount for the Shares at
     the Closing Date.

          7.6 GOVERNMENT APPROVALS. The Company shall have received all
     necessary approvals by the Office of the Chief Scientist and the Investment
     Center of the Ministry of Industry, Trade and Labor with respect to the
     transactions contemplated hereby. The Investors shall have executed the
     confirmations required by the Office of Chief Scientist for the grant of
     such approvals.

          7.7 NOTICES TO NASDAQ AND THE TASE. The Company shall have made all
     required filings of notices with Nasdaq and the Tel Aviv Stock Exchange.
     The Company shall use its best efforts to complete such filings.

          7.8 DESIGNATION OF INVESTORS' REPRESENTATIVES. Each Investor delivered
     to the Company a written notice designating such Investor's representative
     in Israel for the purpose of receipt of the shares certificate.

     8. CONFIDENTIALITY. Any information disclosed to each of the Investors or
their respective counsel and consultants (collectively, the "Representatives"),
which has not previously been made available to the general public by the
Company, if any, shall be considered Confidential Information. Each Investor
acknowledges the confidential nature of the Confidential Information it may have
received, and agrees that the Confidential Information is the valuable property
of the Company. Each Investor agrees that it and its Representatives shall not
reproduce any of the Confidential Information without the prior written consent
of the Company, nor shall they use any Confidential Information for any purpose
except as permitted by and in the performance of this Agreement, or divulge all
or any part of the Confidential Information to any third party. The
confidentiality obligations undertaken by the Investors hereunder will remain in
full force and effect regardless of the execution and consummation or
termination of this Agreement.


                                     - 8 -
<PAGE>


     9. MISCELLANEOUS.

          9.1 AMENDMENTS. This Agreement may be modified, supplemented or
     amended only by a written instrument executed by all of the parties.

          9.2 NOTICES. Any notice that is required or provided to be given under
     this Agreement shall be deemed to have been sufficiently given and received
     for all purposes, (i) when delivered in writing by hand, upon delivery;
     (ii) if sent via facsimile, upon transmission and electronic confirmation
     of receipt (and if transmitted and received on a non-business day, on the
     first business day following transmission and electronic confirmation of
     receipt), (iii) seven (7) business days (and fourteen (14) business days
     for international mail) after being sent by certified or registered mail,
     postage and charges prepaid, return receipt requested, or (iv) three (3)
     business days after being sent by internationally overnight delivery
     providing receipt of delivery, to the following addresses:


          if to the Company, B.O.S. Better On Line Solutions Ltd., Beit Rabin,
          100 BOS Road, Teradyon Industrial Park, Misgav 20179, Israel attn: Mr.
          Nehemia Kaufman, CFO , facsimile: (972) 4 999-0334, with a copy to
          Amit, Pollak Matalon & Co., NYP Tower, 17 Yitzhak Sadeh St., Tel-Aviv
          67775 Israel attn: Yonatan Altman, Adv. Fax: (972) 3 561-3620; or at
          any other address designated by the Company to the Investors in
          writing;

          if to an Investor, to its address listed on SCHEDULE 1 hereto or at
          any other address designated by the Investor to the Company in
          writing.

          9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Without limitation to
     Section 8 above, all representations and warranties contained herein or in
     any Transaction Document or in any other certificate delivered hereunder or
     thereunder shall survive after the execution and delivery of this Agreement
     or such certificate or document, as the case may be, for a period of 24
     months from the date hereof. All covenants and agreements in any
     Transaction Documents shall survive in accordance with their terms. This
     Section shall survive the termination of this Agreement for any reason.

          9.4 DELAYS OR OMISSIONS; WAIVER. Except as expressly provided herein,
     no delay or omission to exercise any right, power or remedy accruing to any
     party under this Agreement shall impair any such right, power or remedy of
     such party nor shall it be construed to be a waiver of any breach or
     default, or an acquiescence thereto, or of a similar breach or default
     thereafter occurring; nor shall any waiver of any single breach or default
     be deemed a waiver of any other breach or default theretofore or thereafter
     occurring. Any waiver, permit, consent or approval of any kind or character
     on the part of any party hereto of any breach or default under this
     Agreement, or any waiver on the part of any party of any provisions or
     conditions of this Agreement, must be in writing and shall be effective
     only to the extent specifically set forth in such writing.

          9.5 OTHER REMEDIES. Any and all remedies herein expressly conferred
     upon a party shall be deemed cumulative with, and not exclusive of, any
     other remedy conferred hereby or by law on such party, and the exercise of
     any one remedy shall not preclude the exercise of any other.

                                     - 9 -
<PAGE>


          9.6 ENTIRE AGREEMENT. This Agreement and the exhibits and schedules
     hereto, constitute the entire understanding and agreement of the parties
     hereto with respect to the subject matter hereof and thereof and supersede
     all prior and contemporaneous agreements or understandings, inducements or
     conditions, express or implied, written or oral, between the parties with
     respect hereto and thereto.

          9.7 HEADINGS. All section headings herein are inserted for convenience
     only and shall not modify or affect the construction or interpretation of
     any provision of this Agreement.

          9.8 SEVERABILITY. Should any one or more of the provisions of this
     Agreement (including its exhibits and schedules) or of any agreement
     entered into pursuant to this Agreement be determined to be illegal or
     unenforceable, all other provisions of this Agreement and of each other
     agreement entered into pursuant to this Agreement, shall be given effect
     separately from the provision or provisions determined to be illegal or
     unenforceable and shall not be affected thereby. The parties further agree
     to replace such void or unenforceable provision of this Agreement with a
     valid and enforceable provision, which will achieve, to the extent
     possible, the economic, business and other purposes of the void or
     unenforceable provision.

          9.9 ASSIGNMENT. This Agreement may not be assigned in whole or in part
     by any Investor without the prior written consent of the Company.

          9.10 GOVERNING LAW AND VENUE. This Agreement shall be construed in
     accordance with and governed by the internal laws of the State of Israel,
     without regard to conflict of laws provisions. Any dispute arising under or
     in relation to this Agreement shall be adjudicated in the competent court
     of Tel Aviv-Jaffa district only, and each of the parties hereby submits
     irrevocably to the exclusive jurisdiction of such court.

          9.11 COUNTERPARTS. This Agreement may be executed concurrently in any
     number of counterparts, each of which shall be deemed an original, but all
     of which together shall constitute one and the same instrument.

          9.12 FURTHER ACTIONS. At any time and from time to time, each party
     agrees, without further consideration, to take such actions and to execute
     and deliver such documents as may be reasonably necessary to effectuate the
     purposes of this Agreement.

          9.13 INDEPENDENT NATURE OF INVESTORS' OBLIGATIONS AND RIGHTS. The
     obligations of each Investor under any Transaction Document are several and
     not joint with the obligations of any other Investor, and no Investor shall
     be responsible in any way for the performance of the obligations of any
     other Investor under any Transaction Document.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)


                                     - 10 -
<PAGE>


IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement
as of the date first set forth above.



   B.O.S. BETTER ON LINE SOLUTIONS LTD.

   By:____________________________

         Name: ___________________

         Title: __________________



   HILLSWOOD HOLDINGS LIMITED

   By:____________________________

         Name: ___________________

         Title: __________________


   VAMOS INC.

   By:____________________________

         Name: ___________________

         Title: __________________


                                     - 11 -
<PAGE>


                                   SCHEDULE 1
<TABLE>
<CAPTION>

                                                        NO. OF          PRE-CLOSING HOLDINGS      POST-CLOSING HOLDINGS
                                        PURCHASE        SHARES          --------------------     -----------------------
INVESTOR'S NAME AND ADDRESS              AMOUNT        PURCHASED        Amount       Percent     Amount          Percent
- ---------------------------             --------        -------         ------       -------     -------         -------
<S>                                     <C>             <C>             <C>            <C>       <C>              <C>
HILLSWOOD HOLDINGS LIMITED              $750,000        267,857         42,262         1.1%      310,119          7.44%
PO Box 3136, Akara
Building, Suite 8,
Wickams Cay 1, Road
Town
Tortola, BVI

Address:
Hillswood Holdings Ltd.
c/o Credit Suisse Trust
Limited, Guernsey Office,
P.O. Box 122, Helvetia
Court, South Esplanade,
St. Peter Port, Guernsey,
GY1 4EE, Channel
Islands For the attention
of Frank Robinson
Fax. 44 1481 726 218
</TABLE>


                                     - 12 -
<PAGE>

<TABLE>
<CAPTION>

<S>                                     <C>             <C>             <C>            <C>       <C>              <C>
VAMOS INC.                               $250,00         89,286           ----        ----        89,286          2.14%
c/o GISE
37 G. Sisini Street
Athens 115 28
Greece
Tel: + 30 210 725 8686
Fax: + 30 210 725 8685

With a copy to:

Mr. Chandran Gnanakuru, Director
Curzon Associates Ltd.
5th Floor, 12 Berkeley Street
London W1J 8DT, United Kingdom
Tel: 44 (0) 20 7318 2901 (direct)
Fax: 44 (0) 20 7318 2949
Mobile: 44 (0) 7973 640043

Total                                 $1,000,000        357,143
</TABLE>


                                     - 13 -
<PAGE>


                                    EXHIBIT A

                          REGISTRATION RIGHTS AGREEMENT


                                     - 14 -
<PAGE>



                          REGISTRATION RIGHTS AGREEMENT



     THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made as of
December 14, 2003, by and between B.O.S. Better Online Solutions Ltd., a company
organized under the laws of Israel ("BOS" or the "COMPANY"), and the other
parties listed on Schedule 1 hereto (each an "INVESTOR" and collectively, the
"INVESTORS"). BOS and the Investors shall be referred to herein collectively as
the "PARTIES".



                                   WITNESSETH



     WHEREAS, concurrently with the execution and delivery of this Agreement,
the Parties are entering into a Share Purchase Agreement (the "PURCHASE
AGREEMENT"), which provides that, upon the terms and conditions thereof, BOS
will sell to the Investors Ordinary Shares of BOS as more fully provided therein
(the "BOS SHARES"); and

     WHEREAS, BOS agrees to grant the Investors registration rights with respect
to the BOS Shares under the terms and conditions set forth herein; and

     WHEREAS, BOS is party to certain Registration Rights Agreements (the
"EXISTING REGISTRATION RIGHTS AGREEMENTS") with the shareholders listed therein
(collectively, the "EXISTING SHAREHOLDERS") which require the consent of the
holders of at least a majority of the then outstanding Registrable Securities
(as defined therein) in order for BOS to enter into an agreement for the grant
of registration rights senior to or in parity with the rights of such Existing
Shareholders; and

     WHEREAS, BOS has not obtained such consent and consequently the
registration rights granted hereunder shall be subordinate to the rights of the
Existing Shareholders; and

     WHEREAS, the Parties wish to define the respective rights and obligations
of the Parties in connection with the grant of registration rights contemplated
hereby.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the Parties hereby agree as follows:



1.   DEFINITIONS.

     As used in this Agreement the following terms shall have the following
     meanings:

     (a)  "Closing" means the date that the Closing shall occur under the
          Purchase Agreement.

     (b)  "Commission" means the Securities and Exchange Commission or any other
          Federal agency at the time administering the Securities Act.


<PAGE>


     (c)  "Exchange Act" means the Securities Exchange Act of 1934 or any
          successor Federal statute, and the rules and regulations of the
          Commission promulgated thereunder, all as the same shall be in effect
          from time to time.

     (d)  "Existing Shareholders" means holders of the Company's Registrable
          Securities, that are entitled to registration rights pursuant to their
          respective Existing Registration Agreement.

     (e)  "Investors" means the persons identified on Schedule 1 hereto.

     (f)  "Ordinary Shares" means the ordinary shares of the Company, par value
          NIS 4.00 each.

     (g)  "Primary Shares" means at any time the authorized but unissued shares
          of Ordinary Shares held by the Company in its treasury.

     (h)  "Purchase Agreement" means the Share Purchase Agreement between the
          Company and the Investors, to which this Agreement is attached as
          Exhibit A.

     (i)  "Registrable Securities" means the Ordinary Shares defined as
          Registrable Securities under the Existing Registration Rights
          Agreements.

     (j)  "Registrable Shares" means Ordinary Shares purchased by the Investors
          at the Closing (as such term is defined in the Purchase Agreement) as
          described on Schedule 1. As to any particular Registrable Shares, such
          Registrable Shares shall cease to be Registrable Shares when (i) they
          have been registered under the Securities Act, the registration
          statement in connection therewith has been declared effective and they
          have been disposed of pursuant to such effective registration
          statement, (ii) they are eligible to be sold or distributed without
          volume limitations pursuant to Rule 144(k), or (iii) they shall have
          ceased to be outstanding.

     (k)  "Rule 144" means Rule 144 promulgated under the Securities Act or any
          successor rule thereto or any complementary rule thereto (such as Rule
          144A).

     (l)  "Securities Act" means the Securities Act of 1933, as amended, or any
          successor Federal statute, and the rules and regulations of the
          Commission thereunder, all as the same shall be in effect from time to
          time.


                                       2
<PAGE>


2.   INCIDENTAL REGISTRATION.

     2.1  If the Company at any time shall determine to prepare and file with
          the Commission a registration statement relating to an offering of its
          equity securities, for its own account or the account of others
          (except with respect to registration statements on Form F-4, Form S-8
          or another form not available for registering the Registrable Shares
          for sale to the public), each such time it will give written notice to
          all holders of Registrable Shares of its intention so to do. The
          Company shall, upon the written request of any such holder, received
          by the Company within 20 days after the giving of any such notice by
          the Company, to register any of its Registrable Shares, use its best
          efforts to cause the Registrable Shares as to which registration shall
          have been so requested to be included in the securities to be covered
          by the registration statement proposed to be filed by the Company, all
          to the extent requisite to permit the sale or other disposition by the
          holders of such Registrable Shares. Notwithstanding the above,
          Registrable Shares shall be included in such registration statement
          only to the extent that their inclusion will not limit the number of
          Registrable Securities sought to be included by the Existing
          Shareholders or reduce the offering price thereof.

     2.2  In the event that any registration pursuant to this Section 2, shall
          be, in whole or in part, an underwritten public offering, and the
          managing underwriter advises the Company that the inclusion of all
          Primary Shares, Registrable Shares, and/or Registrable Securities
          proposed to be included in such registration would interfere with the
          successful marketing (including pricing) of the offering, then the
          size of the offering shall be reduced accordingly and include first
          the Primary Shares and the Registrable Securities proposed to be
          registered (allocated subject to and in accordance with any rules of
          priority provided under the Existing Registration Agreements) and then
          the available number of Registrable Shares. Notwithstanding the
          foregoing provisions, the Company may withdraw any registration
          statement referred to in this Section 2 without thereby incurring any
          liability to the holders of the Registrable Shares.



3.   HOLDBACK AGREEMENT


     If the Company at any time shall register Primary Shares under the
     Securities Act for sale to the public pursuant to a firm commitment public
     offering, the Investors shall not sell publicly, make any short sale of,
     grant any option for the purchase of, or otherwise dispose publicly of, any
     Registrable Shares as required by any underwriter in connection with such
     registration, and without the prior written consent of the Company, for up
     to 90 days from the close of such offering.


                                       3
<PAGE>


4.   PREPARATION AND FILING.

     4.1  If and whenever the Company shall have filed a registration statement
          which includes Registrable Shares, the Company shall , as
          expeditiously as practicable:


          (a)  use its best efforts to cause a registration statement that
               registers such Registrable Shares to become and remain effective
               for a period of 180 days or until all of such Registrable Shares
               have been disposed of (if earlier); it being understood that such
               registration statement may, in the Company's discretion, be on
               any form that the Company is eligible to use to register the
               resale of the Registrable Shares; it being further understood
               that before or following the effectiveness of a registration
               statement covering the Registrable Shares, the Company may change
               to another form of registration statement for which the Company
               is then eligible to register its securities, provided that at
               least one registration statement covering the Registrable Shares
               not yet sold remains effective during such 180 day period or
               until all of such Registrable Shares have been disposed of (if
               earlier). In addition, by or before the conclusion of such 180
               day period, the Company may take such actions for any such
               registration statement covering Registrable Shares (or, in the
               Company's discretion, a registration statement on another form
               that the Company is eligible to use to register its securities)
               to remain effective for such additional time period as the
               Company shall decide in its sole discretion;


          (b)  prepare and file with the Commission such amendments and
               supplements to such registration statement and the prospectus
               used in connection therewith as may be necessary to keep such
               registration statement (or, in the Company's discretion, a
               registration statement on another form that the Company is
               eligible to use to register its securities) effective for a
               period of 180 days or until all of such Registrable Shares have
               been disposed of (if earlier) and to comply with the provisions
               of the Securities Act with respect to the sale or other
               disposition of such Registrable Shares, or such longer period as
               is determined by the Company pursuant to Section 4.1(a) hereof;

          (c)  use its best efforts to register or qualify such Registrable
               Shares under such other securities or blue sky laws of such
               jurisdictions as the Investors reasonably request and do any and
               all other acts and things that may be reasonably necessary or
               advisable to enable the Investors to consummate the disposition
               in such jurisdictions of the Registrable Shares owned by the
               Investors; provided, however, that the Company will not be
               required to qualify generally to do business, subject itself to
               general taxation or consent to general service of process in any
               jurisdiction where it would not otherwise be required to do so
               but for this paragraph (c) or to provide any material undertaking
               or make any changes in its By-laws or Articles of Association
               which the Board of Directors determines to be contrary to the
               best interests of the Company or to modify any of its contractual
               relationships then existing;


                                       4
<PAGE>


          (d)  furnish to the Investors holding such Registrable Shares such
               number of copies of a summary prospectus, if any, or other
               prospectus, including a preliminary prospectus, in conformity
               with the requirements of the Securities Act, and such other
               documents as such Investors may reasonably request in order to
               facilitate the public sale or other disposition of such
               Registrable Shares;


          (e)  without limiting subsection (c) above, use its best efforts to
               cause such Registrable Shares to be registered with or approved
               by such other governmental agencies or authorities as may be
               necessary by virtue of the business and operations of the Company
               to enable the Investors holding such Registrable Shares to
               consummate the disposition of such Registrable Shares;


          (f)  notify the Investors holding such Registrable Shares on a timely
               basis at any time when a prospectus relating to such Registrable
               Shares is required to be delivered under the Securities Act
               within the appropriate period mentioned in subparagraph (a) of
               this Section 4, of the happening of any event as a result of
               which the prospectus included in such registration statement, as
               then in effect, includes an untrue statement of a material fact
               or omits to state a material fact required to be stated therein
               or necessary to make the statements therein not misleading in
               light of the circumstances then existing and, at the request of
               an Investor, prepare and furnish to such Investor a reasonable
               number of copies of a supplement to or an amendment of such
               prospectus as may be necessary so that, as thereafter delivered
               to the offerees of such shares, such prospectus shall not include
               an untrue statement of a material fact or omit to state a
               material fact required to be stated therein or necessary to make
               the statements therein not misleading in light of the
               circumstances then existing;


          (g)  provide a transfer agent and registrar (which may be the same
               entity and which may be the Company) for such Registrable Shares;


          (h)  issue to any underwriter to which the Investors may sell shares
               in such offering certificates evidencing such Registrable Shares;


                                       5
<PAGE>


          (i)  list such Registrable Shares on the automated quotation system of
               the National Association of Securities Dealers, Inc. (the
               "NASD");


          (j)  subject to all the other provisions of this Agreement, use its
               best efforts to take all other steps accessory to effect the
               registration of such Registrable Shares contemplated hereby.


     4.2  The Investors, upon receipt of any notice from the Company of any
          event of the kind described in Section 4.1(f) hereof, shall forthwith
          discontinue disposition of the Registrable Shares pursuant to the
          registration statement covering such Registrable Shares until the
          Investors' receipt of the copies of the supplemented or amended
          prospectus contemplated by Section 4.1(f) hereof, and, if so directed
          by the Company, the Investors shall deliver to the Company all copies
          then in the Investors' possession, of the prospectus covering such
          Registrable Shares at the time of receipt of such notice.


5.   EXPENSES

     All expenses (other than underwriting discounts and commissions relating to
     the Registrable Shares, as provided in the last sentence of this Section 5)
     incurred by the Company in complying with Section 4, including, without
     limitation, all registration and filing fees (including all expenses
     incident to filing with the NASD), fees and expenses of complying with
     securities and blue sky laws, printing expenses, and fees and expenses of
     the Company's legal counsel and accountants shall be borne by the Company;
     provided, however, that all underwriting discounts and selling commissions
     applicable to the Registrable Shares shall be borne by the holders selling
     such Registrable Shares in proportion to the number of Registrable Shares
     sold by each such shareholder.

                                       6
<PAGE>


6.   INDEMNIFICATION


     (a)  In connection with any registration of any Registrable Shares under
          the Securities Act pursuant to this Agreement, the Company shall
          indemnify and hold harmless each Investor, each underwriter, broker or
          any other person acting on behalf of the holders of Registrable Shares
          against any losses, claims, damages or liabilities, joint or several
          (or actions in respect thereof), to which any of the foregoing persons
          may become subject under the Securities Act or otherwise, insofar as
          such losses, claims, damages or liabilities (or actions in respect
          thereof) arise out of or are based upon an untrue statement or
          allegedly untrue statement of a material fact contained in the
          registration statement under which such Registrable Shares were
          registered under the Securities Act, any preliminary prospectus or
          final prospectus contained therein or otherwise filed with the
          Commission, any amendment or supplement thereto or any document
          incident to registration or qualification of any Registrable Shares,
          or arise out of or are based upon the omission or alleged omission to
          state therein a material fact required to be stated therein or
          necessary to make the statements therein not misleading or, with
          respect to any prospectus, necessary to make the statements therein in
          light of the circumstances under which they were made not misleading,
          or any violation by the Company of the Securities Act or state
          securities or blue sky laws applicable to the Company and relating to
          action or inaction required of the Company in connection with such
          registration or qualification under such state securities or blue sky
          laws; and shall reimburse each Investor, such underwriter, such broker
          or such other person acting on behalf of the holders of Registrable
          Shares for any legal or other expenses reasonably incurred by any of
          them in connection with investigating or defending any such loss,
          claim, damage, liability or action; provided, however, that the with
          respect to any particular Investor, the Company shall not be liable in
          any such case to the extent that any such loss, claim, damage,
          liability or action (including any legal or other expenses incurred)
          arises out of or is based upon an untrue statement or allegedly untrue
          statement or omission or alleged omission made in said registration
          statement, preliminary prospectus, final prospectus, amendment
          supplement or document incident to registration or qualification of
          any Registrable Shares in reliance upon and in conformity with written
          information furnished to the Company through an instrument duly
          executed by such Investor or his counsel or underwriter specifically
          for use in the preparation thereof; provided further, however, that
          the foregoing indemnity agreement is subject to the condition that,
          insofar as it relates to any untrue statement, omission or alleged
          omission made in any preliminary prospectus but eliminated or remedied
          in the final prospectus (filed pursuant to Rule 424 of the Securities
          Act), such indemnity agreement shall not inure to the benefit of any
          Investor, underwriter, broker or other person acting on behalf of
          holders of the Registrable Shares from whom the person asserting any
          loss, claim, damage, liability or expense purchased the Registrable
          Shares which are the subject thereof, if a copy of such final
          prospectus had been made available to such person and such Investor,
          underwriter, broker or other person acting on behalf of holders of the
          Registrable Shares and such final prospectus was not delivered to such
          person with or prior to the written confirmation of the sale of such
          Registrable Shares to such person.

     (b)  In connection with any registration of Registrable Shares under the
          Securities Act pursuant to this Agreement, each Investor shall,
          severally and not jointly, indemnify and hold harmless (in the same
          manner and to the same extent as set forth in the preceding paragraph
          of this Section 6) the Company, each director of the Company, each
          officer of the Company who shall sign such registration statement,
          each representative of the Company, including the Company's counsel,
          each underwriter, broker or other person acting on behalf of the
          holders of Registrable Shares and each person who controls any of the
          foregoing persons within the meaning of the Securities Act with
          respect to any statement or omission from such registration statement,
          any preliminary prospectus or final prospectus contained therein or
          otherwise filed with the Commission, any amendment or supplement
          thereto or any document incident to registration or qualification of
          any Registrable Shares, if such statement or omission was made in
          reliance upon and in conformity with written information furnished to
          the Company or such underwriter by such Investor specifically for use
          in connection with the preparation of such registration statement,
          preliminary prospectus, final prospectus, amendment, supplement or
          document.


                                       7
<PAGE>


     (c)  Promptly after receipt by an indemnified party of notice of the
          commencement of any action involving a claim referred to in the
          preceding paragraphs of this Section 6, such indemnified party will,
          if a claim in respect thereof is made against an indemnifying party,
          give written notice to the latter of the commencement of such action.
          The failure of any indemnified party to notify an indemnifying party
          of any such action shall not (unless such failure shall have a
          material adverse effect on the indemnifying party) relieve the
          indemnified party on account of this Section 6. In case any such
          action is brought against an indemnified party, the indemnifying party
          will be entitled to participate in and to assume the defense thereof,
          jointly with any other indemnifying party similarly notified to the
          extent that it may wish, with counsel reasonably satisfactory to such
          indemnified party, and after notice from the indemnifying party to
          such indemnified party of its election so to assume the defense
          thereof, the indemnifying party shall not be responsible for any legal
          or other expenses subsequently incurred by the indemnified party in
          connection with the defense thereof; provided, however, that if any
          indemnified party shall have reasonably concluded that there may be
          one or more legal or equitable defenses available to such indemnified
          party which are additional to or conflict with those available to the
          indemnifying party, or that such claim or litigation involves or could
          have an effect upon matters beyond the scope of the indemnity
          agreement provided in this Section 6, the indemnifying party shall not
          have the right to assume the defense of such action on behalf of such
          indemnified party (but shall have the right to participate therein
          with counsel of its choice) and such indemnifying party shall
          reimburse such indemnified party and any person controlling such
          indemnified party for that portion of the fees and expenses of any
          counsel retained by the indemnified party which is reasonably related
          to the matters covered by the indemnity agreement provided in this
          Section 6. If the indemnifying party is not entitled to, or elects not
          to, assume the defense of a claim, it will not be obligated to pay the
          fees and expenses of more than one counsel with respect to such claim.


                                       8
<PAGE>


     (d)  If the indemnification provided for in this Section 6 is held by a
          court of competent jurisdiction to be unavailable to an indemnified
          party with respect to any loss, claim, damage, liability or action
          referred to herein, then the indemnifying party, in lieu of
          indemnifying such indemnified party hereunder, shall contribute to the
          amounts paid or payable by such indemnified party as a result of such
          loss, claim, damage, liability or action in such proportion as is
          appropriate to reflect the relative fault of the indemnifying party on
          the one hand and of the indemnified party on the other in connection
          with the statements or omissions which resulted in such loss, claim,
          damage, liability or action as well as any other relevant equitable
          considerations. The relative fault of the indemnifying party and of
          the indemnified party shall be determined by reference to, among other
          things, whether the untrue or alleged untrue statement of a material
          fact or the omission or alleged omission to state a material fact
          relates to information supplied by the indemnifying party or by the
          indemnified party and the parties' relative intent, knowledge, access
          to information and opportunity to correct or prevent such statement or
          omission. The parties agree that it would not be just and equitable if
          contribution pursuant hereto were determined by pro rata allocation or
          by any other method or allocation which does not take account of the
          equitable considerations referred to herein. No person guilty of
          fraudulent misrepresentation shall be entitled to contribution from
          any person.


7.   UNDERWRITING AGREEMENT


     No shareholder may participate in any underwritten registration hereunder
     unless such shareholder (a) agrees to register such shareholder's Ordinary
     Shares on the basis provided in any underwriting arrangements and (b)
     completes and executes all questionnaires, powers of attorney, indemnities,
     underwriting agreements and other documents reasonably and customarily
     required under the terms of such underwriting arrangements.


8.   INFORMATION BY HOLDER


     Each Investor shall furnish to the Company such written information
     regarding such Investor and the distribution proposed by the Investor as
     the Company may reasonably request in writing and as shall be reasonably
     required in connection with any registration, qualification or compliance
     referred to in this Agreement.


9.   EXCHANGE ACT COMPLIANCE


     The Company shall comply with all of the reporting requirements of the
     Exchange Act applicable to it (excluding Section 14 of the Exchange Act if
     not then applicable to the Company) and shall comply with all other public
     information reporting requirements of the Commission which are conditions
     to the availability of Rule 144 for the sale of the Ordinary Shares. The
     Company shall cooperate with the Investors in supplying such information as
     may be necessary for the Investors to complete and file any information
     reporting forms presently or hereafter required by the Commission as a
     condition to the availability of Rule 144.


                                       9
<PAGE>


10.  CONFLICT OF RIGHTS


     The Company has, in the past, granted to the Existing Shareholders
     registration rights that are superior to or at par with the registration
     rights granted hereunder. The Company shall not, after the date hereof,
     without the prior written consent of the holders of a majority of the
     Registrable Shares, grant any registration rights to holders of the
     Company's securities not having any registration rights on the date hereof
     that (i) prohibit the registration rights granted hereunder or limit the
     number of Registrable Shares sought to be included by the Investors
     hereunder or (ii) include the right to a demand registration, unless such
     right shall also be granted to the Investors. Notwithstanding the above,
     the Company shall be required to grant demand rights pursuant to sub
     section (ii) above only to Investors holding in the aggregate at the time
     of the demand no less than 150,000 Registrable Shares (as adjusted for any
     share combination or subdivision).

11.  TERMINATION

     This Agreement shall terminate and be of no further force or effect when
     there shall no longer be any Registrable Shares outstanding, provided that
     Sections 5 and 6 shall survive any termination of this Agreement. Without
     limitation to the above, no holder or Registrable Shares shall be entitled
     to exercise any right provided hereunder after ten (10) years following the
     date hereof.



12.  MISCELLANEOUS


     12.1. This Agreement shall bind and inure to the benefit of the Company and
          the Investors and, subject to Section 12.2, the respective successors
          and assigns of the Company and the Investors.



     12.2. An Investor may assign his rights hereunder to any purchaser or
          transferee of Registrable Shares; provided, however, that such
          purchaser or transferee shall, as a condition to the effectiveness of
          such assignment, be required to execute a counterpart to this
          Agreement agreeing to be treated as an Investor whereupon such
          purchaser or transferee shall have the benefits of, and shall be
          subject to the restrictions contained in, this Agreement as if such
          purchaser or transferee was originally included in the definition of
          an Investor herein and had originally been a party hereto.



     12.3. This Agreement and the other writings referred to herein or therein
          or delivered pursuant hereto or thereto, contains the entire agreement
          between each of the Investors and the Company with respect to the
          subject matter hereof and supersede all prior and contemporaneous
          arrangements or understandings with respect thereto. With the written
          consent of the holders of majority of the then outstanding Registrable
          Shares, the obligations of the Company under this Agreement may be
          waived (either generally or in a particular instance and either
          retroactively or prospectively) or the Company and the Investors may
          enter into a supplementary agreement for the purpose of adding any
          provisions to or changing in any manner or eliminating any of the
          provisions of this Agreement. Written notice of any such waiver,
          consent or agreement of amendment, modification or supplement shall be
          given to the Investors who have not previously consented thereto in
          writing.


                                       10
<PAGE>


     12.4. Any notice that is required or provided to be given under this
          Agreement shall be deemed to have been sufficiently given and received
          for all purposes, (i) when delivered in writing by hand, upon
          delivery; (ii) if sent via facsimile, upon transmission and electronic
          confirmation of receipt (and if transmitted and received on a
          non-business day, on the first business day following transmission and
          electronic confirmation of receipt), (iii) seven (7) business days
          (and fourteen (14) business days for international mail) after being
          sent by certified or registered mail, postage and charges prepaid,
          return receipt requested, or (iv) three (3) business days after being
          sent by internationally overnight delivery providing receipt of
          delivery, to the following addresses:

               if to the Company:

               B.O.S. Better On Line Solutions Ltd., Beit Rabin, 100 BOS Road,
               Teradyon Industrial Park, Misgav 20179, Israel attn.: Mr. Nehemia
               Kaufman, CFO, facsimile: (972) 4 999-0334, with a copy to Amit,
               Pollak Matalon & Co., NYP Tower, 17 Yitzhak Sadeh St., Tel-Aviv
               67775 Israel attn: Yonatan Altman, Adv. Fax: (972) 3 561-3620; or
               at any other address designated by the Company to the Investors
               in writing;

               if to an Investor, to its address listed on Schedule 1 hereto or
               at any other address designated by the Investor to the Company in
               writing.


     12.5. This Agreement may be executed in any number of counterparts, and
          each such counterpart hereof shall be deemed to be an original
          instrument, but all such counterparts together shall constitute but
          one agreement.


     12.6. The headings of the various sections of this Agreement have been
          inserted for convenience of reference only and shall not be deemed to
          be a part of this Agreement.


     12.7. This Agreement shall be construed in accordance with and governed by
          the internal laws of the State of Israel, without regard to conflict
          of laws provisions. Any dispute arising under or in relation to this
          Agreement shall be adjudicated in the competent court of Tel
          Aviv-Jaffa district only, and each of the parties hereby submits
          irrevocably to the exclusive jurisdiction of such court.



                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.)


                                       11
<PAGE>


IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement
as of the date first set forth above.



   B.O.S. BETTER ON LINE SOLUTIONS LTD.

   By:____________________________

        Name: ____________________

        Title: ___________________


   HILLSWOOD HOLDINGS LIMITED

   By:____________________________

        Name: ____________________

        Title: ___________________


   VAMOS INC.

   By:____________________________

        Name: ____________________

        Title: ___________________


                                       12
<PAGE>


                                   SCHEDULE 1

<TABLE>
<CAPTION>

                                                            NO. OF           PRE-CLOSING HOLDINGS       POST-CLOSING HOLDINGS
                                         PURCHASE           SHARES            ------------------       -----------------------
INVESTOR'S NAME AND ADDRESS               AMOUNT           PURCHASED          Amount     Percent       Amount          Percent
- ---------------------------             ----------         ---------          ------     -------       -------         -------
<S>                                     <C>                 <C>               <C>          <C>         <C>              <C>
HILLSWOOD HOLDINGS LIMITED              $  750,000          267,857           42,262       1.1%        310,119          7.44%
PO Box 3136, Akara Building,
Suite 8, Wickams Cay 1, Road Town
Tortola, BVI

Address:
Hillswood Holdings Ltd. c/o
Credit Suisse Trust Limited,
Guernsey Office, P.O. Box 122,
Helvetia Court, South Esplanade,
St. Peter Port, Guernsey, GY1
4EE, Channel Islands For the
attention of  Frank Robinson
Fax. 44 1481 726 218
</TABLE>


                                       13
<PAGE>


<TABLE>
<CAPTION>
                                                                             PRE-CLOSING HOLDINGS       POST-CLOSING HOLDINGS
                                                                              ------------------       -----------------------
<S>                                     <C>                 <C>               <C>          <C>         <C>              <C>
VAMOS INC                               $   250,00           89,286            -----     -----         89,286          2.14%
c/o GISE
37 G. Sisini Street
Athens 115 28
Greece
Tel: + 30 210 725 8686
Fax: + 30 210 725 8685

With a copy to:

Mr. Chandran Gnanakuru, Director
Curzon Associates Ltd.
5th Floor, 12 Berkeley St
London W1J 8DT, United Kingdom
Tel: 44 (0) 20 7318 2901 (direct)
Fax: 44 (0) 20 7318 2949
Mobile: 44 (0) 7973 640043

Total                                   $1,000,000          357,143
</TABLE>



                                       14

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>4
<FILENAME>exhibit_4-4.txt
<TEXT>


                                                                     EXHIBIT 4.4
                               SERVICES AGREEMENT

        EFFECTIVE AS OF THE 15TH DAY OF APRIL 2003 (The "Effective Date")

                                     Between

                     1. B.O.S. BETTER ONLINE SOLUTIONS LTD.
                               (HEREINAFTER "BOS")
                                       AND
                                 2. BOSCOM LTD.
                             (HEREINAFTER "BOSCOM")

        (BOS AND BOSCOM HEREINAFTER JOINTLY AND SEVERALLY, THE "COMPANY")

                                       And

                CUKIERMAN & CO. INVESTMENT HOUSE LTD. 51-267516-6

                        (hereinafter - "CUKIERMAN & CO.")

        (hereinafter the Company and Cukierman & Co. each a "Party" and,
                            together the "Parties")

This services agreement (the "AGREEMENT") confirms the parties' understanding
that the Company has engaged Cukierman & Co. to act as its non-exclusive advisor
in connection with the transactions described herein.

Now therefore, in consideration for the promises and mutual agreements and
covenants contained herein, the Parties hereby agree as follows:


1.   Subject to the provisions of this Agreement, Cukierman & Co will commence
     performing non-exclusive investment-banking Services for the Company
     (hereinafter the "Services") as of the Effective Date.


     The parties hereto agree that the Company may freely solicit and receive
     similar and competing services from any other person or entity during the
     term of this Agreement. The Company will keep Cukierman & Co. timely
     informed about any significant events in the Company which may compete with
     the provisions of the Services.


                                      1/9
<PAGE>


2.   Cukierman & Co Representations: Cukierman & Co hereby represents that it
     has the necessary abilities, qualifications and experience to provide the
     services under this Agreement and will devote sufficient of its qualified
     and appropriate employees for such purpose. Cukierman & Co. will use its
     best efforts to assist the Company in the transactions described below. In
     no event, however, shall Cukierman & Co. be obligated to sell, acquire,
     place, underwrite or sub-underwrite any securities or to lend money to or
     on behalf of the Company or to effect any of the transactions described
     herein.



3.   Cukierman & Co will prepare all the necessary material needed to present
     the Company to potential investors in a just and professional manner.



4.   Cukierman & Co. shall identify and notify the Company in writing the
     identity of potential investors and strategic partners, and the Company may
     approve in writing, at its sole and absolute discretion that such entities
     will qualify as "APPROVED ENTITIES" under this Agreement.

     Cukierman & Co. shall only contact Approved Entities, and in the event that
     Cukierman & Co. approach any person or entity which is not an Approved
     Entity hereunder, the Company will be under no obligation to pay Cukierman
     & Co. Success Fees (as defined below) or any other payment.



5.   The term of this Agreement (the "Term") shall commence on the Effective
     Date and shall continue for a period of twelve (12) consecutive calendar
     months. This Agreement shall be automatic monthly renewed, unless
     terminated by either Party in accordance with Section 11 (i).



6.   Scope of Services:

     (i)  Private Placement

          (a)  Definition: The sale by the Company of Company's securities,
               directly to any Approved Entity.

          (b)  Target: to raise US$ 5-10M within 9-12 months.

          (c)  A Private Placement Transaction shall be deemed to have been
               successfully completed if a sale by the Company of the Company's
               securities directly to an Approved Entity shall have been
               completed and closed (including the obtaining of any regulatory
               approval necessary to complete such a sale).


                                      2/9
<PAGE>


     (ii) Mergers and/or Acquisitions: Aimed at entities with great capacities
          in Marketing/Technology which are synergetic to the core VoIP business
          of the Company, as defined from time to time by the Company's
          management. Cukierman & Co. shall only contact Approved Entities, and
          only after the Success Fees regarding such Mergers and/or Acquisitions
          have been mutually agreed in writing by the Parties. In the event that
          Cukierman & Co. approach any person or entity which is not an Approved
          Entity hereunder, and/or approach an Approved Entity whilst the
          Success Fees regarding such Merger and/or Acquisitions have not yet
          been mutually agreed in writing by the Parties, the Company will be
          under no obligation to pay Cukierman & Co. Success Fees or any other
          payment.

     (iii) Business Development: The Parties shall enter into a separate
          agreement to be mutually agreed by the Parties (the "Business
          Development Agreement"). The Business Development Agreement shall
          include the terms and conditions of success fees to be paid to
          Cukierman & Co., and shall not include any additional retainer
          payment.

     (Private Placements, Merger and/or Acquisitions, Business Development shall
     be referred to hereinafter the "Transactions").


7.   Method

     (i)  Cukierman & Co will use its experience, connections and wide knowledge
          of the global financial markets and the investment-banking arena to
          assist the Company in raising funds and/or in M&A transactions as
          defined hereinabove

     (ii) Cukierman & Co will target Approved Entities, in parallel and in
          coordination with the Company, as potential investors and/or potential
          strategic partners.

     (iii) Cukierman & Co together with the Company will then manage the process
          until the Transaction is consummated, providing introduction and full
          support in the negotiating process up to the point of closing the
          deal.


8.   Team - Cukierman & Co assigned resources:
     For Private Placement: Mr. David Chouchena,
     For M&A: Mr. Uzie Ovitz
     For Strategic Alliances: Mr. Modi Ashkenazy


                                      3/9
<PAGE>


9.   Remuneration

     (i)  Retainer

          (a)  In consideration of Cukierman & Co's ongoing provision of the
               Services under this Agreement and under the Business Development
               Agreement, including but not necessarily limited to the
               Transactions (including time, office expenses etc.), Cukierman &
               Co will be paid a monthly sum of US$ 10,000+ V.A.T. commencing on
               April 15, 2003.

          (b)  Cukierman & Co will submit its invoice to the Company by the
               beginning of each working month.

          (c)  A monthly retainer will be paid 45 days after receipt by the
               Company of such invoice.

          (d)  In case the Company will ask to continue with part of the offered
               services the retainer for each will be as follows: Business
               Development: $3,650 per month; Private Placement activities:
               $3,650 per month and Mergers and Acquisitions activities: $2,700
               per month.

     (ii) Success Fees for the successful consummation of a Transaction
          involving a Private Placement will be as follows:

          (a)  BOS will pay Cukierman & Co success fees from the Proceeds of the
               Transactions (hereinafter the "Success Fees")

               IN RESPECT OF A TRANSACTION INVOLVING A PRIVATE PLACEMENT FROM
               WHICH THE PROCEEDS ARE IN CASH:

               (1)  6% of the total cash proceeds up to US$10,000,000, or

               (2)  in the event that the proceeds are in excess of
                    US$10,000,000, 4% of the total cash proceeds but not less
                    than US$ 600,000.

               IN RESPECT OF A TRANSACTION INVOLVING A PRIVATE PLACEMENT FROM
               WHICH THE PROCEEDS ARE IN NON-CASH:

               (3)  Half of the above percentages for the respective non-cash
                    proceeds.

          (b)  The Company shall pay the above Success Fees to Cukierman & Co.
               in the same form (cash, shares, options, warrants or other) and
               ratio in which it receives the proceeds from the relevant
               Transaction. Notwithstanding the aforesaid if the Company is due
               to pay Cukierman & Co. Success Fees in respect of a Transaction
               for which the proceeds were received in a mixture of cash and
               non-cash, Cukierman & Co. will have the option to be paid its
               Success Fees in a ratio in which the cash element is actually
               greater than the ratio in which the Company has received the
               proceeds from such relevant Transaction provided that such cash
               element is not less than 10% of the amount of cash proceeds which
               the Company received from the relevant Transaction and provided
               that the aggregate of the cash element and the value of the
               non-cash element (duly adjusted) shall not exceed the total value
               of the Success Fees calculated according to Section 9 (ii) (a)
               hereinabove and Section 9 (ii) (e) hereinunder. In addition, the
               Company will be entitled to increase the proportion of cash
               Success Fees paid to Cukierman & Co. out of the total payable
               Success Fees, at its sole decision. It is hereby agreed that in
               the event that the non-cash proceeds is subject to any
               restrictions on the disposal thereof (a "Lock-Up") that the
               Lock-Up shall also apply to the non-cash proceeds payable to
               Cukierman & Co. under this Agreement.


                                      4/9
<PAGE>


          (c)  For the avoidance of doubt it is hereby clarified that Cukierman
               & Co will not be entitled to any Success Fees for Transactions
               with persons or entities that had not been approved as Approved
               Entities by the appropriate Company organs.

          (d)  The Success Fees will be paid no later than 15 business days
               after the actual receipt of the Transaction proceeds by the
               Company as a result of a Transaction deemed to have been
               successfully completed according to Sections 6 (i) (c).

          (e)  The basis of calculating the value of non-cash proceeds derived
               from the consummation of certain Transactions as detailed in
               Sections 9 (ii) (a) (3) and 9 (ii) (b) above, will be mutually
               agreed in good faith between the Company and the relevant
               Approved Entity and such valuation will govern the corresponding
               calculation of the Success Fees due in respect of the
               consummation of such Transactions. In the event that the Company
               and the relevant Approved Entity have not agreed on the basis for
               a valuation for whatsoever reason, then the Parties will, in the
               first instance, endeavour to agree such basis between themselves
               and, if unsuccessful, will refer the matter to an evaluator whose
               identity will be mutually agreed between the Parties or, in the
               absence of such agreement the evaluator will be BOS' external
               auditor

     (iii) Success Fees for M&A: After the Company has agreed to a specific M&A
          activity the Success Fees in respect thereof, will then be discussed
          between the Parties and the agreed-upon terms shall be drafted and
          signed in an Addendum to be attached to this Agreement


                                      5/9
<PAGE>


     (iv) Expenses

          (a)  When a Cukierman & Co representative travels abroad on behalf of
               the Company, the Company will arrange, reserve and pay the travel
               expenses (including flight, hotel, transportation). In addition,
               other reasonable travel and accommodation expenses incurred by
               Cukierman & Co staff will be repaid against official receipts, in
               accordance with the Company's standard procedure. (b) In
               addition, when a Cukierman & Co representative travels abroad on
               behalf of the Company, the Company will pay an additional per
               diem of US$55 to cover all other expenses including meals.

          (b)  All foreign travel will require the Company's prior written
               approval.




10.  In the event that Cukierman & Co. wishes to engage with any third party in
     respect of its undertakings under this Agreement, it must obtain the
     Company's prior written approval before entering any such engagement. The
     Company's approval to the entering of such engagement will be subject,
     inter alia, to the third party entering into a confidentiality agreement
     and NDA with the Company in a form acceptable to the Company.

     Cukierman's decision to engage such approved third party, will be at its
     sole discretion and sole responsibility. In no case will the Company be
     bound to any liability toward or by such third parties engaged by Cukierman
     and Co. including any liability to indemnify such third party and/or any
     payment of success fee..



11.  Termination

     (i)  Neither Party may terminate this Agreement during the first three
          months after the entering hereof. Thereafter, either Party may
          terminate this Agreement, with or without cause, by giving the other
          Party 30 days prior written notice.

     (ii) Cukierman & Co will only be entitled to receive Success Fees, as
          determined in this Agreement, for Transactions between the Company and
          Approved Entities which are completed and closed (including the
          obtaining of any regulatory approval necessary to complete such a
          Transaction) within 9 months from the termination of this Agreement.

     (iii) An Approved Entity shall be automatically withdrawn from the Approved
          Entities list if (i) Cukierman & Co. fails to create a dialog between
          this Approved Entity and the Company within 3 months from its approval
          date or (ii) the Approved Entity stops communicating with the Company
          and Cukierman & Co. for a period of 5 consecutive months.


12.  The Agreement shall be governed by and construed in accordance with the
     Israeli law. Notwithstanding the foregoing, Cukierman & Co. confirm that
     they know that BOS is registered on the NASDAQ and undertake that during
     the period of providing services hereunder it shall comply with all laws
     and regulations applicable to public companies registered on the NASDAQ.


                                      6/9
<PAGE>


13.  Confidentiality

     Cukierman & Co. and the Company shall not disclose any part of the
     Agreement to any external entity without the explicit consent of the other
     party. Upon successful closing of a transaction within the scope of the
     Agreement, Cukierman & Co. shall be entitled to publicly disclose its
     involvement as advisor to the Company. The content, time, and form of this
     disclosure shall be coordinated with the Company and subject to its prior
     written approval in order to avoid, inter-allia, any selective public
     disclosure exposure.

     Any information provided by the Company to Cukierman & Co. in connection
     with this Agreement (prior to or after to the date of the Agreement) shall
     be kept confidential, Cukierman & Co. shall not disclose, allow access to,
     transmit, or transfer the confidential information to any other party, and
     shall only be used by Cukierman & Co. for purposes of its engagement
     hereunder, except information that can be clearly proven by documentation
     (i) was in Cukierman & Co.' possession prior to its disclosure by the
     Company; (ii) is publicly disclosed other than in violation of the
     Agreement; (iii) is obtained by Cukierman & Co. from a person other than
     the Company who, to the knowledge of Cukierman & Co., is not bound by a
     confidentiality undertaking ; (iv) the Company agrees in prior written
     consent may be disclosed; or (v) is legally required to be disclosed under
     compulsion of law , by order or act of any court or governmental or
     regulatory authority or body, PROVIDED, HOWEVER, that Cukierman & Co. shall
     provide prompt prior written notice thereof to the Company to enable it to
     seek a protective order or otherwise prevent or contest such disclosure and
     reasonably cooperate with the Company in attempting to limit or prevent
     such required disclosure. Cukierman & Co. may also disclose such
     information to those of its own and its affiliates' respective officers,
     directors, employees, representatives, auditors and professional advisers
     who have an actual need to know such information for purposes of performing
     the services described in the Agreement. Cukierman & Co. shall, prior to
     disclosing the confidential information to such officers, directors,
     employees, representatives, auditors and professional advisers, obtain
     their agreement to receive and use the confidential information on a
     confidential basis on the same conditions as contained in this Agreement.
     Cukierman & Co.' obligations under the first sentence of this paragraph
     shall terminate five years from the date hereof. The confidential
     information shall not be reproduced in any form or stored in a data base
     without the prior written consent of the Company. All copies of the
     confidential information shall contain the same proprietary notices, which
     appear on the original information.

     Upon termination or expiration of the Agreement or upon request of the
     Company, whichever first occurs, Cukierman & Co. shall immediately return
     to the Company the confidential information and all copies thereof, in all
     forms and permanently delete the confidential information from all
     retrieval systems and data bases in which it may be found.


                                      7/9
<PAGE>


     In the event of a breach of the confidentiality obligations hereunder, in
     addition to and not in substitution for any other remedy available to it in
     respect of such breach, the Company shall be entitled to injunctive relief
     which restrains Cukierman & Co. and the respective officers, directors,
     employees, representatives, auditors and professional advisers of Cukierman
     & Co. from committing or continuing such breach.

     For the avoidance of any doubt, the provision of this Section 13 shall
     survive the termination of this Agreement.

14.  No Obligation to Accept: This agreement does not constitute a commitment by
     the Company, the Company's shareholders and the Company's management to
     accept any of the Transactions proposed or offered to the Company by
     Cukierman & Co.



15.  Cukierman & Co. is providing services to the Company in relation to
     Transactions. Cukierman & Co. shall not regard any person (including any
     person who is a director or employee of the Company) as its client in
     relation to the Transactions and will not be responsible to any other
     person for providing protections afforded to clients of Cukierman & Co. or
     advising any other person involved in Transactions.



16.  No provision of this Agreement shall be deemed waived and no breach
     excused, unless such waiver or consent excusing the breach shall be in
     writing and signed by the party to be charged with such waiver or consent.


17.  Indemnification:. The Company hereby agrees that in the event that it,
     acting in the capacity of a principle, is the subject of a legal complaint
     or action, the Company shall indemnify and hold harmless Cukierman & Co.
     and its directors, officers, employees, agents, affiliates and
     representatives from and against any and all third party claims, actions
     (including shareholder derivative actions), proceedings, damages or
     liabilities, based on or arising out of (a) any untrue statement of a
     material fact required to be contained in any document provided by the
     Company and, (b) any failure to include therein any material fact required
     to be stated or necessary to render the statements therein not misleading.
     The Company shall not, however, be responsible for any such losses, claims,
     demands, damages, liabilities or expenses to the extent that they are
     finally judicially determined to have resulted from Cukierman & Co.' bad
     faith, negligence, wilful misconduct, non-performance or breach of this
     Agreement.

     Where Cukierman & Co. is the subject of a claim arising out of any untrue
     statement included in any material information provided by the Company, or
     the omission or the alleged omission to state therein a material
     information necessary to make such information not misleading, then the
     total amount recoverable from Cukierman & Co. shall be limited to such
     proportion (the "Liability") as is finally judicially determined to be just
     and equitable, having regards to the relative responsibility of (i)
     Cukierman & Co. and (ii) any other person (including for the avoidance of
     doubt, both the Company (and any director, employee, agent, subsidiary or
     affiliate of the Company) and any co-advisor or other person unrelated to
     the Company) who is jointly or severally liable (an "Other Party"). For the
     avoidance of doubt, any limitation or exclusion or restriction on the
     liability of any Other Party under any jurisdiction, whether arising under
     statute or contract or resulting from death, bankruptcy or insolvency (a
     "Liability Limitation") shall be ignored for the purposes of determining
     the extent of responsibility of that Other Party under clause (ii) above.


                                      8/9
<PAGE>


     The Company shall not be liable for any settlement of any litigation or
     proceeding effected without its prior written consent.

     For the avoidance of any doubt, the provision of this Section 17 shall
     survive the termination of this Agreement.


18.  The entering into of this Agreement by the BOS and BOSCOM is subject to the
     approval of their respective boards of directors.






- ------------------------       ------------------------ ------------------------
Name: ISRAEL GAL               Name: ISRAEL GAL         Name: NEHEMIA KAUFMAN

Title: CEO                     Title: CEO               Title: CFO

Signature                      Signature                Signature

BOSCOM LTD.                                 B.O.S. BETTER ONLINE SOLUTIONS LTD.
- ------------------------       ------------------------ ------------------------



                    -------------------------------------------------
                    Name: DAVID CHOUCHENA

                    Title: MANAGING DIRECTOR

                    Signature

                    CUKIERMAN & CO. INVESTMENT HOUSE LTD.
                    -------------------------------------------------


                                      9/9


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>5
<FILENAME>exhibit_4-5.txt
<TEXT>


                                                                     EXHIBIT 4.5
                              MANAGEMENT AGREEMENT


MANAGEMENT AGREEMENT (the "AGREEMENT") entered into as of the 1st day of
January, 2004, by and among BOS BETTER ONLINE SOLUTIONS LTD., a company
incorporated under the laws of the State of Israel, maintaining its principal
place of business at Rabin House, Teradyon Industrial Park, Misgav (the
"COMPANY"), ADIV BARUCH, Israeli I.D. number 057671398, residing at 9 Avigdor
St. Tel-Aviv, Israel ("BARUCH"), and SIGNUM LTD., a company incorporated under
the laws of the State of Israel, and maintaining its principal place of business
at 22 Maskit Street, Herzliya, Israel (the "Contractor").

WHEREAS   The Company desires to engage the Contractor to provide management
          services as described below and the Contractor desires to provide such
          services, according to the terms and conditions hereinafter set forth.

NOW, THEREFORE, it is hereby agreed as follows:

1.   ENGAGEMENT

     (a)  The Company agrees to engage the Contractor and the Contractor agrees
          to be engaged by the Company on the terms and conditions set out in
          this Agreement.

     (b)  The Contractor shall provide management services exclusively through
          Baruch, who shall serve in the capacity of President and Chief
          Executive Officer of the Company. Baruch shall perform the duties,
          undertake the responsibilities and exercise the authority customarily
          performed, undertaken and exercised by persons situated in a similar
          capacity, subject to the direction of the Board of Directors of the
          Company. Baruch shall report regularly to the Board of Directors with
          respect to his activities. Without limitations to the above, Baruch
          shall also participate in the marketing activities of the Company's
          Subsidiary, BOScom Ltd., as directed by the Company's Board of
          Directors.

     (c)  During the term of this Agreement, Baruch shall not be engaged in
          employment or perform management services for any third party, without
          the prior written consent of the Company.


2.   STOCK OPTION GRANT

     (a)  The Company hereby undertakes to grant to the Contractor, as soon as
          practicable, an Option (the "OPTION") to purchase 216,282 Ordinary
          Shares of the Company, NIS4.00 par value each ("ORDINARY SHARES")
          equal to five percent (5%) of the Company's issued and outstanding
          share capital, on a fully diluted and as converted basis, on November
          23, 2003. The Contractor shall enter into the Company's standard Stock
          Option Agreement and the grant of the Option hereunder shall be
          subject to the terms and conditions set forth in the Company's 2003
          Israeli Share Options Plan (the "PLAN"). The Options shall be granted
          pursuant to Section 3(i) of the Income Tax Ordinance. The Contractor
          shall be subject to the Company's Trading Windows policy.


                                     - 1 -
<PAGE>


     (b)  The Option shall vest and become exercisable in 36 equal monthly
          installments of 1/36 of the aggregate number of Ordinary Shares
          subject to the Option (fractions shall be rounded up) at the end of
          each month following the date of grant and shall be exercisable by the
          Contractor at any time during a period of ten (10) years from the date
          of adoption of the Plan, subject however to the provisions of the
          Company's Stock Option Agreement and Plan. The exercise price of the
          Option shall be $3 per Ordinary Share.

     (c)  The Company undertakes that all Ordinary Shares issued to the
          Contractor upon exercise of the Option shall be duly authorized and
          validly issued, fully paid and nonassessable, free and clear of liens,
          claims, charges, encumbrances, and any third party rights, options to
          purchase, proxies, voting agreements, calls or commitments of every
          kind.

     (d)  Notwithstanding the foregoing, the Option shall immediately vest and
          become exercisable with respect to the aggregate number of Ordinary
          Shares subject to the Option upon (a) the occurrence of a merger,
          reorganization, or sale of the Company or a sale all or substantially
          all of the Company's shares or assets or (b) upon the termination by
          the Company of this Agreement other than for Cause, provided however
          that no such immediate vesting shall occur in the event of termination
          due to failure of Baruch to reach the annual goals set by the
          Company's Board of Directors.

     (e)  The Contractor will have PRO RATA preemptive rights (taking into
          account all of the Ordinary Shares subject to the Option as if the
          Option had vested and the Contractor had exercised such Option with
          respect to all of the Ordinary Shares subject to such Option) with
          regard to any future issuance of securities of the Company, made at a
          price per Ordinary Share of no less than $3.00, on the same price and
          other terms and conditions as such issuance, other than issuances of:
          (i) Ordinary Shares or options to purchase Ordinary Shares issued to
          employees, directors and/or consultants and approved by the Company's
          Board of Directors; (ii) Ordinary shares issued as dividends, (iii)
          securities issued pursuant to a stock split or other reclassification,
          (iv) securities issued pursuant to a business or asset acquisition or
          other similar transaction, (v) securities issued to a strategic
          partner, as designated by the Company's Board of Directors. The
          Contractor's right hereunder shall expire upon termination of this
          Agreement for any reason whatsoever.


3.   MANAGEMENT FEES

     (a)  MONTHLY MANAGEMENT FEE. In consideration for the services provided to
          the Company hereunder, the Company agrees to pay the Contractor and
          the Contractor agrees to accept a monthly gross management fee (the
          "MANAGEMENT FEE") in an amount equal to NIS 79,698, plus Value Added
          Tax, based on a NIS - US Dollar exchange rate of NIS4.4 to 1 US
          Dollar. The Management Fee shall be adjusted at the beginning of every
          calendar quarter in accordance with the NIS - US Dollar exchange rate
          on the last day of the previous quarter.

     (b)  PAYMENT PROCEDURES. At the beginning of each calendar month, the
          Contractor shall provide the Company with an itemized invoice
          detailing the services rendered to the Company and the Management Fee
          due the Contractor therefor. The Company shall pay the Management Fee
          to the Contractor within 5 business days from its receipt of said
          invoice. All payments required to be made by the Company to the
          Contractor hereunder (other than as required by applicable tax laws)
          will be made by wire transfer to the Contractor's bank account number
          646665 at Bank Mizrachi of Israel, Branch 410, Israel.


                                     - 2 -
<PAGE>


     (c)  In connection with the preparation by the Board of Directors of the
          annual work plan and budget of the Company, the Board of Directors
          shall annually establish an annual bonus to be paid to the Contractor
          provided that the Contractor shall have satisfied or exceeded the
          goals or milestones established by the Board of Directors for the
          respective year.

     (d)  OUT OF POCKET EXPENSES. The Company shall pay or reimburse the
          Contractor for all reasonable expenses incurred by the Contractor in
          discharge of its responsibilities hereunder, whether in Israel or
          outside Israel, including costs related to the lease, under the
          Company's operative leasing plan, of an automobile (mutually agreed on
          by the Company and Contractor) for Baruch's use and costs of a
          dedicated telephone line and cellular telephone (including usage
          charges) both telephones to be used exclusively by Baruch. The Company
          shall obtain a Company credit card for the use of Baruch in discharge
          of his responsibilities hereunder.

4.   TERM AND TERMINATION OF AGREEMENT

     (a)  Contractor's engagement under this Agreement shall commence as of
          January 1, 2004 and shall end on the earliest of: (i) the death or
          Disability (as defined herein) of Baruch; (ii) the termination of the
          Contractor's engagement as provided below.

          The term "DISABILITY" shall mean: any physical or mental illness or
          injury as a result of which Baruch remains absent from work for a
          period of three (3) successive months. Disability shall be deemed to
          have occurred upon the end of such three-months period.

     (b)  The Company may terminate this Agreement without Cause (as defined
          below) at any time upon written notice of one hundred eighty (180)
          days to the Contractor, and the Contractor may terminate this
          Agreement at any time upon written notice of thirty (30) days (each
          such period, the "NOTICE PERIOD") specifying the effective date of
          termination (such date, and the date of termination pursuant to
          sub-Section (d) below, the "TERMINATION DATE").

     (c)  During such Notice Period (except in the event of termination for
          Cause) the Contractor shall be entitled to Management Fees pursuant to
          Section 3.

     (d)  Notwithstanding the above, The Company may, at any time, terminate
          this Agreement with Cause upon written notice to Contractor.

     (e)  The term "Cause" shall mean: (a) Contractor's or Baruch's material
          breach of trust and/or fiduciary duties including but not limited to
          prohibited disclosure to unauthorized persons or entities of
          confidential or proprietary information of or relating to the Company,
          (b) Contractor's or Baruch's material breach of the terms of this
          Agreement; or (c) conviction of Baruch and/or a principal of the
          Contractor for the commission of a felony.

     (f)  During the period following notice of termination by any party, Baruch
          shall transfer his position to his replacement in an orderly and
          complete manner and shall return to the Company all documents,
          professional literature and equipment belonging to the Company, which
          may be in his possession at such time.


                                     - 3 -
<PAGE>


5.   COMPETITIVE ACTIVITY


     During the term of this Agreement and until 12 months thereafter,
     Contractor and/or Baruch will not directly or indirectly:

     (a)  Carry on or hold an interest in any company, venture, entity or other
          business (other than a minority interest in a publicly traded
          company), which competes with the products or services of the Company
          or its subsidiaries, including those products or services contemplated
          in a plan adopted by the Board of Directors of the Company or its
          subsidiaries (a "competing business");

     (b)  Act as a consultant, executive, officer, employee, agent, or in any
          managerial or other capacity in a competing business or supply, in
          competition with the Company or its subsidiaries, services
          ("restricted services") to any person who was provided with services
          by the Company or its subsidiaries at any time during the twelve (12)
          months immediately prior to the Termination Date;

     (c)  Solicit, canvass or approach or endeavor to solicit, canvass or
          approach any person who, was provided with services by the Company or
          its subsidiaries at any time during the twelve (12) months immediately
          prior to the Termination Date, for the purpose of offering restricted
          services or products which compete with the products supplied by the
          Company or its subsidiaries at the Termination Date; or

     (d)  Employ, solicit or entice away or endeavor to solicit or entice away
          from the Company or its subsidiaries any person employed by the
          Company or its subsidiaries any time during the twelve (12) months
          immediately prior to the Termination Date with a view to inducing that
          person to leave such employment and to act for another employer in the
          same or a similar capacity.

     (e)  If any one or more of the terms contained in this Section 5 shall, for
          any reason, be held to be excessively broad with regard to time,
          geographic scope or activity, such term shall be construed in a manner
          to enable it to be enforced to the maximum extent compatible with
          applicable law. The Contractor and Baruch acknowledge that the Company
          has entered into this Agreement in reliance on the undertakings set
          forth in this Section 5, and that given Baruch's access to information
          regarding the Company and its position, the provisions of Section 5
          are reasonable and necessary to protect Company's business and the
          rights of the parties hereto. The Contractor and Baruch further
          acknowledge that the terms herein and the Management Fee payable to
          the Contractor by the Company include fair and reasonable
          consideration for Contractor's and Baruch's non-competition
          undertakings herein.


6.   CONFIDENTIALITY


     Contractor and Baruch acknowledge that this Agreement creates a
     relationship of confidence and trust between the Contractor and/or Baruch
     and the Company with respect to any information: (i) applicable to the
     business of the Company; or (ii) applicable to the business of any
     supplier, client or customer of the Company, which may become known or
     learned by Baruch, the Contractor, its directors, officers, controlling
     shareholders, and employees during the term of this Agreement.


                                     - 4 -
<PAGE>


     For the Purposes of this Agreement, "Confidential Information" shall mean
     the following: (i) information that has been created, discovered,
     developed, or otherwise become known to the Company (including without
     limitation information created, discovered, developed, or made known by
     Baruch and/ or the Contractor, its directors, officers, controlling
     shareholders, and employees during the term of this Agreement, arising out
     of the Contractor's engagement by the Company or disclosed by the Baruch
     and/or the Contractor, its directors, officers, controlling shareholders,
     and employees to the Company prior to the date hereof) or in which
     proprietary rights have been assigned or otherwise conveyed to the Company,
     including but not limited to trade secrets, processes, formulas, data,
     know-how, improvements, inventions, techniques, business and marketing
     plans, strategies, forecasts, and customer lists ("Proprietary
     Information"); (ii) information that is disclosed in the furtherance of the
     business of the Company including, without limitation, the area of activity
     in which the Company is involved, the Company's technical, business and
     financial information, documentation, records, files, memoranda, reports,
     drawings, plans, price lists, customer lists, and the like; (iii)
     information that contains financial projections and forecasts concerning
     developments of the Company's future business; and (iv) any other
     information of a confidential nature relating to the Company. For the
     purpose of this Section 6 references to the Company shall include also the
     Company's subsidiaries.

     Baruch, the Contractor, its directors, officers, controlling shareholders,
     and employees shall treat all Confidential Information as follows:

     (a)  Use all Confidential Information received solely in furtherance of the
          business of the Company;

     (b)  Take strict precautions to maintain the confidentiality of all
          Confidential Information received from the date of receipt, and take
          appropriate action, by instruction, agreement or otherwise with any
          person permitted access to any Confidential Information received, to
          ensure that the Contractor will be able to satisfy its obligations
          under this Agreement;

     (c)  Refrain from copying or disclosing any Confidential Information to any
          unauthorised third party;

     (d)  Upon the written request of the Company, promptly destroy or return to
          the Company any and all copies on any media containing Confidential
          Information.

     In the event of termination of this Agreement, the Contractor and/or Baruch
     will deliver to the Company all documents and data of any nature pertaining
     to its engagement with the Company, and the Contractor and/or Baruch will
     not retain any documents or data of any description or any reproduction of
     any description containing or pertaining to any Proprietary Information or
     other Confidential Information.


7.   OWNERSHIP OF INVENTIONS AND WORK PRODUCT


     The Contractor and/or Baruch will promptly disclose to the Company, or any
     persons designated by it, all improvements, inventions, formulae, ideas,
     processes, techniques, know-how and data, whether or not patentable or
     otherwise registerable, made or conceived or reduced to practice or learned
     by Baruch, the Contractor, its directors, officers, controlling
     shareholders, and employees, either alone or jointly with others, during
     the term of this Agreement, prior thereto (to the extent that the same is
     related to or useful in the business of the Company) or as a result of
     tasks assigned by the Company or as a result of the use of premises and/or
     equipment owned, leased, or contracted for by the Company (all such
     improvements, inventions, formulas, processes, techniques, know-how, and
     data are hereinafter referred to as "Inventions").


                                     - 5 -
<PAGE>


     The Contractor and/or Baruch agree that all Inventions are and shall be the
     sole property of the Company and its assigns, and the Company and its
     assigns shall be the sole owner of all patents and other rights in
     connection with such Inventions. The Contractor and/or Baruch hereby assign
     to the Company any rights the Contractor and/or Baruch may have or acquire
     (if any) in such Inventions. The Contractor and/or Baruch further agree to
     assist the Company in every reasonable and proper way (at the Company's
     expense) to obtain and from time to time enforce patents on such Inventions
     in any and all countries, including the execution of all documents required
     in applying for and enforcing patents on such Inventions, as the Company
     may desire, together with any assignments of such Inventions to the Company
     or persons designated by it. Such assistance shall include, without
     limitation, the execution and delivery of any requested affidavits and
     documents of assignment and conveyance and the provision of testimony in
     connection with any proceeding affecting the right, title or interest of
     the Company in any Invention. The Contractor's and/or Baruch's obligation
     to assist the Company in obtaining and enforcing patents for such
     Inventions in any or all countries shall continue beyond the term of this
     Agreement, but the Company shall compensate the Contractor at a reasonable
     rate for time actually spent by Baruch, after termination and at the
     Company's request, in rendering such assistance.


8.   REPRESENTATIONS AND WARRANTIES

     a.   Baruch, the Contractor, its directors, officers, controlling
          shareholders, and employees shall inform the Company, immediately upon
          becoming aware of every matter in which such person or, if applicable,
          a member of his immediate family has a personal interest which might,
          in such person's reasonable opinion, create a conflict of interests
          with the Contractor's duties under this Agreement.

     b.   Contractor represents and warrants that it is a corporation duly
          organized and validly existing under the laws of the State of Israel.
          Contractor has all requisite power and authority to execute, deliver
          and perform this Agreement, and to consummate the transactions
          contemplated hereby. This Agreement constitutes valid and legally
          binding obligations of Contractor, enforceable against it in
          accordance with its terms.

     c.   Each of Baruch and the Contractor represents and warrants that the
          execution and delivery of this Agreement and the fulfilment of the
          terms hereof will not constitute a default under or breach of any
          agreement or other instrument to which it is a party or by which it is
          bound, including without limitation, any confidentiality or non
          competition agreement, and do not require the consent of any person or
          entity.


9.   NOTICES


     For the purpose of this Agreement, notices and all other communications
     provided for in the Agreement shall be in writing and shall be deemed to
     have been duly given when personally delivered or sent by registered mail,
     postage prepaid, addressed to the respective addresses set forth below or
     last given by each party to the other, except that notice of change of
     address shall be effective only upon receipt.


                                     - 6 -
<PAGE>


     The initial addresses of the parties for purposes of this Agreement shall
     be as follows:



        The Company:              Rabin House, Teradyon Industrial Park, Misgav


        The Contractor:           22 Maskit Street  Herzliya



10.  INDEPENDENT CONTRACTOR

     a.   The Contractor will serve as an independent contractor to and not as
          an agent or employee of the Company or any of its affiliates. The
          Contractor will be solely responsible for any and all taxes and other
          such assessments made or imposed by any governmental authority in
          connection with the any payments made by the Company pursuant to this
          Agreement. In the event that pursuant to any law or regulation, tax is
          required to be withheld at source from any payment made to Contractor,
          the Company shall withhold said tax at the rate set forth in the
          certification issued by the appropriate taxing authority and provided
          to Company by the Contractor, or in the absence of such certification,
          at the Contractor or at the rate determined by said law or regulation.

     b.   Contractor undertakes to maintain a proper set of accounting books as
          required by law, to open and/or maintain a file with the Israeli
          Income Tax Authorities and with the Israel National Insurance
          Institute and to pay all required taxes and make other compulsory
          payments in accordance with the law.

     c.   It is agreed between the parties that in the event that, despite the
          aforestated, as a result of demand and/or request of the Contractor,
          Baruch, any of his representatives, his successors, or any person or
          entity acting on Baruch's behalf or for Baruch's benefit, a duly
          authorized legal body or other authorized forum, orders the Company to
          grant Baruch the rights and privileges of a salaried employee for the
          services rendered in accordance with this Agreement, the following
          provisions shall apply:

               (i) For the period as to which it is determined than an
          employer-employee relationship existed between the Company and the
          Baruch (the "Relevant Period") Baruch's total monthly salary shall be
          that sum which is equal to 55% of the monthly Management Fees (not
          including Value Added Tax) which the Contractor actually received
          during the Relevant Period (the "Monthly Wage") together with any
          applicable Tosefet Yoker increase, to the extent that such increase
          has been applied to all salaried employees of the Company.

               (ii) The Contractor shall immediately return to the Company all
          amounts paid to it in excess of the Monthly Wage for the Relevant
          Period, linked to the Consumer Price Index from the date of payment by
          the Company up to the date of return by the Contractor. It is hereby
          expressly agreed that any further payment by the Company to
          Contactor/Baruch shall be contingent on the full repayment of the
          aforementioned amounts.

               (iii) The aforesaid shall also be deemed as a settlement and
          admission of payment for purposes of Section 29 of the Severance Pay
          Law- 1963.


                                     - 7 -
<PAGE>


11.  MISCELLANEOUS

     a.   No provision of this Agreement may be modified, waived or discharged
          unless such waiver, modification or discharge is agreed to in writing
          and signed by the Contractor, Baruch and the Company. No waiver by any
          party hereto at any time of any breach by any other party hereto of,
          or compliance with, any condition or provision of this Agreement to be
          performed by such other party shall be deemed a waiver of similar or
          dissimilar provisions or conditions at the same or at any prior or
          subsequent time.

     b.   This Agreement shall be governed by and construed and enforced in
          accordance with the laws of the State of Israel.

     c.   The provisions of this Agreement shall be deemed severable and the
          invalidity or unenforceability of any provision shall not affect the
          validity or enforceability of the other provisions hereof.

     d.   This Agreement constitutes the entire agreement between the parties
          hereto and supersedes all prior agreements, understandings and
          arrangements, oral or written, between the parties hereto with respect
          to the subject matter hereof, provided however that this Agreement is
          subject to and contingent upon the approval by the Company's Audit
          Committee, Board of Directors and Shareholders. In the event such
          approval is not obtained, this Agreement shall be deemed null and
          void.

     e.   This Agreement shall be binding upon and shall inure to the benefit of
          the Company, its successors and assigns, and the Company shall require
          such successor or assign to expressly assume and agree to perform this
          Agreement in the same manner and to the same extent that the Company
          would be required to perform it if no such succession or assignment
          had taken place. The term "SUCCESSORS AND ASSIGNS" as used herein
          shall mean a corporation or other entity acquiring all or
          substantially all the assets and business of the Company (including
          this Agreement) whether by operation of law or otherwise.

     f.   Each of Contractor and/or Baruch undertakes not to assign any of its
          rights and obligations hereunder without the prior written consent of
          Company, and any attempt to assign without such consent shall be null
          and void.

     g.   The provisions of Sections 5, 6, 7 and 10 of this Agreement shall
          survive the rescission or termination, for any reason, of this
          Agreement.

     h.   The section headings contained herein are for reference purposes only
          and shall not in any way affect the meaning or interpretation of this
          Agreement.



IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.


BOS BETTER ONLINE SOLUTIONS LTD.                    SIGNUM LTD.

By: ____________                                    By: ____________

Title: _________                                    Title: _________



________________
ADIV BARUCH



                                     - 8 -



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>6
<FILENAME>exhibit_4-6.txt
<TEXT>


                                                                     EXHIBIT 4.6







                      B.O.S. BETTER ON-LINE SOLUTIONS LTD.

                          SECURITIES PURCHASE AGREEMENT

                                  JUNE 10, 2004

<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                PAGE
                                                                                ----
<S> <C>    <C>                                                                   <C>
1. AGREEMENT TO SELL AND PURCHASE                                                 1

2. FEES AND WARRANT                                                               1

3. CLOSING, DELIVERY AND PAYMENT                                                  2
    3.1    CLOSING                                                                2
    3.2    DELIVERY                                                               2

4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY                                  3
    4.1    ORGANIZATION, GOOD STANDING AND QUALIFICATION                          3
    4.2    SUBSIDIARIES                                                           3
    4.3    CAPITALIZATION; VOTING RIGHTS                                          3
    4.4    AUTHORIZATION; BINDING OBLIGATIONS                                     4
    4.5    LIABILITIES                                                            5
    4.6    AGREEMENTS; ACTION                                                     5
    4.7    OBLIGATIONS TO RELATED PARTIES                                         5
    4.8    CHANGES                                                                6
    4.9    TITLE TO PROPERTIES AND ASSETS; LIENS, ETC                             7
    4.10   INTELLECTUAL PROPERTY                                                  8
    4.11   COMPLIANCE WITH OTHER INSTRUMENTS                                      8
    4.12   LITIGATION                                                             8
    4.13   TAX RETURNS AND PAYMENTS                                               9
    4.14   EMPLOYEES                                                              9
    4.15   REGISTRATION RIGHTS AND VOTING RIGHTS                                  9
    4.16   COMPLIANCE WITH LAWS; PERMITS                                          9
    4.17   ENVIRONMENTAL AND SAFETY LAWS                                         10
    4.18   VALID OFFERING                                                        10
    4.19   FULL DISCLOSURE                                                       10
    4.20   INSURANCE                                                             11
    4.21   SEC REPORTS                                                           11
    4.22   LISTING                                                               11
    4.23   NO INTEGRATED OFFERING                                                11
    4.24   STOP TRANSFER                                                         11
    4.25   DILUTION                                                              11

5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER                               12
    5.1    NO SHORTING                                                           12
    5.2    REQUISITE POWER AND AUTHORITY                                         13
    5.3    INVESTMENT REPRESENTATIONS                                            13
    5.4    PURCHASER BEARS ECONOMIC RISK                                         13
    5.5    ACQUISITION FOR OWN ACCOUNT                                           13
    5.6    PURCHASER CAN PROTECT ITS INTEREST                                    14
    5.7    ACCREDITED INVESTOR                                                   14
    5.8    LEGENDS                                                               14
</TABLE>

                                       i
<PAGE>


<TABLE>
<CAPTION>
<S> <C>    <C>                                                                   <C>
6. COVENANTS OF THE COMPANY                                                      15
    6.1    STOP-ORDERS                                                           15
    6.2    LISTING                                                               15
    6.3    MARKET REGULATIONS                                                    16
    6.4    REPORTING REQUIREMENTS                                                16
    6.5    USE OF FUNDS                                                          16
    6.6    ACCESS TO FACILITIES                                                  16
    6.7    TAXES                                                                 16
    6.8    INSURANCE                                                             17
    6.9    INTELLECTUAL PROPERTY                                                 17
    6.10   PROPERTIES                                                            18
    6.11   CONFIDENTIALITY                                                       18
    6.12   REQUIRED APPROVALS                                                    18
    6.13   REISSUANCE OF SECURITIES                                              19
    6.14   OPINION                                                               19

7. COVENANTS OF THE PURCHASER                                                    20
    7.1    CONFIDENTIALITY                                                       20
    7.2    NON-PUBLIC INFORMATION                                                20

8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION              20
    8.1    COMPANY INDEMNIFICATION                                               20
    8.2    PURCHASER'S INDEMNIFICATION                                           20

9. CONVERSION OF CONVERTIBLE NOTE                                                21
    9.1    MECHANICS OF CONVERSION                                               21

10.REGISTRATION RIGHTS                                                           23
   10.1    REGISTRATION RIGHTS GRANTED                                           23
   10.2    OFFERING RESTRICTIONS                                                 23

11.MISCELLANEOUS                                                                 23
   11.1    GOVERNING LAW                                                         23
   11.2    SURVIVAL                                                              24
   11.3    SUCCESSORS                                                            24
   11.4    ENTIRE AGREEMENT                                                      24
   11.5    SEVERABILITY                                                          24
   11.6    AMENDMENT AND WAIVER                                                  24
   11.7    DELAYS OR OMISSIONS                                                   24
   11.8    NOTICES                                                               25
   11.9    ATTORNEYS' FEES                                                       26
   11.10   TITLES AND SUBTITLES                                                  26
   11.11   FACSIMILE SIGNATURES; COUNTERPARTS                                    26
   11.12   BROKER'S FEES                                                         26
   11.13   CONSTRUCTION                                                          26
</TABLE>


                                       ii
<PAGE>


                                LIST OF EXHIBITS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                      <C>
Form of Convertible Term Note                                            Exhibit A
Form of Warrant                                                          Exhibit B
Forms of Opinions                                                        Exhibits
                                                                         C1-C2
Form of Escrow Agreement                                                 Exhibit D
</TABLE>

                                      iii
<PAGE>


                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of June 10, 2004, by and among B.O.S. BETTER ON-LINE SOLUTIONS LTD., a
corporation incorporated under the laws of the State of Israel (p.c. number
520042565) (the "Company"), BOScom Ltd., a corporation incorporated under the
laws of the State of Israel (organizational identification number (51-2236431)
(solely with respect to the representations and warranties pertaining to it)
(the "Subsidiary"), and Laurus Master Fund, Ltd., a Cayman Islands company (the
"Purchaser").

                                    RECITALS

     WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Two Million Dollars
in the currency of the United States ($2,000,000) (the "Note"), which Note is
convertible into shares of the Company's Ordinary Shares, NIS 4.00 nominal value
per share (the "Ordinary Shares") at an initial fixed conversion price of $3.08
per share of Ordinary Shares (the "Fixed Conversion Price");

     WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase
up to 130,000 Ordinary Shares (subject to adjustment as set forth therein) in
connection with Purchaser's purchase of the Note;

     WHEREAS, Purchaser desires to purchase the Note and the Warrant (as defined
in Section 2) on the terms and conditions set forth herein; and

     WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, a Note in the aggregate principal amount of
$2,000,000 (the "Purchase Price") convertible into the Company's Ordinary Shares
in accordance with the terms of the Note and this Agreement. The issuance of the
Note purchased on the Closing Date shall be known as the "Offering." A form of
the Note is annexed hereto as Exhibit A. The Note will mature on the Maturity
Date (as defined in the Note). Collectively, the Note and Warrant and Ordinary
Shares issuable in payment of the Note, upon conversion of the Note and upon
exercise of the Warrant are referred to as the "Securities."

<PAGE>


2. FEES AND WARRANT. On the Closing Date:

          (a) The Company will issue and deliver to the Purchaser a Warrant (the
     "Warrant") to purchase up to 130,000 Ordinary Shares in connection with the
     Offering (the "Warrant Shares") pursuant to Section 1 hereof. The Warrant
     must be delivered on the Closing Date. A form of Warrant is annexed hereto
     as Exhibit B. All the representations, covenants, warranties, undertakings,
     and indemnification, and other rights made or granted to or for the benefit
     of the Purchaser by the Company are hereby also made and granted in respect
     of the Warrant and the Company's Ordinary Shares issuable upon exercise of
     the Warrant (the "Warrant Shares").

          (b) Subject to the terms of Section 2(d) below, the Company shall pay
     to Laurus Capital Management, LLC, the manager of the Purchaser, a closing
     payment in an amount equal to three and one-half percent (3.50%) of the
     aggregate principal amount of the Note. The foregoing fee is referred to
     herein as the "Closing Payment."

          (c) The Company shall reimburse the Purchaser for its reasonable legal
     fees for services rendered to the Purchaser in preparation of this
     Agreement and the Related Agreements (as hereinafter defined), and expenses
     incurred in connection with the Purchaser's due diligence review of the
     Company and its Subsidiary and all related matters. Amounts required to be
     paid under this Section 2(c) for such legal fees and expenses shall be
     $45,000 (the "Expense Payment"), of which a deposit of $12,500 (the
     "Deposit) was previously paid by the Company to the Purchaser, and the
     remaining $32,500 will be paid on the Closing Date.

          (d) The Closing Payment and the Expense Payment (net of the Deposit)
     shall be on the Closing Date, as provided below out of funds held pursuant
     to a Funds Escrow Agreement of even date herewith among the Company,
     Purchaser, and an Escrow Agent (the "Funds Escrow Agreement") and a
     disbursement letter (the "Disbursement Letter").

3. CLOSING, DELIVERY, PAYMENT AND OTHER CLOSING CONDITIONS.

     3.1 CLOSING. The execution and delivery of this Agreement and the Related
Agreements shall occur upon exchange by facsimile of executed signature pages
and all other documents, instruments and writings required to be delivered
pursuant hereto and thereto. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "Closing"), shall take
place on which date the conditions for Closing set forth in Section 9 herein
shall be satisfied in full or waived by the Company, or at such different date
as the Company and Purchaser may mutually agree (such date is hereinafter
referred to as the "Closing Date").

     3.2 DELIVERY. Pursuant to the Funds Escrow Agreement in the form attached
hereto as Exhibit D at the Closing on the Closing Date, the Company will deliver
to the Purchaser, among other things, (i) a Note in the form attached as Exhibit
A representing the Purchase Price; (ii) a Warrant in the form attached as
Exhibit B in the Purchaser's name representing 130,000 Warrant Shares, (iii) the
Closing Payment, and (iv) the Expense Payment (net of the Deposit) and the
Purchaser will deliver to the Company, among other things, the Purchase Price
[amounts set forth in the Disbursement Letter] by certified funds or wire
transfer to an account designated by the Company.


                                       2
<PAGE>


     3.3 OTHER CLOSING CONDITIONS. Prior to closing of this transaction, the
Company will obtain the necessary board approvals.


4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to the Purchaser as follows (which representations and warranties
are supplemented by the Company's filings under the Securities Exchange Act of
1934 (collectively, the "Exchange Act Filings") and the Company's Audited
Consolidated Financial Statements as of December 31, 2003 (including the notes
thereto) (the "Financial Statements")):

     4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company and
the Subsidiary is a corporation duly incorporated and validly existing under the
laws of its jurisdiction of incorporation. Each of the Company and the
Subsidiary has the corporate power and authority to own and operate its
properties and assets and carry on its respective business as presently
conducted, except as would not have a Material Adverse Effect (as defined
below), and to execute and deliver, as applicable, (i) this Agreement, (ii) the
Note and the Warrant to be issued in connection with this Agreement, (iii) the
Master Security Agreement dated as of the date hereof among the Company and the
Purchaser (as amended, modified or supplemented from time to time, the "Master
Security Agreement"), (iv) the Registration Rights Agreement relating to the
Securities dated as of the date hereof between the Company and the Purchaser,
(v) the Escrow Agreement dated as of the date hereof among the Company, the
Purchaser and the escrow agent referred to therein and (vi) all other agreements
related to this Agreement and the Note and referred to herein (the preceding
clauses (ii) through (vi), collectively, the "Related Agreements"), to issue and
sell the Note and the Ordinary Shares issuable upon conversion of the Note (the
"Note Shares"), to issue and sell the Warrant and the Warrant Shares, and to
carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. Each of the Company and the
Subsidiary is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so has not, or could not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, or operations of the Company and
it Subsidiary, taken as a whole (a "Material Adverse Effect").

     4.2 [RESERVED]

     4.3 CAPITALIZATION; VOTING RIGHTS.

          (a) The authorized capital stock of the Company, as of the date hereof
     consists of 8,750,000 Ordinary Shares nominal value NIS 4.00 per share, of
     which, as of December 31, 2003, 4,167,509 Ordinary Shares are issued and
     4,162,126 Ordinary Shares are outstanding.


                                       3
<PAGE>


          (b) Except as disclosed on Schedule 4.3, the Exchange Act Filings or
     the Financial Statements, other than: (i) the shares reserved for issuance
     under the Company's stock option plans; and (ii) shares which may be
     granted pursuant to this Agreement and the Related Agreements, there are no
     outstanding options, warrants, rights (including conversion or preemptive
     rights and rights of first refusal), proxy or shareholder agreements, or
     arrangements or agreements of any kind for the purchase or acquisition from
     the Company of any of its securities. Except as disclosed on Schedule 4.3,
     the Exchange Act Filings or the Financial Statements, neither the offer,
     issuance or sale of any of the Note or the Warrant, or the issuance of any
     of the Note Shares or Warrant Shares, nor the consummation of any
     transaction contemplated hereby will result in a change in the price or
     number of any securities of the Company outstanding, under anti-dilution or
     other similar provisions contained in or affecting any such securities.

          (c) All issued and outstanding Ordinary Shares of the Company: (i)
     have been duly authorized and validly issued and are fully paid and
     nonassessable; and (ii) were issued in compliance with all applicable state
     and federal laws concerning the issuance of securities.

          (d) The rights, preferences, privileges and restrictions of the
     Ordinary Shares are as stated in the Company's Articles of Association (the
     "Articles"). The Note Shares and Warrant Shares shall have been, on or
     before the Closing Date, duly and validly reserved for issuance. When
     issued in compliance with the provisions of this Agreement and the
     Company's Articles, the Securities will be validly issued, fully paid and
     nonassessable, and will be free of any liens or encumbrances; provided,
     however, that the Securities may be subject to restrictions on transfer
     under state, federal and/or Israeli securities laws as set forth herein or
     as otherwise required by such laws at the time a transfer is proposed.

     4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the part of
the Company and the Subsidiary (including their respective officers and
directors) necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company hereunder and
under the other Related Agreements at the Closing and, the authorization, sale,
issuance and delivery of the Note and Warrant has been taken or will be taken
prior to the Closing. This Agreement and the other Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of the Company and with respect to the representations
and warranties pertaining to it the Subsidiary, enforceable against each such
person in accordance with their terms, except:

          (a) as limited by applicable bankruptcy, insolvency, reorganization,
     moratorium or other laws of general application affecting enforcement of
     creditors' rights; and

          (b) general principles of equity that restrict the availability of
     equitable or legal remedies.

Except as disclosed on Schedule 4.4, in the Exchange Act Filings or the
Financial Statements, the sale of the Note, the subsequent conversion of the
Note into Note Shares, are not and will not be subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
The issuance of the Warrant and the subsequent exercise of the Warrant for
Warrant Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.


                                       4
<PAGE>


     4.5 LIABILITIES. Neither the Company nor the Subsidiary has any material
contingent liabilities, except current liabilities incurred in the ordinary
course of business and liabilities disclosed in any Exchange Act Filings, in the
Financial Statements or that would not be reasonably likely to have a Material
Adverse Effect.

     4.6 AGREEMENTS; ACTION. Except as set forth on Schedule 4.6 or as disclosed
in any Exchange Act Filings or the Financial Statements:

          (a) there are no agreements, understandings, instruments, contracts,
     judgments, orders, writs or decrees to which the Company or the Subsidiary
     is a party or by which it is bound which may involve: (i) obligations
     (contingent or otherwise) of, or payments to, the Company in excess of
     $500,000 (other than obligations of, or payments to, the Company arising
     from purchase or sale agreements entered into in the ordinary course of
     business); (ii) the transfer or license of any material patent, copyright,
     trade secret or other proprietary right to or from the Company (other than
     licenses arising from the purchase of "off the shelf" or other standard
     products); or (iii) provisions restricting the development, manufacture or
     distribution of the Company's products or services.

          (b) Since December 31, 2003, neither the Company nor the Subsidiary
     has: (i) declared or paid any dividends, or authorized or made any
     distribution upon or with respect to any class or series of its share
     capital; (ii) incurred any indebtedness for money borrowed or any other
     liabilities (other than ordinary course obligations) individually in excess
     of $500,000 or, in the case of indebtedness and/or liabilities individually
     less than $500,000, in excess of $1,000,000 in the aggregate; (iii) made
     any loans or advances to any person (other than the Company's subsidiaries)
     in excess, individually or in the aggregate, of $500,000, other than
     ordinary course advances for travel expenses; or (iv) sold, exchanged or
     otherwise disposed of any of its material assets or rights, other than the
     sale of its inventory in the ordinary course of business or as a result of
     discontinued operations.

          (c) For the purposes of subsections (a) and (b) above, all
     indebtedness, liabilities, agreements, understandings, instruments and
     contracts involving the same person or entity (including persons or
     entities the Company has reason to believe are affiliated therewith) shall
     be aggregated for the purpose of meeting the individual minimum dollar
     amounts of such subsections.

     4.7 OBLIGATIONS TO RELATED PARTIES. Except as set forth on Schedule 4.7 or
disclosed in any of the Exchange Act Filings or in the Financial Statements,
there are no obligations of the Company or of the Subsidiary to officers,
directors, shareholders or employees of the Company or the Subsidiary other
than:


          (a) for payment of salary or fees for services rendered and for bonus
     payments;

          (b) reimbursement for reasonable expenses incurred on behalf of the
     Company and its Subsidiary;

                                       5
<PAGE>


          (c) for other standard employee benefits made generally available to
     all employees (including stock option agreements outstanding or to be
     entered into under any stock option plan approved by the Board of Directors
     of the Company); and


          (d) obligations listed in the Company's financial statements.

Except as listed in the Company's financial statements, disclosed in any of the
Company's Exchange Act Filings, in the Financial Statements or set forth on
Schedule 4.7, to the Company's knowledge, none of the officers, directors, key
employees or shareholders holding 10% or more of the Company's share capital or
any members of their immediate families, are indebted to the Company,
individually, in excess of $50,000 or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company, other than passive investments in publicly traded
companies (representing less than one percent (1%) of such company) which may
compete with the Company. Except as listed in the Financial Statements,
disclosed in any of the Company's Exchange Act Filings or set forth on Schedule
4.7, (i) to the Company's knowledge no officer, director or shareholder holding
10% or more of the Company's share capital, or any member of their immediate
families, is, directly or indirectly, interested in any material contract
between any third party and the Company and (ii) except with respect to the
Company's subsidiaries, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.

     4.8 CHANGES. Since December 31, 2003, except as disclosed in any Exchange
Act Filing, in the Financial Statements or in any Schedule to this Agreement or
to any of the Related Agreements, there has not been:

          (a) any change in the business, assets, liabilities, condition
     (financial or otherwise), properties operations of the Company or its
     Subsidiary, which individually or in the aggregate has had, or could
     reasonably be expected to have, individually or in the aggregate, a
     Material Adverse Effect;

          (b) any resignation or termination of any officer, key employee or
     group of employees of the Company or of its Subsidiary;

          (c) any material change, except in the ordinary course of business or
     as would not have a Material Adverse Effect, in the contingent obligations
     of the Company or of its Subsidiay by way of guaranty, endorsement,
     indemnity, warranty or otherwise;

          (d) any damage, destruction or loss, whether or not covered by
     insurance, which has had, or could reasonably be expected to have,
     individually or in the aggregate, a Material Adverse Effect;

          (e) any waiver by the Company or its Subsidiary of a material right or
     of a material debt owed to it;

          (f) any direct or indirect loans made by the Company or its Subsidiary
     to any stockholder, employee, officer or director of the Company or its
     Subsidiary, other than advances made in the ordinary course of business or
     loans which do not, in the aggregate, exceed $50,000;


                                       6
<PAGE>


          (g) any material change in any compensation arrangement or agreement
     with any employee, officer, director or shareholder of the Company or its
     Subsidiary

          (h) any declaration or payment of any dividend or other distribution
     of the assets of the Company or its Subsidiary;

          (i) any labor organization activity related to the Company or its
     Subsidiary;

          (j) any debt, obligation or liability incurred, assumed or guaranteed
     by the Company or its Subsidiary, except those for immaterial amounts and
     for current liabilities incurred in the ordinary course of business;

          (k) any sale, assignment or transfer of any patents, trademarks,
     copyrights, trade secrets or other intangible assets owned by the Company
     or its Subsidiary;

          (l) any change in any material agreement to which the Company or its
     Subsidiary is a party or by which either the Company or its Subsidiariy is
     bound which either individually or in the aggregate has had, or could
     reasonably be expected to have, individually or in the aggregate, a
     Material Adverse Effect;

          (m) any other event or condition of any character that, either
     individually or in the aggregate, has had, or could reasonably be expected
     to have, individually or in the aggregate, a Material Adverse Effect; or

          (n) any arrangement or commitment by the Company or its Subsidiary to
     do any of the acts described in subsection (a) through (m) above.

     4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set forth on
Schedule 4.9, in the Company's Exchange Act Filings or in the Financial
Statements, each of the Company and its Subsidiary has good and marketable title
to its material properties and assets, and good title to its material leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:

          (a) those resulting from taxes which have not yet become delinquent;

          (b) minor liens and encumbrances which do not materially detract from
     the value of the property subject thereto or materially impair the
     operations of the Company or its Subsidiary; and

          (c) those that have otherwise arisen in the ordinary course of
     business.

All material facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company and its Subsidiary are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used, except as would not have a Material
Adverse Effect. Except as set forth on Schedule 4.9, the Company and its
Subsidiary are in compliance with all material terms of each lease to which it
is a party or is otherwise bound except those that would not be reasonably
likely to have a Material Adverse Effect.


                                       7
<PAGE>


     4.10 INTELLECTUAL PROPERTY.

          (a) , Each of the Company and its Subsidiary owns or possesses
     sufficient legal rights to use all material patents, trademarks, service
     marks, trade names, copyrights, trade secrets, licenses, information and
     other proprietary rights and processes described or referred to in the
     Company's Exchange Act Filings or Financial Statements as necessary for its
     business as now conducted (the "Intellectual Property"), without any known
     infringement of the rights of others. Except as disclosed in the Company's
     Exchange Act Filings, in the Financial Statements, in connection with
     grants made by the OCS (as defined below) and for licenses granted in the
     ordinary course of business, there are no outstanding options, licenses or
     agreements of any kind relating to the foregoing proprietary rights.

          (b) Neither the Company nor its Subsidiary has received any
     communications alleging that the Company or its Subsidiary has violated any
     of the patents, trademarks, service marks, trade names, copyrights or trade
     secrets or other proprietary rights of any other person or entity, nor is
     the Company or its Subsidiary aware of any basis therefor.

          (c) The Company does not believe it is necessary to utilize any
     inventions, trade secrets or proprietary information of any of its
     employees made prior to their employment by the Company or its Subsidiary,
     except for inventions, trade secrets or proprietary information that have
     been rightfully assigned to the Company or its Subsidiary.

     4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor its
Subsidiary is in violation or default of (x) any term of its Articles or
Memorandum of Association, or (y) any material provision of any indebtedness,
mortgage, indenture, contract, agreement or instrument to which it is party or
by which it is bound or of any judgment, decree, order or writ, which violation
or default, in the case of this clause (y), has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Note by the Company and the other Securities by the Company each
pursuant hereto and thereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or its Subsidiary or the suspension,
revocation, impairment, forfeiture or nonrenewal of any material permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties, except as would not be reasonably
expected to have a Material Adverse Effect.


                                       8
<PAGE>


     4.12 LITIGATION. Except as set forth on Schedule 4.12 hereto, in the
Company's Exchange Act Filings or in the Financial Statements, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or its Subsidiary that
prevents the Company or its Subsidiary from entering into this Agreement or the
other Related Agreements, or from consummating the transactions contemplated
hereby or thereby, or which has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect or any change
in the current equity ownership of the Company or its Subsidiary, nor is the
Company aware that there is any basis to assert any of the foregoing. Neither
the Company nor its Subsidiary is a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or its Subsidiary currently pending or which the Company or its
Subsidiary intends to initiate.

     4.13 TAX RETURNS AND PAYMENTS. Each of the Company and its Subsidiary has
timely filed all tax returns required to be filed by it for the periods up to
and including December 31, 2001. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by the
Company or its Subsidiary on or before the Closing, have been paid or will be
paid prior to the time they become delinquent, except as would not have a
Material Adverse Effect. Except as set forth on Schedule 4.13, in the Exchange
Act Filings or in the Financial Statements, neither the Company nor its
Subsidiary has been advised:

          (a) that any of its returns have been or are being audited as of the
     date hereof; or

          (b) of any deficiency in assessment or proposed judgment to of its
     taxes.

The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for or which would be reasonably likely to have a Material Adverse
Effect.

     4.14 EMPLOYEES. Except as set forth on Schedule 4.14, in the Exchange Act
Filings, or in the Financial Statements the Company is in compliance with all
applicable material laws respecting employment, collective bargaining and wages
and hours and have withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to its employees.

     4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. Except as set forth on Schedule
4.15 and except as disclosed in the Exchange Act Filings or in the Financial
Statements, neither the Company nor its Subsidiary is presently under any
obligation, and neither the Company nor its Subsidiary has granted any rights,
to register any of the Company's or its Subsidiarys' presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 4.15 and except as disclosed in Exchange Act Filings or in the
Financial Statements, to the Company's knowledge, no shareholder of the Company
or any of its Subsidiary is party to an existing agreement with respect to the
voting of equity securities of the Company or its Subsidiary.


                                       9
<PAGE>


     4.16 COMPLIANCE WITH LAWS; PERMITS. Neither the Company nor its Subsidiary
is in material violation of any applicable statute, rule, regulation, order or
restriction of any domestic Israeli or, to the Company's knowledge, foreign
government or any instrumentality or agency thereof in respect of the conduct of
its business or the ownership of its properties which has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Except as set forth herein or on Schedule 4.16, no
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
other Related Agreement and the issuance of any of the Securities, except such
as has been, or shall be on or before the Closing Date, duly and validly
obtained or filed or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. Each of the Company and its
Subsidiary has all material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.

     4.17 ENVIRONMENTAL AND SAFETY LAWS. Neither the Company nor its Subsidiary
is in material violation of any applicable Israeli statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or its Subsidiary or, to the
Company's knowledge, by any other person or entity on any property owned, leased
or used by the Company or its Subsidiary. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean:

          (a) materials which are listed or otherwise defined as "hazardous" or
     "toxic" under any applicable Israeli laws and regulations that govern the
     existence and/or remedy of contamination on property, the protection of the
     environment from contamination, the control of hazardous wastes, or other
     activities involving hazardous substances, including building materials; or

          (b) any petroleum products or nuclear materials.

     4.18 VALID OFFERING. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement and in any Related
Agreement, the offer, sale and issuance of the Securities will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.

     4.19 FULL DISCLOSURE. There is no material information relating to the
Company or its Subsidiary, which the Company and/or its Subsidiary believe is
reasonably necessary for the Purchaser to make its investment decision, which
was not previously disclosed to Purchaser, or appears in the Schedules hereto,
in the Company's Exchange Act Filings or in the Financial Statements. Neither
this Agreement, the Related Agreements, the exhibits and schedules hereto and
thereto nor any other document delivered by the Company or its Subsidiary to
Purchaser or its attorneys or agents in connection herewith or therewith or with
the transactions contemplated hereby or thereby, contain any untrue statement of
a material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.


                                       10
<PAGE>


     4.20 INSURANCE. The Subsidiary has general commercial, product liability,
fire and casualty insurance policies with coverages which the Company believes
are customary for companies similarly situated to the Subsidiary in the same or
similar business.

     4.21 SEC FILINGS. Except as set forth on Schedule 4.21, the Company has
filed with the Securities and Exchange Commission (the "SEC") all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act, as a foreign private issuer (collectively, the "SEC Reports").
Except as set forth on Schedule 4.21, each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective form
and none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

     4.22 LISTING. The Company's Ordinary Shares are listed for trading on the
NASDAQ National Market ("NASDAQ") and the Tel-Aviv Stock Exchange ("TASE") and
satisfy all requirements for the continuation of such listing. Except as
disclosed in the Company's Exchange Act Filings or in the Financial Statements,
the Company has not received any notice that its Ordinary Shares will be
delisted from NASDAQ or that its Ordinary Shares does not meet all requirements
for listing.

     4.23 NO INTEGRATED OFFERING. Neither the Company, nor its Subsidiary or
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act such that would subject the offering, issuance and sale of the Securities
hereunder to the registration requirements of Section 5 of the Securities Act,
or any applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or its Subsidiary take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.

     4.24 STOP TRANSFER. The Securities are restricted securities as of the date
of this Agreement. Neither the Company nor its Subsidiary will issue any stop
transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal or Israeli securities laws, by NASDAQ or by TASE.

     4.25 DILUTION. The Company specifically acknowledges that its obligation to
issue the Ordinary Shares upon conversion of the Note and exercise of the
Warrant is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the OWNERSHIP interests of other shareholders of the
Company.

     4.26 The Company is entitled to certain tax benefits, based on its status
as an Approved Enterprise under the Law for the Encouragement of Capital
Investments 5744-1984. The Company has not received any notice that it has not
complied, in all material respects, with the terms and provisions of its
Approved Enterprise status and applicable laws and regulations in order to
retain its status as an Approved Enterprise.

                                       11
<PAGE>


     4.27 The Company has received grants in support of its research and
development through the Office of the Chief Scientist of the Ministry of
Industry and Trade of the State of Israel (the "OCS") as listed in SCHEDULE 4.27
hereto, in the Exchange Act Filings or in the Financial Statements (the
"GRANTS"). The Company has not received any notice that it is not in compliance,
in all material respects, with the terms and conditions of the Grants, or that
is has not duly fulfilled, in all material respects, all the undertakings
relating thereto. The Company is not aware of any event or other set of
circumstances which might lead to the revocation or material modification of any
of the Grants.

     4.28 PATRIOT ACT. The Company certifies that, to the best of Company's
knowledge, neither the Company nor its Subsidiary has been designated, and is
not owned or controlled, by a "suspected terrorist" as defined in Executive
Order 13224. The Company hereby acknowledges that the Purchaser seeks to comply
with all applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Company hereby represents, warrants and agrees
that: (i) none of the cash or property that the Company or its Subsidiary will
pay or will contribute to the Purchaser has been or shall be derived from, or
related to, any activity that is deemed criminal under United States law; and
(ii) no contribution or payment by the Company or its Subsidiary to the
Purchaser, to the extent that they are within the Company's and/or its
Subsidiary's control shall cause the Purchaser to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify the Purchaser if any of these representations ceases to be true and
accurate regarding the Company or its Subsidiary. The Company agrees to provide
the Purchaser any additional information regarding the Company or its Subsidiary
that the Purchaser reasonably deems necessary or convenient to ensure compliance
with all applicable laws concerning money laundering and similar activities. The
Company understands and agrees that if at any time it is discovered that any of
the foregoing representations are incorrect, or if otherwise required by
applicable law or regulation related to money laundering similar activities, the
Purchaser may undertake appropriate actions to ensure compliance with applicable
law or regulation, including but not limited to segregation and/or redemption of
the Purchaser's investment in the Company. The Company further understands that
the Purchaser, if required by applicable law, may release confidential
information about the Company and its Subsidiary and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in its
sole discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.

5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):

     5.1 NO SHORTING. The Purchaser or any of its affiliates and investment
partners has not, will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Ordinary Shares or any
other hedging strategies as long as the Note shall be outstanding. This Section
5.1 shall survive the Closing of the transactions contemplated hereby.


                                       12
<PAGE>


     5.2 REQUISITE POWER AND AUTHORITY. The Purchaser is duly organized, validly
existing and in good standing under the laws of the country of its formation and
has all necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and the Related Agreements and to carry out
their provisions. All corporate action on Purchaser's part required for the
lawful execution and delivery of this Agreement and the Related Agreements have
been or will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except:

          (a) as limited by applicable bankruptcy, insolvency, reorganization,
     moratorium or other laws of general application affecting enforcement of
     creditors' rights; and

          (b) as limited by general principles of equity that restrict the
     availability of equitable and legal remedies.

     5.3 INVESTMENT REPRESENTATIONS. Purchaser understands that the Securities
are being offered and sold pursuant to an exemption or exemptions from
registration requirements of Israeli and US Federal and state securities laws
and that the Company is relying upon the truth and accuracy of Purchaser's
representations contained in the Agreement, including, without limitation, that
the Purchaser is an "accredited investor" within the meaning of Regulation D
under the Securities Act . The Purchaser confirms that it has received or has
had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Note and the Warrant to
be purchased by it under this Agreement and the Note Shares and the Warrant
Shares acquired by it upon the conversion of the Note and the exercise of the
Warrant, respectively. The Purchaser further confirms that it has had an
opportunity to ask questions and receive answers from the Company regarding the
Company's and its Subsidiary's business, management and financial affairs and
the terms and conditions of the Offering, the Note, the Warrant and the
Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.

     5.4 PURCHASER BEARS ECONOMIC RISK. The Purchaser has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an exemption from registration is
available with respect to such sale.


                                       13
<PAGE>


     5.5 ACQUISITION FOR OWN ACCOUNT. The Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution. Purchaser has not
offered the Securities for sale by any means of general solicitation or general
advertising including, but no limited to, any advertisements, articles, notices
or other communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose attendees
were invited by any general solicitation or general advertising.

     5.6 PURCHASER CAN PROTECT ITS INTEREST. The Purchaser represents that by
reason of its, or of its management's, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement and the other
Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Related Agreements.

     5.7 ACCREDITED INVESTOR. Purchaser represents that it is an "accredited
investor" within the meaning of Regulation D under the Securities Act.

     5.8 LEGENDS.

          (a) The Note shall bear substantially the following legend:

          "THIS NOTE AND THE ORDINARY SHARES ISSUABLE UPON CONVERSION OF THIS
          NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
          AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
          ORDINARY SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
          OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
          EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER
          SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
          REASONABLY SATISFACTORY TO B.O.S. BETTER ON-LINE SOLUTIONS LTD. THAT
          SUCH REGISTRATION IS NOT REQUIRED."

          (b) The Note Shares and the Warrant Shares, if not issued by DWAC
     system (as hereinafter defined), shall bear a legend which shall be in
     substantially the following form until such shares are covered by an
     effective registration statement filed with the SEC:

          "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
          UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
          SECURITIES LAWS. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND
          MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR SALE, PLEDGED,
          HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
          REGISTRATION STATEMENT WITH RESPECT TO THE SHARES EVIDENCED BY THIS
          CERTIFICATE, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT AND
          APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
          TO B.O.S. BETTER ON-LINE SOLUTIONS LTD. THAT SUCH REGISTRATION IS NOT
          REQUIRED."


                                       14
<PAGE>


          (c) The Warrant shall bear substantially the following legend:

          "THIS WARRANT AND THE ORDINARY SHARES ISSUABLE UPON EXERCISE OF THIS
          WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
          AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
          ORDINARY SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE
          SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
          OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
          STATEMENT AS TO THIS WARRANT OR THE UNDERLYING ORDINARY SHARES UNDER
          SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
          REASONABLY SATISFACTORY TO B.O.S. BETTER ON-LINE SOLUTIONS LTD. THAT
          SUCH REGISTRATION IS NOT REQUIRED."

     5.9 CONTROL OVER THE PURCHASER. The Purchaser has made available to the
Company a complete and detailed list of individuals who have or share voting
and/or investment control over the Purchaser. Purchaser acknowledges that such
information shall be provided by the Company to the OCS and the Investment
Center of the Ministry of Industry, Trade and Labor of the State of Israel (the
"Investment Center"), whose approval of the transactions contemplated hereby is
a condition to the Company's obligations hereunder. Purchaser shall update such
list as reasonably requested by the Company, to comply with any request for such
information from any regulatory body, including, without limitation the OCS and
the Investment Center. This Section 5.9 shall survive the Closing of the
transactions contemplated hereby.



6. COVENANTS OF THE COMPANY. Until irrevocable payment in full by the Company
(Subject to Section 6.12) of all amounts due to Purchaser under the Note and the
Related Agreements, the Company covenants and agrees with the Purchaser as
follows:

     6.1 STOP-ORDERS. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the SEC, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Ordinary Shares of the Company for offering or sale
in any jurisdiction, or the initiation of any proceeding for any such purpose.


                                       15
<PAGE>


     6.2 LISTING. The Company shall promptly secure the listing of the Ordinary
Shares issuable upon conversion of the Note and upon the exercise of the Warrant
on the NASDAQ National Market or on any other market upon which the Company's
Ordinary Shares are then listed (the "Principal Market") (subject to official
notice of issuance) and shall maintain such listing so long as any other
Ordinary Shares shall be so listed. Except with respect to the listing on the
Tel-Aviv Stock Exchange, the Company will maintain the listing of its Ordinary
Shares on the Principal Market, and will comply in all material respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers ("NASD") and such exchanges,
as applicable.

     6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD, the Israeli
Securities Authority and the Tel-Aviv Stock Exchange and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Purchaser.

     6.4 REPORTING REQUIREMENTS. The Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act by foreign private
issuers and refrain from terminating its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination.

     6.5 USE OF FUNDS. The Company agrees that it will use the proceeds of the
sale of the Note and the Warrant for general working capital purposes, and/or
mergers and acquisitions only.

     6.6 ACCESS TO FACILITIES Each of the Company and its Subsidiary will permit
any representatives designated by the Purchaser (or any successor of the
Purchaser), upon reasonable notice and during normal business hours, at such
person's expense and accompanied by a representative of the Company, to:

          (a) visit and inspect any of the properties of the Company or its
     Subsidiary;

          (b) examine the corporate and financial records of the Company or any
     of its Subsidiary (unless such examination is not permitted by federal,
     state or local law or by contract) and make copies thereof or extracts
     therefrom; and

          (c) discuss the affairs, finances and accounts of the Company or its
     Subsidiary with the directors, officers and independent accountants of the
     Company or its Subsidiary. Notwithstanding the foregoing, neither the
     Company nor its Subsidiary will provide any material, non-public
     information to the Purchaser unless the Purchaser signs a confidentiality
     agreement and otherwise complies with Regulation FD, under the federal
     securities laws

     6.7 TAXES. Each of the Company and its Subsidiary will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company and its Subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company and/or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto, and provided, further, that
the Company and its Subsidiary will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor


                                       16
<PAGE>


     6.8 INSURANCE. Each of the Company and its Subsidiary will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar business similarly situated as the
Company and its Subsidiary; and the Subsidiary will maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner which the
Company reasonably believes is customary for companies in similar business
similarly situated as the Company and its Subsidiary and to the extent available
on commercially reasonable terms. The Company will bear the full risk of loss
from any loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and its Subsidiary's cost and expense in amounts
and with carriers reasonably acceptable to Purchaser, the Company and its
Subsidiary shall (i) keep its material properties insured against the hazards of
fire, flood and such other hazards that are included in "Extended Fire"
insurance, for such properties' full value; (ii) maintain Third Party Liability
insurance against claims for personal injury, death or property damage suffered
by others with the limit of liability of_NIS 5 Million per occurrence and in the
aggregate; (iii) maintain Employers' Liability Insurance with the limit of
liability of $5 Million per occurrence and in the aggregate; and (iv) furnish
Purchaser with (x) a certificate evidencing the maintenance of such insurance
coverage at least thirty (30) days before any expiration date, (y) excepting the
Employer's Liability Insurance, endorsements to such policies naming Purchaser
as "co-insured" or "additional insured" , and (z) evidence that as to Purchaser
the insurance coverage shall not be impaired or invalidated by the insurer and
the insurer will provide Purchaser with at least thirty (30) days notice prior
to cancellation. The Company and the Subsidiary shall instruct the insurance
carriers that in the event of any loss thereunder in excess of $50,000 in the
aggregate, upon the occurrence and during the continuance of an Event of Default
beyond any applicable cure period and until such Event of Default is cured, or
waived by the Purchaser in its sole discretion, the carriers shall make payment
for such loss to the Company and/or the Subsidiary and Purchaser jointly. In the
event that as of the date of receipt of each loss recovery upon any such
insurance, the Purchaser has not declared an Event of Default with respect to
this Agreement or any of the Related Agreements, then the Company and/or such
Subsidiary shall be permitted to direct the application of such loss recovery
proceeds toward investment in property, plant and equipment that would comprise
"Pledgor Collateral" secured by Purchaser's security interest pursuant to its
security agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to Purchaser, on demand.


                                       17
<PAGE>


     6.9 INTELLECTUAL PROPERTY. Each of the Company and its Subsidiary shall
maintain in full force and effect its existence, rights and franchises and all
licenses and other rights to use Intellectual Property owned or possessed by it
and reasonably deemed to be necessary to the conduct of its business.

     6.10 PROPERTIES. Each of the Company and its Subsidiary will keep its
material properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto, except as would not
have a Material Adverse Effect; and each of the Company and its Subsidiary will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

     6.11 CONFIDENTIALITY The Company agrees that it will not disclose, and will
not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's
identity and the terms of this Agreement to its current and prospective debt and
equity financing sources.



     6.12 REQUIRED APPROVALS. For so long as twenty-five percent (25%) of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not:

          (a) directly or indirectly declare or pay any dividends, other than
     dividends paid to the Company or any of its wholly-owned subsidiaries;

          (b) liquidate, dissolve or effect a material reorganization provided,
     however, that the Company may merge or effect a material reorganization if
     the Company is the surviving entity;

          (c) become subject to (including, without limitation, by way of
     amendment to or modification of) any agreement or instrument which by its
     terms would (under any circumstances) restrict the Company's or its
     Subsidiary's right to perform the provisions of this Agreement, any other
     Related Agreement or any of the agreements contemplated hereby or thereby;



          (d) (i) create, incur, assume or suffer to exist any indebtedness
     (exclusive of trade debt and debt incurred to finance the purchase of
     equipment (not in excess of ten percent (10%) per annum of the fair market
     value of the Company's assets) whether secured or unsecured other than (x)
     the Company's indebtedness to the Purchaser, (y) indebtedness set forth on
     SCHEDULE 6.12(D) attached hereto and made a part hereof and any
     refinancings or replacements thereof on terms no less favorable to the
     Company than the indebtedness being refinanced or replaced, and (z) any
     debt incurred in connection with the purchase of assets, or any
     refinancings or replacements thereof on terms no less favorable to the
     Company than the indebtedness being refinanced or replaced; (ii) cancel any
     debt owing to it in excess of $500,000 in the aggregate during any 12 month
     period; (iii) assume, guarantee, endorse or otherwise become directly or
     contingently liable in connection with any obligations of any other person,
     except the endorsement of negotiable instruments by the Company for deposit
     or collection or similar transactions in the ordinary course of business or
     guarantees of indebtedness of the Company's subsidiaries or otherwise
     permitted to be outstanding pursuant to this clause (d); and



                                       18
<PAGE>

          (e) create or acquire any subsidiary after the date hereof unless (i)
     such subsidiary is a wholly-owned subsidiary of the Company or (ii) such
     Subsidiary becomes party to the Master Security Agreement (either by
     executing a counterpart thereof or an assumption or joinder agreement in
     respect thereof) and, to the extent required by the Purchaser, satisfies
     each condition of this Agreement and the other Related Agreements as if
     such subsidiary was a subsidiary on the Closing Date.



     6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.7 above
at such time as:

          (a) the holder thereof is permitted to dispose of such Securities
     pursuant to Rule 144(k) under the Securities Act; or

          (b) upon resale subject to an effective registration statement after
     such Securities are registered under the Securities Act.

     The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.

     6.14 OPINIONS. On the Closing Date, the Company will deliver to the
Purchaser opinions acceptable to the Purchaser substantially in the forms of
Exhibits C1 and C2 hereto, from the Company's external legal counsels. The
Company will provide, at the Company's expense, such other legal opinions to be
issued in connection with sales effected under Rule 144 of the Securities Act,
or in connection with a request by or on behalf of the Company's Transfer Agent
in the future as are deemed reasonably necessary by the Purchaser (and
acceptable to the Purchaser) in connection with the conversion of the Note and
exercise of the Warrant.

     6.15 On or prior to the Closing Date the Company will execute and deliver
to the Purchaser the Related Agreements signed by the Company and its Subsidiary
(if required) and any debentures attached thereto.

     6.16 On or prior to the Closing Date, the Company will execute and deliver
to the Purchaser a confirmation by the board of directors of the Company
according to section 282 of the Companies Law - 1999, together with a copy of
resolutions by the Company's Board of Directors, authorizing the execution and
performance of this Agreement, the Related Agreements and the transactions
contemplated hereby and thereby.


                                       19
<PAGE>


     6.17 The Company will at all times have authorized and reserved a
sufficient number of Ordinary Shares for the full conversion of the Note and
exercise of the Warrants.



7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees with the
Company as follows:

     7.1 CONFIDENTIALITY. The Purchaser agrees that it will not disclose, and
will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.

     7.2 NON-PUBLIC INFORMATION. The Purchaser agrees not to effect any sales in
the Company's Ordinary Shares while in possession of material, non-public
information regarding the Company if such sales would violate applicable
securities law.

     This Section 7 shall survive the Closing of the transactions contemplated
hereby.



8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.

     8.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or its Subsidiary or breach of any warranty by
the Company or its Subsidiary in this Agreement, any other Related Agreement or
in any exhibits or schedules attached hereto or thereto; or (ii) any breach or
default in performance by Company or its Subsidiary of any covenant or
undertaking to be performed by Company or its Subsidiary hereunder, under any
other Related Agreement or any other agreement entered into by the Company and
Purchaser relating hereto or thereto. Nothing herein shall be deemed to expand
the Subsidiary's liability hereunder or under any Related Agreement, beyond its
liability in connection with the representations and warranties made by the
Subsidiary hereunder.

     8.2 PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or under any
other Related Agreement.


                                       20
<PAGE>


9. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations of
the Company to issue the Note and the Warrant to the Investors at the Closing is
subject to the fulfillment (or waiver by the Company) prior to or on the Closing
Date of the conditions set forth below. In the event that any such condition is
not met to the satisfaction of the Company, then the Company shall not be
obligated to proceed with the transactions contemplated hereunder and in the
Related Agreements, and shall not be subject to any liability hereunder or
thereunder.

     9.1  REPRESENTATIONS AND WARRANTIES. The representations and warranties of
          the Purchaser under this Agreement and the related Agreements shall be
          true in all material respects as of the Closing Date, with the same
          effect as though made on and as of such date.

     9.2  COMPLIANCE WITH AGREEMENTS. Purchaser shall have performed and
          complied in all respects with all agreements or conditions required by
          this Agreement and the Related Agreements to be performed and complied
          with by it prior to or as of the Closing Date.

     9.3  NO INJUNCTION. No statute, rule, regulation, executive order, decree,
          ruling or injunction shall have been enacted, entered, promulgated or
          endorsed by any court or governmental authority of competent
          jurisdiction, which prohibits the consummation of any of the
          transactions contemplated by this Agreement and the Related
          Agreements.

     9.4  DELIVERY OF PURCHASE AMOUNT. The Purchaser shall have delivered to the
          Company the Purchase Amount on or before the Closing Date.

     9.5  GOVERNMENT APPROVALS. The Company shall have received all necessary
          approvals by the OCS and the Investment Center with respect to the
          transactions contemplated hereby and by the Related Agreements. The
          Purchaser shall have executed any confirmations required by the OCS
          and/or the Investment Center for the grant of such approvals.

     9.6  NOTICES TO NASDAQ THE TASE AND THE ISA. The Company shall have made
          all required filings of notices with NASDAQ, the Tel Aviv Stock
          Exchange and the Israel Securities Authority and has received no
          notice adversely effecting the performance of the transactions
          contemplated hereunder and in the Related Agreements. The Company
          shall use its commercially reasonable efforts to complete such
          filings.


                                       21
<PAGE>


10. CONVERSION OF CONVERTIBLE NOTE.

     10.1 MECHANICS OF CONVERSION.

          (a) Provided the Purchaser has notified the Company of the Purchaser's
     intention to sell the Note Shares and the Note Shares are included in an
     effective registration statement or are otherwise exempt from registration
     when sold: (i) upon the conversion of the Note or part thereof, the Company
     shall, at its own cost and expense, take all necessary action (including
     the issuance of an opinion of counsel reasonably acceptable to the
     Purchaser following a request by the Purchaser) to assure that the
     Company's transfer agent shall issue the Company's Ordinary Shares in the
     name of the Purchaser (or its nominee) or such other persons as designated
     by the Purchaser in accordance with Section 10.1(b) hereof and in such
     denominations to be specified representing the number of Note Shares
     issuable upon such conversion; and (ii) the Company warrants that no
     instructions other than these instructions have been or will be given to
     the transfer agent of the Company's Ordinary Shares and that after the
     Effectiveness Date (as defined in the Registration Rights Agreement) the
     Note Shares issued will be freely transferable subject to the prospectus
     delivery requirements of the Securities Act and the provisions of this
     Agreement, and will not contain a legend restricting the resale or
     transferability of the Note Shares.

          (b) Purchaser will give notice of its decision to exercise its right
     to convert the Note or part thereof by telecopying or otherwise delivering
     an executed and completed notice including a breakdown in reasonable detail
     of the Principal Amount and accrued interest being converted (the "Notice
     of Conversion") all as more fully provided in the Note. The Purchaser will
     not be required to surrender the Note until the Purchaser receives a credit
     to the account of the Purchaser's prime broker through the DWAC system (as
     defined below), representing the Note Shares or until the Note has been
     fully satisfied. Each date on which a Notice of Conversion is telecopied or
     delivered to the Company in accordance with the provisions hereof shall be
     deemed a "Conversion Date." Pursuant to the terms of the Notice of
     Conversion, the Borrower will issue instructions to the transfer agent
     accompanied by an opinion of counsel within one (1) business day of the
     date of the delivery to Borrower of the Notice of Conversion and shall
     cause the transfer agent to transmit the certificates representing the
     Conversion Shares to the Holder by crediting the account of the Purchaser's
     prime broker with the Depository Trust Company ("DTC") through its Deposit
     Withdrawal Agent Commission ("DWAC") system within three (3) business days
     after receipt by the Company of the Notice of Conversion (the "Delivery
     Date")

          (c) The Company understands that a delay in the delivery of the Note
     Shares in the form required pursuant to Section 10 hereof beyond the
     Delivery Date could result in economic loss to the Purchaser. In the event
     that the Company fails to direct its transfer agent to deliver the Note
     Shares to the Purchaser via the DWAC system within the time frame set forth
     in Section 10.1(b) above and the Note Shares are not delivered to the
     Purchaser by the Delivery Date, as compensation to the Purchaser for such
     loss, the Company agrees to pay late payments to the Purchaser for late
     issuance of the Note Shares in the form required pursuant to Section hereof
     upon conversion of the Note in the amount equal to the greater of: (i) $500
     per business day after the Delivery Date; or (ii) the Purchaser's actual
     damages from such delayed delivery. Notwithstanding the foregoing, the
     Company will not owe the Purchaser any late payments if the delay in the
     delivery of the Note Shares beyond the Delivery Date is solely out of the
     control of the Company and the Company is actively trying to cure the cause
     of the delay. The Company shall pay any payments incurred under this
     Section in immediately available funds upon demand and, in the case of
     actual damages, accompanied by reasonable documentation of the amount of
     such damages. Such documentation shall show the number of Ordinary Shares
     the Purchaser is forced to purchase (in an open market transaction) which
     the Purchaser anticipated receiving upon such conversion, and shall be
     calculated as the amount by which (A) the Purchaser's total purchase price
     (including customary brokerage commissions, if any) for the Ordinary Shares
     so purchased exceeds (B) the aggregate principal and/or interest amount of
     the Note, for which such Conversion Notice was not timely honored.


                                       22
<PAGE>


     10.2 Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum amount
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Purchaser and thus refunded to the
Company.

11. REGISTRATION RIGHTS, OFFERING RESTRICTIONS.

     11.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants registration
rights to the Purchaser pursuant to a Registration Rights Agreement dated as of
even date herewith between the Company and the Purchaser.

     11.2 OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports, in the Exchange Act Filings, in the Financial Statements, or stock or
stock options granted to employees or directors of the Company (these exceptions
hereinafter referred to as the "Excepted Issuances"), neither the Company nor
its Subsidiary will issue any securities with a continuously variable/floating
conversion feature which are or could be (by conversion or registration)
free-trading securities (i.e. Ordinary Shares subject to a registration
statement) prior to the full repayment or conversion of the Note (together with
all accrued and unpaid interest and fees related thereto) (the "Exclusion
Period").

12. MISCELLANEOUS.

     12.1 GOVERNING LAW. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. ANY ACTION BROUGHT BY EITHER
PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE
FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS ON BEHALF
OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE
TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY OTHER
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF ANY AGREEMENT.


                                       23
<PAGE>


     12.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby to the extent provided therein.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of either party pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by such party hereunder solely as of the date of
such certificate or instrument.

     12.3 SUCCESSORS. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Ordinary Shares
which have been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company or its Subsidiary.

     12.4 ENTIRE AGREEMENT. This Agreement, the Related Agreements, the exhibits
and schedules hereto and thereto and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.

     12.5 SEVERABILITY. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

     12.6 AMENDMENT AND WAIVER.

          (a) This Agreement may be amended or modified only upon the written
     consent of the Company and the Purchaser or their respective successors.

          (b) The obligations of the Company and the rights of the Purchaser
     under this Agreement may be waived only with the written consent of the
     Purchaser or its successors.

          (c) The obligations of the Purchaser and the rights of the Company
     under this Agreement may be waived only with the written consent of the
     Company or its successors.

     12.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.


                                       24
<PAGE>


     12.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:

          (a) upon personal delivery to the party to be notified;

          (b) when sent by confirmed facsimile if sent during normal business
     hours of the recipient, if not, then on the next business day;

          (c) three (3) business days after having been sent by registered or
     certified mail, return receipt requested, postage prepaid; or

          (d) one (1) day after deposit with a nationally recognized overnight
     courier, specifying next day delivery, with written verification of
     receipt.

All communications shall be sent as follows:


<TABLE>
<CAPTION>

<S>                                          <C>
         IF TO THE PURCHASER, TO:            B.O.S. Better On-Line Solutions Ltd.
                                             Beit Rabin, 100 BOS Road, Teradyon Industrial Park,
                                             Misgav 20179, Israel

                                             Attention:        Chief Financial Officer
                                             Facsimile:        (972) 4 999-0334

                                             WITH A COPY TO:

                                             Amit, Pollak, Matalon & Ben-Naftali, Erez & Co.NYP
                                             Tower, 17 Yitzhak Sadeh Street, 19th Floor
                                             Tel Aviv 67775
                                             Attention: Shlomo Landress, Esq.

                                             Facsimile: (972) 3 561-3620

         IF TO THE COMPANY, TO:              Laurus Master Fund, Ltd.
                                             c/o Ironshore Corporate Services ltd.
                                             P.O. Box 1234 G.T.
                                             Queensgate House, South Church Street
                                             Grand Cayman, Cayman Islands
                                             Facsimile:        345-949-9877
</TABLE>


                                       25
<PAGE>

<TABLE>
<CAPTION>
<S>                                          <C>
                                             WITH A COPY TO:

                                             John E. Tucker, Esq.
                                             825 Third Avenue 14th Floor
                                             New York, NY 10022
                                             Facsimile:        212-541-4434
</TABLE>



or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.

     12.9 ATTORNEYS' FEES. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all reasonable and actually
incurred fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement, including, without limitation,
such reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.

     12.10 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

     12.11 FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.

     12.12 BROKER'S FEES, STAMP TAXES. Except as set forth on Schedule 12.12
hereof, each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker's or finder's fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 12.12 being untrue. The Company
shall bear all stamp taxes required to be paid in connection with this
Agreement, the Note and/or the Warrant.

     12.13 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.



             [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK


                                       26
<PAGE>


     IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.



COMPANY:                                 PURCHASER:

B.O.S. BETTER ON-LINE SOLUTIONS LTD.     LAURUS MASTER FUND, LTD.


By:                                      By:
      -----------------------                   -----------------------
Name:                                    Name:
      -----------------------                   -----------------------
Title:                                   Title:
      -----------------------                   -----------------------




BOSCOM, LTD.


By:
      -----------------------
Name:
      -----------------------
Title:
      -----------------------


                                       27
<PAGE>


                                    EXHIBIT A

                            FORM OF CONVERTIBLE NOTE
                                    [omitted]

                                       A-1
<PAGE>


                                    EXHIBIT B

                                 FORM OF WARRANT
                                    [omitted]


                                       B-1
<PAGE>




                                 EXHIBITS C1-C2

                                    OPINIONS
                                    [omitted]






                                       C-1
<PAGE>


                                    EXHIBIT D

                            FORM OF ESCROW AGREEMENT
                                    [omitted]


                                       D-2

<PAGE>



THIS NOTE AND THE ORDINARY SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE ORDINARY SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO B.O.S. BETTER ON-LINE SOLUTIONS LTD. THAT SUCH REGISTRATION IS
NOT REQUIRED.


                          SECURED CONVERTIBLE TERM NOTE

     FOR VALUE RECEIVED, B.O.S. BETTER ON-LINE SOLUTIONS LTD., a corporation
incorporated under the laws of the State of Israel (the "BORROWER"), hereby
promises to pay to LAURUS MASTER FUND, LTD. a Cayman Islands company c/o
Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "HOLDER") or
its registered assigns or successors in interest, on order, the sum of Two
Million United States Dollars ($2,000,000), together with any accrued and unpaid
interest hereon, on June 10, 2007 (the "MATURITY DATE") if not sooner paid.

     Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (the "PURCHASE AGREEMENT").

The following terms shall apply to this Note:

                                    ARTICLE I
                             INTEREST & AMORTIZATION

     1.1(a) INTEREST RATE. Subject to Section 4.11 and 5.6 hereof, interest
payable on this Note shall accrue at a rate per annum (the "Interest Rate")
equal to the "prime rate" published in THE WALL STREET JOURNAL from time to
time, plus three percent (3.0%). The Interest Rate shall be increased or
decreased as the case may be for each increase or decrease in the prime rate in
an amount equal to such increase or decrease in the prime rate; each change to
be effective as of the day of the change in such rate and also subject to
Section 1.1(b) hereof. In no event, however, shall the Interest Rate be less
than zero percent (0.00%). Interest shall be (i) calculated on the basis of a
360 day year, (ii) payable monthly, in arrears, commencing on September 1, 2004
and on the first business day of each consecutive calendar month thereafter
until the Maturity Date (and on the Maturity Date), whether by acceleration or
otherwise (each, a "REPAYMENT DATE").

<PAGE>


     1.1 (b) INTEREST RATE ADJUSTMENT. The Interest Rate shall be calculated on
the last business day of each month hereafter until the Maturity Date (each a
"DETERMINATION DATE") and be subject to adjustment. If (i) the Borrower shall
have registered the Borrower's Ordinary Shares underlying the conversion of the
Note and that certain warrant issued to the Holder (the "Warrant") on a
registration statement declared effective by the SEC, and (ii) the average
closing price of the Ordinary Shares as reported by Bloomberg, L.P. on the
Principal Market (as defined below) for any five ((5) consecutive trading days
during the fifteen (15) days immediately preceding a Determination Date, exceeds
the then applicable Fixed Conversion Price, then the Interest Rate for the
succeeding calendar month shall automatically be reduced by 200 basis points
(2.0%) for each incremental twenty five percent (25%) increase in the market
price of the Ordinary Shares above the then applicable Fixed Conversion Price.
If (i) the Borrower shall not have registered the Borrower's Ordinary Shares
underlying the conversion of the Note and the Warrant on a registration
statement declared effective by the SEC, and (ii) the average closing price of
the Ordinary Shares as reported by Bloomberg, L.P. on the Principal Market
(below) for any five (5) consecutive trading days during the fifteen (15) days
immediately preceding a Determination Date exceeds the Fixed Conversion Price,
then the Interest Rate for the succeeding calendar month shall automatically be
reduced by 100 basis points (1.0%) for each incremental twenty five percent
(25%) increase in the market price of the Ordinary Shares above the then
applicable Fixed Conversion Price.

     1.2 MINIMUM MONTHLY PRINCIPAL PAYMENTS. Amortizing payments of the
aggregate principal amount outstanding under this Note at any time (the
"PRINCIPAL AMOUNT") shall begin on October 1, 2004 and shall recur on the first
calendar day of each succeeding month thereafter until the Maturity Date (each,
an "AMORTIZATION DATE") as set forth in the table below:

<TABLE>
<CAPTION>
 DATE     PRINCIPAL AMOUNT    DATE     PRINCIPAL AMOUNT
- -------       -------       -------       -------

<S>           <C>           <C>           <C>
10/1/04       $20,000       12/1/05       $73,600

11/1/04       $20,000       1/1/06        $73,600

12/1/04       $20,000       2/1/06        $73,600

 1/1/05       $20,000       3/1/06        $73,600

 2/1/05       $20,000       4/1/06        $73,600

 3/1/05       $20,000       5/1/06        $73,600

 4/1/05       $20,000       6/1/06        $73,600

 5/1/05       $20,000       7/1/06        $73,600

 6/1/05       $73,600       8/1/06        $73,600

 7/1/05       $73,600       9/1/06        $73,600

 8/1/05       $73,600       10/1/06       $73,600

 9/1/05       $73,600       11/1/06       $73,600

10/1/05       $73,600       12/1/06       $73,600

11/1/05       $73,600       1/1/07        $73,600

                            2/1/07        $73,600

                            3/1/07        $73,600

                            4/1/07        $73,600

                            5/1/07        $73,600

                            6/1/07        $73,600
</TABLE>

<PAGE>


     Subject to Section 3 below, beginning on the first Amortization Date, the
Borrower shall make monthly payments to the Holder on each Repayment Date, each
in the amount set forth above, together with any accrued and unpaid interest to
date on such portion of the Principal Amount plus any and all other amounts
which are then owing under this Note but have not been paid (collectively, the
"MONTHLY AMOUNT"). All payments hereunder shall be paid by wire transfer of
immediately available funds to the account designated by the Holder in a written
notice delivered to the Borrower at least three business days in advance of the
Repayment Date.

                                   ARTICLE II
                              CONVERSION REPAYMENT


     2.1 (a) PAYMENT OF MONTHLY AMOUNT IN CASH OR ORDINARY Shares. Each month by
the fifth (5th) business day prior to each Amortization Date (the "NOTICE
DATE"), the Holder shall deliver to Borrower a written Monthly Conversion Notice
in the form of EXHIBIT B attached hereto converting the Monthly Amount payable
on the next Repayment Date in either cash or Ordinary Shares, or a combination
of both (each, a "REPAYMENT NOTICE"). If a Repayment Notice is not delivered by
the Holder on or before the applicable Notice Date for such Repayment Date,
then, the Borrower shall pay the Monthly Amount due on such Repayment Date in
cash. Any portion of the Monthly Amount paid in cash on a Repayment Date, shall
be paid to the Holder an amount equal to 100% of such unconverted portion of the
Monthly Amount due and owing to Holder on the Repayment Date. If the Holder
converts all or a portion of the Monthly Amount into Ordinary Shares as provided
herein, the number of such shares to be issued by the Borrower to the Holder on
such Repayment Date shall be the number determined by dividing (x) the portion
of the Monthly Amount to be paid in shares of Ordinary Shares, by (y) the then
applicable Fixed Conversion Price. For purposes hereof, the initial "FIXED
CONVERSION PRICE" means $3.08 (which has been determined on the date of this
Note as an amount equal to 110% of the average closing price for the twenty (20)
trading days immediately prior to the date of this Note, but in no event shall
the fixed conversion price be less than USD$3.08.) The Fixed Conversion Price
may be adjusted in accordance with the provisions of Section 3.4(b) below.

<PAGE>


     (b) MONTHLY AMOUNT CONVERSION GUIDELINES. Subject to Sections 2.1(a), 2.2,
and 3.2 hereof, the Holder shall convert all or a portion of the Monthly Amount
due on each Repayment Date into Ordinary Shares if the average closing price of
the Ordinary Shares as reported by Bloomberg, L.P. on the Principal Market for
any five (5) consecutive trading days during the fifteen (15) days immediately
preceding such Repayment Date was greater than or equal to one hundred and ten
percent (110%) of the Fixed Conversion Price, provided, however, that such
conversions shall be up to but not exceed twenty five percent (25%) of the
aggregate dollar trading volume of the Ordinary Shares for the thirty (30) day
trading period immediately preceding the Repayment Date. Any part of the Monthly
Amount due on a Repayment Date that the Holder has not converted into Ordinary
Shares, shall be paid by the Borrower in cash on such Repayment Date. Any part
of the Monthly Amount due on such Repayment Date which must be paid in cash (as
a result of the closing price of the Ordinary Shares on one or more of the five
(5) consecutive trading days during the fifteen (15) days immediately preceding
the applicable Repayment Date being less than 110% of the Fixed Conversion
Price) shall be paid in cash at the rate of 100% of the Monthly Amount otherwise
due on such Repayment Date, within three (3) business days of the applicable
Repayment Date.





     2.2 NO EFFECTIVE REGISTRATION. Notwithstanding anything to the contrary
herein, none of the Borrower's obligations to the Holder may be converted into
Ordinary Shares unless (i) an effective current Registration Statement (as
defined in the Registration Rights Agreement) covering the Ordinary Shares to be
issued in connection with the satisfaction of such obligations exists or an
exemption from registration of the Ordinary Shares is available pursuant to Rule
144 of the Securities Act and (ii) no Event of Default hereunder exists and is
continuing, unless such Event of Default is cured within any applicable cure
period or is otherwise waived in writing by the Holder in whole or in part at
the Holder's option.

     Any amounts converted by the Holder pursuant to this Section 2.2 shall be
deemed to constitute payments of outstanding fees, interest and principal
arising in connection with Monthly Amounts for the remaining Repayment Dates, in
chronological order.

     2.4 OPTIONAL REDEMPTION IN CASH. The Borrower will have the option of
prepaying this Note ("OPTIONAL REDEMPTION") by paying to the Holder a sum of
money equal to one hundred and twenty percent (120%) of the then outstanding
principal amount of this Note together with accrued but unpaid interest thereon
and any and all other sums due, accrued or payable to the Holder arising under
this Note, the Purchase Agreement, or any Related Agreement (the "REDEMPTION
AMOUNT") outstanding on the day written notice of redemption (the "NOTICE OF
REDEMPTION") is given to the Holder. The Notice of Redemption shall specify the
date for such Optional Redemption (the "REDEMPTION PAYMENT DATE") which date
shall be seven (7) business days after the date of the Notice of Redemption (the
"REDEMPTION PERIOD"). A Notice of Redemption shall not be effective with respect
to any portion of this Note for which the Holder has a pending election to
convert pursuant to Section 3.1, or for conversions initiated or made by the
Holder pursuant to Section 3.1 during the Redemption Period. The Redemption
Amount shall be determined as if such Holder's conversion elections had been
completed immediately prior to the date of the Notice of Redemption. On the
Redemption Payment Date, the Redemption Amount must be paid in good funds to the
Holder. In the event the Borrower fails to pay the Redemption Amount on the
Redemption Payment Date as set forth herein, then such Redemption Notice will be
null and void.

<PAGE>


                                   ARTICLE III
                                CONVERSION RIGHTS

     3.1. HOLDER'S CONVERSION RIGHTS. The Holder shall have the right, but not
the obligation, to convert all or any portion of the then aggregate outstanding
principal amount of this Note, together with interest and fees due hereon, into
Ordinary Shares subject to the terms and conditions set forth in this Article
III. The Holder may exercise such right by delivery to the Borrower of a written
notice of conversion in the form of EXHIBIT A attached hereto (the "Notice of
Conversion") not less than one (1) business day prior to the date upon which
such conversion shall occur. The date upon which such conversion shall occur is
the "CONVERSION DATE".

     3.2 CONVERSION LIMITATION. Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to the terms of
the Note an amount that would (a) be convertible into that number of Ordinary
Shares which, when added to the number of Ordinary Shares otherwise beneficially
owned by such Holder including those issuable upon exercise of warrants held by
such Holder would exceed 4.99% of the outstanding Ordinary Shares of the
Borrower at the time of conversion or (b) (ii) exceed twenty five percent (25%)
of the aggregate dollar trading volume of the Ordinary Shares for the thirty
(30) day trading period immediately preceding delivery of a Notice of Conversion
to the Borrower. For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13d-3 thereunder. The conversion limitation
described in this Section 3.2 shall automatically become null and void without
any notice to Borrower upon the occurrence and during the continuance beyond any
applicable grace period of an Event of Default, or upon 75 days prior notice to
the Borrower, except that at no time shall the beneficial ownership exceed
19.99% of the Borrower's outstanding Ordinary Shares as of the date hereof.
Notwithstanding anything contained herein to the contrary, the number of
Ordinary Shares issuable by the Borrower and acquirable by the Holder pursuant
to the terms of this Note and/or the Warrant issued by the Borrower to the
Holder pursuant to the Securities Purchase Agreement, shall not exceed an
aggregate of 833,085 of the Borrower's Ordinary Shares, (subject to appropriate
adjustment for stock splits, stock dividends, or other similar recapitalizations
affecting the Ordinary Shares).

     3.3 MECHANICS OF HOLDER'S CONVERSION. (a) In the event that the Holder
elects to convert this Note into Ordinary Shares, the Holder shall give notice
of such election by delivering an executed and completed Notice of Conversion to
the Borrower and such Notice of Conversion shall provide a breakdown in
reasonable detail of the Principal Amount, accrued interest and fees being
converted. On each Conversion Date (as hereindefined) and in accordance with its
Notice of Conversion, the Holder shall make the appropriate reduction to the
Principal Amount, accrued interest and fees as entered in its records and shall
provide written notice thereof to the Borrower within two (2) business days
after the Conversion Date.

<PAGE>


     (b) Pursuant to the terms of the Notice of Conversion, the Borrower will
issue instructions to the transfer agent accompanied by an opinion of counsel
within 2 business days of the date of the delivery to Borrower of the Notice of
Conversion and shall cause the transfer agent to transmit the certificates
representing the Note Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Borrower of the Notice of Conversion (the
"DELIVERY Date"). In the case of the exercise of the conversion rights set forth
herein the conversion privilege shall be deemed to have been exercised and the
Note Shares issuable upon such conversion shall be deemed to have been issued
upon the date of receipt by the Borrower of the Notice of Conversion. The Holder
shall be treated for all purposes as the record holder of such Ordinary Shares.


     3.4 CONVERSION MECHANICS.

     (a) The number of Ordinary Shares to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal and interest
and fees to be converted, if any, by the then applicable Fixed Conversion Price.
In the event of any conversions of outstanding principal amount under this Note
in part pursuant to this Article III, such conversions shall be deemed to
constitute conversions of outstanding principal amount applying to Monthly
Amounts for the remaining Repayment Dates in chronological order. No fractional
shares shall be issued upon any conversion of this Note. The value of any
fractional shares shall be paid in cash.

     (b) The Fixed Conversion Price and number and kind of shares or other
securities to be issued upon conversion is subject to adjustment from time to
time upon the occurrence of certain events, as follows:

     A. STOCK SPLITS, COMBINATIONS AND DIVIDENDS. If the Ordinary Shares are
subdivided or combined into a greater or smaller number of Ordinary Shares, or
if a dividend is paid on the Ordinary Shares in Ordinary Shares, the Fixed
Conversion Price , as the case may be, shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of Ordinary Share outstanding immediately after such event bears to the
total number of Ordinary Shares outstanding immediately prior to such event.

     B. During the period the conversion right exists, the Borrower will reserve
from its authorized and unissued Ordinary Shares a sufficient number of shares
to provide for the issuance of Ordinary Shares upon the full conversion of this
Note. The Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. The Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing share
certificates to execute and issue the necessary certificates for Ordinary Shares
upon the conversion of this Note.

<PAGE>


     C. SHARE ISSUANCES. Subject to the provisions of this Section 3.4, if the
Borrower shall at any time prior to the conversion or repayment in full of the
Principal Amount issue any Ordinary Shares or securities convertible into
Ordinary Shares to a person other than the Holder (except (i) pursuant to
Subsections A or B above; (ii) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof as disclosed to
Holder in writing; (iii) pursuant to any financing transaction in which the
Holder (or any of its affiliates) participates or is entitled to any fees; (iv)
pursuant to options that may be issued under any employee stock option plan
adopted by the Borrower); or (v) grant of options to service provides against
their services, issuances in connection with strategic alliances, and issuances
in connection with merger and acquisition transactions approved by the board of
directors of the Company, for a consideration per share (the "Offer Price") less
than the Fixed Conversion Price in effect at the time of such issuance, then the
Fixed Conversion Price shall be adjusted at the time of issuance of such
securities by multiplying the then applicable Fixed Conversion Price by the
following fraction:




                       A + B
           -----------------------------
           (A + B) + [((C - D) x B) / C]

               A = Actual shares outstanding prior to such offering

               B = Actual shares sold in the offering

               C = Fixed Conversion Price

               D = Offering Price



     D. RECLASSIFICATION, ETC. If the Borrower at any time shall, by
reclassification or otherwise, change the Ordinary Shares into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such change with
respect to the Note Shares immediately prior to such reclassification or other
change.

     3.5 ISSUANCE OF NEW NOTE. Upon any partial conversion of this Note, a new
Note containing the same date and provisions of this Note shall, at the request
of the Holder, be issued by the Borrower to the Holder for the principal balance
of this Note and interest which shall not have been converted or paid. The
Borrower will pay no costs, fees or any other consideration to the Holder for
the production and issuance of a new Note.

     3.6 RIGHTS OF SHAREHOLDERS. No Holder shall be entitled, as a Note holder,
to vote or receive dividends or be deemed the holder of the Note Shares or any
other securities of the Company which may at any time be issuable upon the
conversion of this Note for any purpose, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a shareholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance of
shares, reclassification of shares, change of nominal value, consolidation,
merger, conveyance, or otherwise) or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until the Note Shares
purchasable upon the conversion hereof shall have become deliverable, as
provided herein.

<PAGE>


                                   ARTICLE IV
                                EVENTS OF DEFAULT

Upon the occurrence and continuance of an Event of Default beyond any applicable
grace period, the Holder may make all sums of principal, interest and other fees
then remaining unpaid hereon and all other amounts payable hereunder immediately
due and payable. In the event of such an acceleration, within five (5) days
after written notice from Holder to Borrower (each occurrence being a "DEFAULT
NOTICE PERIOD") the amount due and owing to the Holder shall be 120% of the
outstanding principal amount of the Note (plus accrued and unpaid interest and
fees, if any) (the "DEFAULT PAYMENT"). If, with respect to any Event of Default,
the Borrower cures the Event of Default by the end of the Default Notice Period,
the Event of Default will be deemed to no longer exist and any rights and
remedies of Holder pertaining to such Event of Default will be of no further
force or effect. The Default Payment shall be applied first to any fees due and
payable to Holder pursuant to the Note or the Related Agreements, then to
accrued and unpaid interest due on the Note and then to the outstanding
principal balance of the Note.

     The occurrence of any of the following events set forth in Sections 4.1
through 4.8, inclusive, is an "EVENT OF DEFAULT":

     4.1 FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The Borrower (i)
fails to pay when due any installment of principal, interest or other fees
hereon in accordance herewith, or (ii) the Borrower fails to pay when due any
amount exceeding $200,000 due under any other promissory note issued by Borrower
(unless the Borrower shall in good faith contest the validity of such amounts),
and in any such case, such failure shall continue for a period of three (3) days
following the date upon which any such payment was due.

     4.2 BREACH OF COVENANT. The Borrower breaches any covenant or any other
term or condition of this Note, the Purchase Agreement or the Registration
Rights Agreement in any material respect, or the Borrower or its Subsidiary,
BOScom Ltd. (the "Subsidiary"), breaches any covenant or any other term or
condition of any Related Agreement in any material respect and, any such case,
such breach, if subject to cure, continues for a period of fifteen (15) days
after the occurrence thereof.

     4.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made by the Borrower in this Note or the Purchase Agreement, or by the
Borrower or the Subsidiary in any Related Agreement, shall, in any such case, be
false or misleading in any material respect on the date that such representation
or warranty was made or deemed made that has a material adverse effect on the
Company's performance of its obligations to the Holder, or the practical
realization by the Holder of any benefit or remedy it may have under the Note or
the Related Agreements.

<PAGE>


     4.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.

     4.5 JUDGMENTS. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its Subsidiaries or any of their
respective property or other assets for more than $200,000 , and shall remain
unvacated, unbonded or unstayed for a period of thirty (30) days.

     4.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
of its Subsidiaries and such proceedings, solely if instituted against the
Borrower or any of its Subsidiaries, shall continue undismissed or unstayed for
ninety (90) business days. No cure period shall apply for proceedings or relief
under any bankruptcy law or any law for the relief of debtors shall be
instituted by the Borrower.

     4.7 STOP TRADE. An SEC stop trade order or Principal Market trading
suspension of the Ordinary Shares shall be in effect for ten (10) consecutive
trading days or five (5) days during a period of ten (10) consecutive days,
excluding in all cases a suspension of all trading on a Principal Market,
PROVIDED that the Borrower shall not have been able to cure such trading
suspension within thirty (30) days of the notice thereof or list the Ordinary
Shares on another Principal Market within sixty (60) days of such notice. The
"Principal Market" for the Ordinary Shares shall include the NASD OTC Bulletin
Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock
Exchange, New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Ordinary Shares), or any securities
exchange or other securities market on which the Ordinary Shares is then being
listed or traded. Notwithstanding the above, any suspension of trading on, or
the delisting of the Ordinary Shares of the Tel Aviv Stock Exchange shall not be
deemed an Event of Default hereunder or under the Related Agreements.

     4.8 FAILURE TO DELIVER ORDINARY SHARES OR REPLACEMENT NOTE. The Borrower
shall fail (i) to timely deliver Ordinary Shares to the Holder pursuant to and
in the form required by this Note, and Section 9 of the Purchase Agreement, if
such failure to timely deliver Ordinary Shares shall not be cured within two (2)
business days or (ii) to deliver a replacement Note to Holder within seven (7)
business days following the required date of such issuance pursuant to this
Note, the Purchase Agreement or any Related Agreement (to the extent required
under such agreements). Notwithstanding the foregoing, the Borrower will not be
deemed in default hereunder for any delay in the delivery of the Ordinary Shares
or a replacement Note, which is out of the control of the Borrower (including
any delays in processing by a transfer agent) and the Borrower is actively
trying to cure the cause of such delay.

     4.9 DEFAULT UNDER RELATED AGREEMENTS OR OTHER AGREEMENTS. The occurrence
and continuance of any Event of Default (as defined in any Related Agreement) or
any event of default (or similar term) under any other material indebtedness in
excess of $200,000.

     4.10 [Reserved]

<PAGE>


                           DEFAULT RELATED PROVISIONS

     4.11 PAYMENT GRACE PERIOD. Following the occurrence and continuance of an
Event of Default beyond any applicable cure period hereunder, and for as long as
such Event of Default has not been cured, the Borrower shall pay the Holder a
default interest rate of two percent (2%) per month on all amounts due and owing
under the Note, which default interest shall be payable upon demand.

     4.12 CONVERSION PRIVILEGES. The conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof and
until this Note is paid in full.

     4.13 CUMULATIVE REMEDIES. The remedies under this Note shall be cumulative.

                                    ARTICLE V
                                  MISCELLANEOUS

     5.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
any party hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

     5.2 NOTICES. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) ten business days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) two business days after
deposit with a internationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the Borrower at the address provided in the Purchase Agreement executed in
connection herewith, with a copy to Shlomo Landress, Esq. NYP Tower, 17 Yitzhak
Sadeh Street, 19th Floor, Tel Aviv 67775, facsimile number (972) 3 561-3620 and
to the Holder at the address provided in the Purchase Agreement for such Holder,
with a copy to John E. Tucker, Esq., 825 Third Avenue, 14th Floor, New York, New
York 10022, facsimile number (212) 541-4434, or at such other address as the
Borrower or the Holder may designate by ten days advance written notice to the
other parties hereto. A Notice of Conversion shall be deemed given when made to
the Borrower pursuant to the Purchase Agreement.

     5.3 AMENDMENT PROVISION. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented, and any
successor instrument issued pursuant to Section 3.5 hereof, as it may be amended
or supplemented.

     5.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. This Note shall not be assigned by the
Borrower without the consent of the Holder.

<PAGE>


     5.5 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.

     5.6 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

     5.7 SECURITY INTEREST AND GUARANTEE. The Holder has been granted a security
interest in certain assets of the Borrower as more fully described in the Master
Security Agreement dated as of the date hereof. The obligations of the Borrower
under this Note are guaranteed by certain Subsidiaries of the Borrower pursuant
to the Subsidiary Guaranty dated as of the date hereof.

     5.8 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.

     5.9 COST OF COLLECTION. If default is made in the payment of this Note, the
Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.



       [Balance of page intentionally left blank; signature page follows.]

<PAGE>


     IN WITNESS WHEREOF, the Borrower has caused this Convertible Term Note to
be signed in its name effective as of this 10th day of June, 2004.


                                         B.O.S. BETTER ON-LINE SOLUTIONS LTD.


                                         By:________________________________
                                         Name:______________________________
                                         Title:_____________________________

<PAGE>


     THIS WARRANT AND THE ORDINARY SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
     HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
     ANY STATE SECURITIES LAWS. THIS WARRANT AND THE ORDINARY SHARES ISSUABLE
     UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
     HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
     THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
     OPINION OF COUNSEL REASONABLY SATISFACTORY TO B.O.S. BETTER ON-LINE
     SOLUTIONS LTD. THAT SUCH REGISTRATION IS NOT REQUIRED.

               Right to Purchase up to 130,000 Ordinary Shares of
                      B.O.S. BETTER ON-LINE SOLUTIONS LTD.
                   (subject to adjustment as provided herein)

                        ORDINARY SHARES PURCHASE WARRANT

No. _________________                                 Issue Date:  June 10, 2004

     B.O.S. BETTER ON-LINE SOLUTIONS LTD. a corporation incorporated under the
laws of the State of Israel hereby certifies that, for value received, LAURUS
MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company (as defined herein) from and after
the Issue Date of this Warrant and at any time or from time to time before 5:00
p.m., New York time, through the close of business June 10, 2011 (the
"Expiration Date"), up to 130,000 fully paid and nonassessable Ordinary Shares
(as hereinafter defined), NIS 4.00 nominal value per share, at the applicable
Exercise Price per share (as defined below). The number and character of such
Ordinary Shares and the applicable Exercise Price per share are subject to
adjustment as provided herein.

     As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:

          (a) The term "Company" shall include B.O.S. Better On-Line Solutions
     Ltd. and any corporation which shall succeed, or assume the obligations of,
     B.O.S. Better On-Line Solutions Ltd. hereunder.

          (b) The term "Ordinary Shares" includes (i) the Company's Ordinary
     Shares, nominal value NIS 4.00 per share; and (ii) any other securities
     into which or for which any of the securities described in (i) may be
     converted or exchanged pursuant to a plan of recapitalization,
     reorganization, merger, sale of assets or otherwise.

          (c) The term "Other Securities" refers to any shares (other than
     Ordinary Shares) and other securities of the Company or any other person
     (corporate or otherwise) which the Holder of the Warrant at any time shall
     be entitled to receive, or shall have received, on the exercise of the
     Warrant, in lieu of or in addition to Ordinary Shares, or which at any time
     shall be issuable or shall have been issued in exchange for or in
     replacement of Ordinary Shares or Other Securities pursuant to Section 4 or
     otherwise.

                                      B-1
<PAGE>


          (d) The "Exercise Price" applicable under this Warrant shall be a
     price of $4.04 per Ordinary Share acquired hereunder.

     Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder.



1.   EXERCISE OF WARRANT.

     1.1  NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the date
          hereof through and including the Expiration Date, the Holder shall be
          entitled to receive, upon exercise of this Warrant in whole or in
          part, by delivery of an original or fax copy of an exercise notice in
          the form attached hereto as Exhibit A (the "Exercise Notice") and
          payment in accordance with Section 2.2 below, Ordinary Shares of the
          Company (the "Warrant Shares"), subject to adjustment pursuant to
          Section 4. This Warrant may be exercised in whole or in part.

     1.2  FAIR MARKET VALUE. For purposes hereof, the "Fair Market Value" of an
          Ordinary Share as of a particular date (the "Determination Date")
          shall mean:

          (a)  If the Company's Ordinary Shares are traded on the American Stock
               Exchange or another national exchange or are quoted on the
               National or SmallCap Market of The Nasdaq Stock Market,
               Inc.("Nasdaq"), then the closing or last sale price,
               respectively, reported for the last business day immediately
               preceding the Determination Date.

          (b)  If the Company's Ordinary Shares are not traded on the American
               Stock Exchange or another national exchange or on the Nasdaq but
               is traded on the NASD OTC Bulletin Board, then the mean of the
               average of the closing bid and asked prices reported for the last
               business day immediately preceding the Determination Date.

          (c)  Except as provided in clause (d) below, if the Company's Ordinary
               Shares are not publicly traded, then as the Holder and the
               Company agree or in the absence of agreement, by arbitration in
               accordance with the rules then in effect of the American
               Arbitration Association, before a single arbitrator to be chosen
               from a panel of persons qualified by education and training to
               pass on the matter to be decided.

          (d)  If the Determination Date is the date of a liquidation,
               dissolution or winding up, or any event deemed to be a
               liquidation, dissolution or winding up pursuant to the Company's
               Articles of Association (the "Articles"), then all amounts to be
               payable per share to holders of the Ordinary Shares pursuant to
               the Articles in the event of such liquidation, dissolution or
               winding up, plus all other amounts to be payable per share in
               respect of the Ordinary Shares in liquidation under the Articles,
               assuming for the purposes of this clause (d) that all of the
               Ordinary Shares then issuable upon exercise of the Warrant are
               outstanding at the Determination Date.

<PAGE>


     1.3  COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise
          of the Warrant, upon the request of the Holder hereof acknowledge in
          writing its continuing obligation to afford to such Holder any rights
          to which such Holder shall continue to be entitled after such exercise
          in accordance with the provisions of this Warrant. If the Holder shall
          fail to make any such request, such failure shall not affect the
          continuing obligation of the Company to afford to such Holder any such
          rights.

     1.4  TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust company
          shall have been appointed as trustee for the Holders of the Warrant
          pursuant to Subsection 3.2, such bank or trust company shall have all
          the powers and duties of a warrant agent (as hereinafter described)
          and shall accept, in its own name for the account of the Company or
          such successor person as may be entitled thereto, all amounts
          otherwise payable to the Company or such successor, as the case may
          be, on exercise of this Warrant pursuant to this Section 1.

2.   PROCEDURE FOR EXERCISE.

     2.1  DELIVERY OF SHARE CERTIFICATES, ETC., ON EXERCISE. The Company agrees
          that the Ordinary Shares purchased upon exercise of this Warrant shall
          be deemed to be issued to the Holder as the record owner of such
          shares as of the close of business on the date on which this Warrant
          shall have been surrendered and payment made for such shares in
          accordance herewith. As soon as practicable after the exercise of this
          Warrant in full or in part, and in any event within three (3) business
          days thereafter, the Company at its expense (including the payment by
          it of any applicable issue taxes) will cause to be issued in the name
          of and delivered to the Holder, or as such Holder (upon payment by
          such Holder of any applicable transfer taxes) may direct in compliance
          with applicable securities laws, a certificate or certificates for the
          number of duly and validly issued, fully paid and nonassessable
          Ordinary Shares (or Other Securities) to which the Holder shall be
          entitled on such exercise, plus, in lieu of any fractional share to
          which such Holder would otherwise be entitled, cash equal to such
          fraction multiplied by the then Fair Market Value of one full share,
          together with any other shares or other securities and property
          (including cash, where applicable) to which such Holder is entitled
          upon such exercise pursuant to Section 1 or otherwise.

<PAGE>


     2.2  EXERCISE. (a) Payment may be made either (i) in cash, by wire transfer
          or by certified or official bank check payable to the order of the
          Company equal to the applicable aggregate Exercise Price, (ii) by
          delivery of the Warrant, or Ordinary Shares receivable upon exercise
          of the Warrant in accordance with Section (b) below, or (iii) by a
          combination of any of the foregoing methods, for the number of
          Ordinary Shares specified in such Exercise Notice (as such exercise
          number shall be adjusted to reflect any adjustment in the total number
          of Ordinary Shares issuable to the Holder per the terms of this
          Warrant) and the Holder shall thereupon be entitled to receive the
          number of duly authorized, validly issued, fully-paid and
          non-assessable Ordinary Shares (or Other Securities) determined as
          provided herein.

     (b) Notwithstanding any provisions herein to the contrary, if the Fair
Market Value of one Ordinary Share is greater than the Exercise Price (at the
date of calculation as set forth below), in lieu of exercising this Warrant for
cash, the Holder may elect to receive shares equal to the value (as determined
below) of this Warrant (or the portion thereof being exercised) by surrender of
this Warrant at the principal office of the Company together with the properly
endorsed Exercise Notice in which event the Company shall issue to the Holder a
number Ordinary Shares computed using the following formula:

         X=Y            (A-B)
                       -------
                          A

    Where X =  the number of Ordinary Shares to be issued to the Holder

          Y =  the number of Ordinary Shares purchasable under the Warrant or,
               if only a portion of the Warrant is being exercised, the portion
               of the Warrant being exercised (at the date of such calculation)

          A =  the Fair Market Value of one of the Company's Ordinary Shares
               (at the date of such calculation)

          B =  Exercise Price (as adjusted to the date of such calculation)

3.   EFFECT OF REORGANIZATION, ETC.; ADJUSTMENT OF EXERCISE PRICE.

     3.1  REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or
          from time to time, the Company shall (a) effect a reorganization, (b)
          consolidate with or merge into any other person, including the sale of
          substantially all of the Company's outstanding share capital to a
          corporate third party, in consideration for such third party's
          securities, or (c) transfer all or substantially all of its properties
          or assets to any other person under any plan or arrangement
          contemplating the dissolution of the Company, then, in each such case,
          as a condition to the consummation of such a transaction, proper and
          adequate provision shall be made by the Company whereby the Holder of
          this Warrant, on the exercise hereof as provided in Section 1 at any
          time after the consummation of such reorganization, consolidation or
          merger or the effective date of such dissolution, as the case may be,
          shall receive, in lieu of the Ordinary Shares (or Other Securities)
          issuable on such exercise prior to such consummation or such effective
          date, the shares and other securities and property (including cash) to
          which such Holder would have been entitled upon such consummation or
          in connection with such dissolution, as the case may be, if such
          Holder had so exercised this Warrant, immediately prior thereto, all
          subject to further adjustment thereafter as provided in Section 4.

<PAGE>


     3.2  DISSOLUTION. In the event of any dissolution of the Company following
          the transfer of all or substantially all of its properties or assets,
          the Company, concurrently with any distributions made to holders of
          its Ordinary Shares, shall at its expense deliver or cause to be
          delivered to the Holder the shares and other securities and property
          (including cash, where applicable) receivable by the Holder of the
          Warrant pursuant to Section 3.1, or, if the Holder shall so instruct
          the Company, to a bank or trust company specified by the Holder and
          having its principal office in New York, NY as trustee for the Holder
          of the Warrant (the "Trustee").

     3.3  CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger
          or transfer (and any dissolution following any transfer) referred to
          in this Section 3, this Warrant shall continue in full force and
          effect and the terms hereof shall be applicable to the shares and
          other securities and property receivable on the exercise of this
          Warrant after the consummation of such reorganization, consolidation
          or merger or the effective date of dissolution following any such
          transfer, as the case may be, and shall be binding upon the issuer of
          any such shares or other securities, including, in the case of any
          such transfer, the person acquiring all or substantially all of the
          properties or assets of the Company, whether or not such person shall
          have expressly assumed the terms of this Warrant as provided in
          Section 4. In the event this Warrant does not continue in full force
          and effect after the consummation of the transactions described in
          this Section 3, then the Company's securities and property (including
          cash, where applicable) receivable by the Holders of the Warrant will
          be delivered to Holder or the Trustee as contemplated by Section 3.2.

     4. EXTRAORDINARY EVENTS REGARDING ORDINARY Shares. In the event that the
Company shall (a) issue additional Ordinary Shares as a dividend or other
distribution on outstanding Ordinary Shares, (b) subdivide its outstanding
Ordinary Shares, or (c) combine its outstanding Ordinary Shares into a smaller
number of Ordinary Shares, then, in each such event, the Exercise Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
then Exercise Price by a fraction, the numerator of which shall be the number of
Ordinary Shares outstanding immediately prior to such event and the denominator
of which shall be the number of Ordinary Shares outstanding immediately after
such event, and the product so obtained shall thereafter be the Exercise Price
then in effect. The Exercise Price, as so adjusted, shall be readjusted in the
same manner upon the happening of any successive event or events described
herein in this Section 4. The number of Ordinary Shares that the Holder of this
Warrant shall thereafter, on the exercise hereof as provided in Section 1, be
entitled to receive shall be increased or decreased, as the case may be, to a
number determined by multiplying the number of Ordinary Shares that would
otherwise (but for the provisions of this Section 4) be issuable on such
exercise by a fraction of which (a) the numerator is the Exercise Price that
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Exercise Price in effect on the date of such exercise.

<PAGE>


     5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the Ordinary Shares (or Other Securities) issuable on the
exercise of the Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional Ordinary Shares (or Other Securities) issued or sold or deemed to
have been issued or sold, (b) the number of Ordinary Shares (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of Ordinary Shares to be received upon exercise of this Warrant,
in effect immediately prior to such adjustment or readjustment and as adjusted
or readjusted as provided in this Warrant. The Company will forthwith mail a
copy of each such certificate to the Holder of the Warrant and any Warrant agent
of the Company (appointed pursuant to Section 13 hereof).

     6. RESERVATION OF SHARES, ETC., ISSUABLE ON EXERCISE OF WARRANT. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrant, Ordinary Shares (or Other Securities)
from time to time issuable on the exercise of the Warrant.

     7. REPRESENTATIONS AND WARRANTIES BY THE HOLDER. The Holder represents and
warrants to the Company as follows:

     7.1  Holder understands that the Warrant is being offered and sold pursuant
          to an exemption or exemptions from registration requirements of
          Israeli and US Federal and state securities laws and that the Company
          is relying upon the truth and accuracy of Holder's representations
          contained in that Securities Purchase Agreement of even date herewith,
          including, without limitation, that the Holder is an "accredited
          investor" within the meaning of Regulation D under the Securities Act
          of 1933.

     7.2  Holder has substantial experience in evaluating and investing in
          private placement transactions of securities in companies similar to
          the Company so that it is capable of evaluating the merits and risks
          of its investment in the Company and has the capacity to protect its
          own interests. Holder is able to bear the economic risk of this
          investment.

     7.3  Holder is acquiring the Warrant and the Ordinary Shares issuable upon
          exercise of the Warrant for its own account for investment only, and
          not as a nominee or agent and not with a view towards or for resale in
          connection with their distribution.

<PAGE>


     8. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered Holder hereof (a "Transferor") in whole or in
part. On the surrender for exchange of this Warrant, with the Transferor's
endorsement in the form of Exhibit B attached hereto (the "Transferor
Endorsement Form") and together with evidence reasonably satisfactory to the
Company demonstrating compliance with applicable securities laws, which shall
include, without limitation, a legal opinion from the Transferor's counsel that
such transfer is exempt from the registration requirements of applicable
securities laws, the Company at its expense but with payment by the Transferor
of any applicable transfer taxes) will issue and deliver to or on the order of
the Transferor thereof a new Warrant of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of Ordinary Shares of Ordinary Stock called for on the
face or faces of the Warrant so surrendered by the Transferor.

     9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

     10. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Registration Rights Agreement entered into by the Company and the
Purchaser dated as of even date of this Warrant.

     11. MAXIMUM EXERCISE. Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to the terms of
the Note or the Warrant an amount that would (a) be convertible into that number
of Ordinary Shares which, when added to the number of Ordinary Shares otherwise
beneficially owned by such Holder including those issuable upon exercise of
warrants of the Company held by such Holder would exceed 4.99% of the
outstanding Ordinary Shares of the Company at the time of conversion or (b) (ii)
exceed twenty five percent (25%) of the aggregate dollar trading volume of the
Ordinary Share for the thirty (30) day trading period immediately preceding
delivery of a Notice of Conversion to the Company. For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. The conversion limitation described in this Section 11 shall
automatically become null and void without any notice to Company upon the
occurrence and during the continuance beyond any applicable grace period of an
Event of Default, or upon 75 days prior notice to the Company, except that at no
time shall the beneficial ownership exceed 19.99% of the borrower's Ordinary
Shares. Notwithstanding anything contained herein to the contrary, the number of
Ordinary Shares issuable by the Company and acquirable by the Holder a pursuant
to the terms of this Warrant and/or the Note issued by the Company to the Holder
pursuant to this Securities Purchase Agreement, shall not exceed an aggregate of
833,085 of the Company's Ordinary Shares, (subject to appropriate adjustment for
stock splits, stock dividends, or other similar recapitalizations affecting the
Ordinary Shares).

<PAGE>


     12. RIGHTS OF SHAREHOLDERS. No Holder shall be entitled, as a Warrant
holder, to vote or receive dividends or be deemed the holder of the Ordinary
Shares or any other securities of the Company, which may at any time be issuable
upon the exercise of this Warrant for any purpose, nor shall anything contained
herein be construed to confer upon the Holder, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issuance of shares, reclassification of shares, change of nominal value,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the Ordinary Shares issuable upon the
exercise hereof shall have become deliverable, as provided herein.

     13. WARRANT AGENT. The Company may, by written notice to each Holder of the
Warrant, appoint an agent for the purpose of issuing Ordinary Shares (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 8, and replacing this Warrant pursuant to
Section 9, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.

     14. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.

     15. NOTICES, ETC. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or, until any such Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.

     16. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of the
Company.

<PAGE>


     17. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by and construed in accordance with the
laws of State of New York without regard to principles of conflicts of laws. Any
action brought concerning the transactions contemplated by this Warrant shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York; provided, however, that the Holder may choose to waive
this provision and bring an action outside the state of New York. The Company
hereby agrees to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Warrant is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Warrant. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision. Each of the Company and
the Holder acknowledges that its legal counsel participated in the preparation
of this Warrant and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Warrant to favor any party against the other
party.



                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
                            SIGNATURE PAGE FOLLOWS.]

<PAGE>


     IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.

                                        B.O.S. BETTER ON-LINE SOLUTIONS LTD.


                                        By:
                                               -----------------------
                                        Name:
                                               -----------------------
                                        Title:
- -----------------------                        -----------------------



<PAGE>


                            MASTER SECURITY AGREEMENT

THIS MASTER SECURITY AGREEMENT (this "SECURITY AGREEMENT") made as of the 10th
day of June 2004, by and between B.O.S. Better On-Line Solutions Ltd., a company
incorporated under the laws of the State of Israel, company number 52-004256-5
(the "PLEDGOR") and Laurus Master Fund a Cayman Islands company (the
"PURCHASER").



WHEREAS   Pledgor and the Purchaser, have entered into a Securities Purchase
          Agreement dated June 10, 2004 (the "PURCHASE AGREEMENT")

WHEREAS   the Pledgor has agreed to enter into this Security Agreement in
          order to secure the Obligations (as defined below) of the Pledgor to
          the Purchaser pursuant to the Purchase Agreement, the Note, the
          Warrant and the Related Agreements.

NOW, THEREFORE, IT IS AGREED AS FOLLOWS:


1.   The Preamble to this Security Agreement constitutes an integral part
     thereof. All capitalized terms used herein and not defined herein shall
     have the meaning assigned to such terms in the Purchase Agreement.

2.   To secure the full and punctual payment and performance of all Obligations
     (as hereafter defined), the Pledgor hereby assigns and grants to the
     Purchaser the following security interests:

     (a)  A first priority floating charge on all assets of the Pledgor, now
          owned or at any time hereafter acquired by the Pledgor, or in which
          the Pledgor now has or at any time in the future may acquire any
          right, title or interest (the "PLEDGOR COLLATERAL"), including without
          limitation, all accounts, inventory, equipment, goods, promissory
          notes, contractual rights (subject to any assignment or pledge
          limitations included therein) chattel paper, investment property
          (excluding the Pledged Shares (as defined below) and any interests in
          Surf Communications Solutions Ltd. but including all other equity
          interests owned by the Pledgor), letter-of-credit rights, intellectual
          property, trademarks and tradestyles in which the Pledgor now has or
          hereafter may acquire any right, title or interest, all proceeds and
          products thereof (including, without limitation, proceeds of
          insurance) and all additions, accessions and substitutions thereto or
          therefore. A debenture with respect the said pledge is attached as
          EXHIBIT A hereto.

     (b)  A first priority fixed charge on all of its right, title and interest
          in all outstanding and issued shares (144,330 Ordinary Shares) of
          BOScom Ltd. held by the Pledgor and any additional shares of BOScom
          Ltd. that Pledgor may acquire, receive and/or otherwise be entitled to
          (the "PLEDGED SHARES").

<PAGE>


     A debenture with respect the Pledged Shares is attached as EXHIBIT B
     hereto.

3.   Notwithstanding anything other provision herein, any security interest
     granted by the Pledgor hereunder shall be subject to any restriction, if
     such exist, on the transfer of intellectual property imposed by or pursuant
     to the regulations and directives of the Ministry of Industry and Trade and
     the Office of the Chief Scientist applicable to the Company.

4.   The term "OBLIGATIONS" as used herein shall mean and include all debts,
     indebtedness, obligations and liabilities of the Pledgor to the Purchaser
     whether now existing or hereafter arising, direct or indirect, liquidated
     or unliquidated, absolute or contingent, due or not due and whether under,
     pursuant to or evidenced by a note, agreement, guaranty, instrument or
     otherwise and arising under, out of, or in connection with: (i) the
     Purchase Agreement, (ii) the Note, (iii) the Warrant, (iv) the Related
     Agreements (the Purchase Agreement, the Note, the Warrant and the Related
     Agreements and this Security Agreement, as each may be amended, modified,
     restated or supplemented from time to time, are collectively referred to as
     the "DOCUMENTS"), and in connection with any documents, instruments or
     agreements relating to or executed in connection with the Documents or any
     documents, instruments or agreements referred to therein, provided however
     that the realization of any pledge under this Security Agreement shall at
     all times be limited to the then outstanding amount payable to Purchaser
     under the Note and to any expenses and costs related to the realization of
     such pledge.

5.   The Pledgor hereby represents, warrants and covenants to the Purchaser
     that:

     (a)  it is a corporation validly existing and duly incorporated under the
          laws of the State of Israel;

     (b)  its legal name is as set forth in its Certificate of Incorporation as
          amended through the date hereof and it will provide the Purchaser
          thirty (30) days' prior written notice of any change in its legal
          name;

     (c)  its organizational identification number (if applicable) is as set
          forth above and it will provide the Purchaser thirty (30) days' prior
          written notice of any change in its organizational identification
          number;

     (d)  it is the lawful owner of the Pledgor Collateral and the Pledged
          Shares, it has the sole right to grant a security interest therein and
          will defend such collateral against all claims and demands of all
          persons and entities;

     (e)  it will keep the Pledgor Collateral and the Pledged Shares free and
          clear of all attachments, levies, taxes, liens, security interests and
          encumbrances of every kind and nature ("ENCUMBRANCES"), except for
          such Encumbrances which by their terms are junior to the security
          interests granted to the Purchaser and were created after receipt of
          the prior written consent of the Purchaser (which consent shall not be
          unreasonably withheld) or with respect to the Pledgor Collateral only,
          are made in the ordinary course of business;


                                       2
<PAGE>


     (f)  it will not, without the Purchaser' prior written consent, which
          consent shall not be unreasonably withheld, sell, exchange, lease,
          pledge or otherwise dispose of or give any other rights in the Pledgor
          Collateral and the Pledged Shares except, with respect to the Pledgor
          Collateral only and not including the Pledged Shares, for sales and/or
          exchanges of tangible assets that are part of the Pledgor Collateral
          and for leases, pledges on assets imposed in connection with the
          purchase or lease thereof or other dispositions in the ordinary course
          of business.

     (g)  it will insure or cause Pledgor Collateral to be insured in accordance
          with the provisions of the Purchase Agreement;

     (h)  it will upon reasonable notice and during normal business hours allow
          the Purchaser or the Purchaser' representatives free access to and the
          right of inspection of the tangible Pledgor Collateral;

     (i)  Pledgor hereby agrees to indemnify and save the Purchaser harmless
          from all loss, costs, damage, liability and/or expense, including
          reasonable attorneys' fees, that the Purchaser may sustain or incur to
          enforce payment, performance or fulfillment of any of the Obligations
          and/or in the enforcement of this Security Agreement or in the
          prosecution or defense of any action or proceeding either against the
          Purchaser or the Pledgor concerning any matter growing out of or in
          connection with this Security Agreement, and/or any of the Obligations
          and/or any of the Pledgor Collateral and the Pledged Shares, except to
          the extent caused by the Purchaser's own gross negligence or willful
          misconduct (as determined by a court of competent jurisdiction in a
          final and non-appealable decision). Notwithstanding the above, in no
          event shall Pledgor's aggregate liability pursuant to all sections of
          this Security Agreement exceed the then outstanding amount payable to
          Purchaser under the Note and to any expenses and costs related to the
          realization of such pledge.

6.   The occurrence of any of the following events or conditions shall
     constitute an "Event of Default":

     (a)  Breach of any covenant, warranty or representation made or furnished
          to the Purchaser by the Pledgor in any of the Documents, which, after
          given prior notice if subject to cure, shall not be cured for a period
          of thirty (30) business days;

     (b)  the loss, theft, substantial damage, destruction to or of any material
          portion of the Pledgor Collateral; the sale or encumbrance of the
          Pledgor Collateral except as set forth under sections 5(e) or 5(f)
          above; the sale or encumbrance of the Pledged Shares or the making of
          any seizure or attachment thereof or thereon except to the extent:

          (i)  such loss, damage or destruction is covered by insurance
               proceeds;

          (ii) said encumbrance is junior to the security interest provided
               hereunder and was registered per written prior consent provided
               by Purchaser, which consent shall not be unreasonably withheld;
               or


                                       3
<PAGE>


          (iii) said seizure or attachment does not secure indebtedness in
               excess of $50,000 or such seizure or attachment has not been
               removed or otherwise released within thirty (30) business days of
               the creation or the assertion thereof;

     (c)  Pledgor is not able to pay its matured current debts, shall cease
          operations, dissolve, terminate its business existence, make an
          assignment for the benefit of creditors, suffer the appointment of a
          receiver, trustee, liquidator or custodian of all or any material part
          of the Pledgor's property, which appointment shall not have been
          revoked within thirty (30) business days;

     (d)  Pledgor shall become subject to any proceedings under any applicable
          bankruptcy or insolvency law, which if commenced against the Pledgor,
          shall not be dismissed within thirty (30) business days;

     (e)  The Pledgor shall repudiate, purport to revoke or fail to perform any
          or all of its obligations under the Note (after given no less than
          15-days prior notice and after passage of applicable cure period, if
          any);

     (f)  an Event of Default shall have occurred under and as defined in the
          Purchase Agreement or in any Related Agreement (after passage of
          applicable cure period, if any);

     (g)  any event which materially adversely affects the value of any of the
          Pledged Shares and/or the Pledgor Collateral. The Pledgor shall
          promptly notify the Purchaser in writing of such event.

     (h)  any event or series of events occur(s), which, in the reasonable
          opinion of the Purchaser, may have a material adverse effect on the
          business, condition (financial or otherwise), or results of operations
          of the Pledgor or on the ability of the Pledgor to comply with any of
          its material obligations hereunder or under the Purchase Agreement,
          provided that Purchaser gives the Pledgor a written notice for
          declaring a Default Event under this subclause (h), and further
          provided that the Pledgor shall be entitled to provide a written
          response to the Purchaser within fourteen (14) days, it being agreed
          however, that nothing herein nor the Pledgor's written response shall
          limit or delay the Purchaser's right, in its discretion, to declare a
          Default Event hereunder and exercise the remedies available to the
          Purchaser hereunder, immediately after Pledgor's written response.

7.   Upon the occurrence of any Event of Default and at any time thereafter, the
     Purchaser may declare all Obligations immediately due and payable and the
     Purchaser shall have the remedies of a secured party provided in this
     Agreement and under any applicable law. Any proceeds of any foreclosures on
     any of the Pledgor Collateral or the Pledged Shares shall be first applied
     by the Purchaser to the payment of all expenses in connection with the sale
     of the Pledgor Collateral or the Pledged Shares, including reasonable
     attorneys' fees and other legal expenses and disbursements and the
     reasonable expense of retaking, holding, preparing for sale, selling, and
     the like, and any balance of such proceeds shall be applied by the
     Purchaser toward the payment of any outstanding Obligations in such order
     of application as the Purchaser may elect, and the Pledgor shall be liable
     for any deficiency.


                                       4
<PAGE>


8.   If the Pledgor defaults in the performance or fulfillment of any of the
     terms, conditions, promises, covenants, provisions or warranties to be
     performed or fulfilled under or pursuant to this Security Agreement, the
     Purchaser may, at its option without waiving its right to enforce this
     Security Agreement according to its terms, immediately or at any time
     thereafter but subject to notice to the Pledgor, perform or fulfill the
     same or cause the performance or fulfillment of the same for Pledgor's
     account and at Pledgor's cost and expense, and the cost and expense thereof
     (including reasonable attorneys' fees) shall be added to the Obligations
     and shall be payable on demand with interest thereon at the highest rate
     permitted by law.

9.   No delay or failure on the Purchaser's part in exercising any right,
     privilege or option hereunder shall operate as a waiver of such or of any
     other right, privilege, remedy or option, and no waiver whatever shall be
     valid unless in writing, signed by the Purchaser and then only to the
     extent therein set forth, and no waiver by the Purchaser of any default
     shall operate as a waiver of any other default or of the same default on a
     future occasion. The Purchaser's books and records containing entries with
     respect to the Obligations shall be admissible in evidence in any action or
     proceeding, and unless Pledgor presents records or other evidence to the
     contrary, shall be binding upon the Pledgor for the purpose of establishing
     the items therein set forth and shall constitute prima facie proof thereof.
     The Purchaser shall have the right to enforce any one or more of the
     remedies available to the Purchaser, successively, alternately or
     concurrently.

10.  The Pledgor shall cooperate with the Purchaser and execute all documents as
     may be reasonably necessary to register the Pledged Shares and the Pledgor
     Collateral with the Israeli Registrar of Companies and/or any other
     Registrar, including, inter alia, the document(s) in the form annexed
     hereto as EXHIBIT C hereto, and shall bear all stamp taxes with respect to
     such registrations. The Pledgor undertakes to register such registrations
     with the Israeli Registrar of Companies within 3 business days in Israel.
     The Pledgor shall pay upon demand, all reasonable expenses, including
     reasonable attorney's fees, of enforcing the Purchaser's rights and
     remedies hereunder in the event of a breach by the Pledgor as well as with
     respect to expenses resulting from exercising the pledge of any of the
     Pledged Shares, and/or the Pledgor Collateral.

11.  This Security Agreement shall terminate upon full payment of all the
     Obligations, including the Note, and the Purchaser undertakes to promptly
     sign any and all forms required in order to remove any and all security
     interests granted by Pledgor hereunder.

12.  This Security Agreement shall be governed by and construed in accordance
     with the laws of the State of Israel and cannot be terminated orally.
     Notwithstanding the above, if legally possible, the Purchaser will be
     entitled to initiate any legal action according to the terms of this
     Agreement and elect to realize any or all of the Pledged Shares and/or the
     Pledgor Collateral, pursuant to the laws of the State of New York. In such
     event the competent courts of New York will have the exclusive jurisdiction
     and this Security Agreement shall be governed by and construed with the
     laws of the State of New York.


                                       5
<PAGE>


13.  All of the rights, remedies, options, privileges and elections given to the
     Purchaser hereunder shall inure to the benefit of the Purchaser's
     successors and assigns. The term "Purchaser" as herein used shall include
     the Purchaser's company, any parent of the Purchaser's company, any of the
     Purchaser's subsidiaries and any co-subsidiaries of The Purchaser' parent,
     whether now existing or hereafter created or acquired, and all of the
     terms, conditions, promises, covenants, provisions and warranties of this
     Security Agreement shall inure to the benefit of and shall bind the
     representatives, successors and assigns of each of us and them.

14.  All notices hereunder shall be sufficiently given if mailed or delivered to
     the addresses set forth below.



IN WITNESS WHEREOF this Master Security Agreement has been executed by the
parties hereto as of the date first above written.



B.O.S. BETTER ON-LINE SOLUTIONS LTD.


Beit Rabin, 100 BOS Road, Teradyon
Industrial Park, Misgav 20179, Israel

Attention:  Chief Financial Officer
Facsimile:  (972) 4 999-0334

By:
       -------------------------
Name:
       -------------------------
Date:
       -------------------------


LAURUS MASTER FUND LTD.



- --------------------------------------

By:
       -------------------------
Name:
       -------------------------
Date:
       -------------------------

                                       6

<PAGE>


                          REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (this "Agreement") is made and entered
into as of June 10, 2004, by and between B.O.S. Better On-Line Solutions Ltd.,
an Israeli corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman
Islands Company (the "Purchaser").

     This Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the date hereof, by and between the Purchaser and the Company (the
"Securities Purchase Agreement"), and pursuant to the Note and the Warrant
referred to therein.

     The Company and the Purchaser hereby agree as follows:

     1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
that are defined in the Securities Purchase Agreement shall have the meanings
given to such terms in the Securities Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:

     "AFFILIATE" of any specified person means any other person, directly or
indirectly, controlling or controlled by or under common control with such
specified person. For the purpose of this definition "control" as used with
respect to any person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
person, whether through the ownership of voting securities or by agreement or
otherwise.

     "COMMISSION" means the Securities and Exchange Commission.

     "ORDINARY Shares" means the Company's Ordinary Shares, NIS 4.00 nominal
value per share.

     "EFFECTIVENESS DATE" means the 90th day following the date hereof, or the
120th day following the date hereof if the Registration Statement is reviewed by
the Commission.

     "EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(a).

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
any successor statute.


     "FILING DATE" means, with respect to the Registration Statement required to
be filed hereunder, a date no later than forty five (45) days following the date
hereof, and with respect to shares of Ordinary Stock issuable to the Holder as a
result of adjustments to the Fixed Conversion Price made pursuant to Section 3.4
of the Secured Convertible Term Note or Section 4 of the Warrant or otherwise,
sixty (60) days (ninety (90) days if the request is made between February 1 and
March 31,) days after the occurrence such event or the date of the adjustment of
the Fixed Conversion Price.

<PAGE>


     "HOLDER" or "HOLDERS" means the Purchaser or any of its successors to the
extent any of them hold Registrable Securities, provided that only registered
holders of Registrable Securities shall be counted for purposes of calculating
any proportion of holders entitled to take any action, receive any damages or
give any notice pursuant to this Agreement.

     "INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).

     "INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c).

     "MAJORITY HOLDERS" shall means the Holders of a majority of the then
outstanding aggregate principal amount of Registrable Securities registered
under a Registration Statement, provided that Registrable Securities which have
been sold or otherwise transferred pursuant to the Registration Statement or
Rule 144 shall not be included in the calculation of Majority Holders.

     "NOTE" has the meaning set forth in the Securities Purchase Agreement.

     "PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

     "PROSPECTUS" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

     "REGISTRABLE SECURITIES" means the shares of Ordinary Shares issued upon
the conversion of the Note and issuable upon exercise of the Warrant.

     "REGISTRATION STATEMENT" means each registration statement required to be
filed hereunder, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.

     "RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

     "RULE 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

<PAGE>


     "SECURITIES ACT" means the Securities Act of 1933, as amended, and any
successor statute.

     "TRADING MARKET" means any of the NASD OTC Bulletin Board, NASDAQ SmallCap
Market, the Nasdaq National Market, the American Stock Exchange, the New York
Stock Exchange and the Tel Aviv Stock Exchange.

     "WARRANT" means the Ordinary Shares purchase warrant issued pursuant to the
Securities Purchase Agreement.

     2. All references in this Agreement to amendments or supplements to the
Registration Statement, any preliminary Prospectus or Prospectus shall be deemed
to mean and include the filing of any document under the Exchange Act, after the
date of such Registration Statement, preliminary Prospectus or Prospectus, as
the case may be, which is incorporated by reference therein. REGISTRATION.

     (a)  On or prior to the Filing Date the Company shall prepare and file with
          the Commission a Registration Statement covering the Registrable
          Securities for an offering to be made on a continuous basis pursuant
          to Rule 415. The Registration Statement shall be on Form F-3 (except
          if the Company is not then eligible to register for resale the
          Registrable Securities on Form F-3, in which case such registration
          shall be on another appropriate form in accordance herewith). The
          Company shall cause the Registration Statement to become effective and
          remain effective as provided herein. The Company shall use its
          reasonable commercial efforts to cause the Registration Statement to
          be declared effective under the Securities Act as promptly as possible
          after the filing thereof, but in any event no later than the
          Effectiveness Date. The Company shall use its reasonable commercial
          efforts to keep the Registration Statement continuously effective
          under the Securities Act until the date which is the earlier date of
          when (i) all Registrable Securities have been sold; (ii) all
          Registrable Securities may be sold by non-Affiliates of the Company
          immediately without registration under the Securities Act and without
          volume restrictions pursuant to Rule 144(k), as determined by the
          counsel to the Company on the basis of the Holders' representations,
          pursuant to a written opinion letter to such effect, addressed and
          acceptable to the Company's transfer agent; or (iii) the second
          anniversary of the Closing Date (the "Effectiveness Period").

<PAGE>


     (b)  If: (i) the Registration Statement is not filed on or prior to the
          Filing Date; (ii) the Registration Statement is not declared effective
          by the Commission by the Effectiveness Date; (iii) after the
          Registration Statement is filed with and declared effective by the
          Commission, the Registration Statement ceases to be effective (by
          suspension, excluding a suspension of all trading on the Trading
          Market, or otherwise) as to all Registrable Securities to which it is
          required to relate at any time prior to the expiration of the
          Effectiveness Period (without being succeeded immediately by an
          additional registration statement filed and declared effective) for a
          period of time which shall exceed 30 days in the aggregate per year or
          more than 20 consecutive calendar days (defined as a period of 365
          days commencing on the date the Registration Statement is declared
          effective); or (iv) the Ordinary Shares are not listed or quoted on
          any Trading Market, or is suspended from trading on any Trading Market
          (except for the Tel Aviv Stock Exchange) for a period of three (3)
          consecutive trading days (provided the Company shall not have been
          able to cure such trading suspension within 30 days of the notice
          thereof or list the Ordinary Stock on another Trading Market); (any
          such failure or breach being referred to as an "Event," and for
          purposes of clause (i) or (ii) the date on which such Event occurs, or
          for purposes of clause (iii) the date which such 30 day or 20
          consecutive day period (as the case may be) is exceeded, or for
          purposes of clause (iv) the date on which such three (3) trading day
          period is exceeded, being referred to as "Event Date"), then until the
          applicable Event is cured, the Company shall pay to each Holder an
          amount in cash, as liquidated damages and not as a penalty, equal to
          2.0% for each thirty (30) day period (prorated for partial periods) on
          a daily basis of the outstanding principal amount of the Note. While
          such Event continues, such liquidated damages shall be paid not less
          often than each thirty (30) days. Any unpaid liquidated damages as of
          the date when an Event has been cured by the Company shall be paid
          within seven (7) business days following the date on which such Event
          has been cured by the Company.

     (c)  Within three business days of the Effectiveness Date, the Company
          shall cause its counsel to issue a blanket opinion in the form
          attached hereto as Exhibit A, to the transfer agent stating that the
          shares are subject to an effective registration statement and can be
          reissued free of restrictive legend upon notice of a sale by Purchaser
          and confirmation by Purchaser that it has complied with the prospectus
          delivery requirements, provided that the Company has not advised the
          transfer agent orally or in writing that the opinion has been
          withdrawn. Copies of the blanket opinion required by this Section 2(c)
          shall be delivered to Purchaser within the time frame set forth above.


     3. REGISTRATION PROCEDURES. If and whenever the Company is required by the
provisions hereof to effect the registration of any Registrable Securities under
the Securities Act, the Company will, by the Filing Date:

     (a)  prepare and file with the Commission the Registration Statement with
          respect to such Registrable Securities, respond as promptly as
          possible to any comments received from the Commission, and use its
          reasonable commercial efforts to cause the Registration Statement to
          become and remain effective for the Effectiveness Period with respect
          thereto, and promptly provide to the Purchaser copies of all filings
          and Commission letters of comment relating thereto;

<PAGE>


     (b)  prepare and file with the Commission such amendments and supplements
          to the Registration Statement and the Prospectus used in connection
          therewith as may be necessary to comply with the provisions of the
          Securities Act with respect to the disposition of all Registrable
          Securities covered by the Registration Statement and to keep such
          Registration Statement effective until the expiration of the
          Effectiveness Period;

     (c)  furnish to the Purchaser such number of copies of the Registration
          Statement and the Prospectus included therein (including each
          preliminary Prospectus) as the Purchaser reasonably may request to
          facilitate the public sale or disposition of the Registrable
          Securities covered by the Registration Statement;

     (d)  use its commercially reasonable efforts to register or qualify the
          Purchaser's Registrable Securities covered by the Registration
          Statement under the securities or "blue sky" laws of such
          jurisdictions within the United States as the Purchaser may reasonably
          request, provided, however, that the Company shall not for any such
          purpose be required to qualify generally to transact business as a
          foreign corporation in any jurisdiction where it is not so qualified
          or to consent to general service of process in any such jurisdiction;

     (e)  list the Registrable Securities covered by the Registration Statement
          with any securities exchange on which the Ordinary Shares of the
          Company are then listed;

     (f)  immediately notify the Purchaser at any time when a Prospectus
          relating thereto is required to be delivered under the Securities Act,
          of the happening of any event, of which the Company has knowledge, as
          a result of which the Prospectus contained in such Registration
          Statement, as then in effect, includes an untrue statement of a
          material fact or omits to state a material fact required to be stated
          therein or necessary to make the statements therein not misleading in
          light of the circumstances then existing; and

     (g)  make available for inspection by the Purchaser and any attorney,
          accountant or other agent retained by the Purchaser, all relevant
          publicly available, non-confidential financial and other records,
          pertinent corporate documents and properties of the Company as is
          customary for due diligence examinations in connection with public
          offerings, and cause the Company's officers, directors and employees
          to supply all such relevant publicly available non-confidential
          information reasonably requested by the attorney, accountant or agent
          of the Purchaser.

<PAGE>


     4. REGISTRATION EXPENSES. All expenses relating to the Company's compliance
with Sections 2 and 3 hereof, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, fees of, and disbursements incurred by, one
counsel for the Holders (to the extent such counsel is required due to Company's
failure to meet any of its obligations hereunder), are called "Registration
Expenses". All selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of any special counsel to the
Holders beyond those included in Registration Expenses, are called "Selling
Expenses." The Company shall only be responsible for all Registration Expenses
and not for any Selling Expenses.

     5. INDEMNIFICATION.

     (a)  In the event of a registration of any Registrable Securities under the
          Securities Act pursuant to this Agreement, the Company will indemnify
          and hold harmless the Purchaser, and its officers, directors and each
          other person, if any, who controls the Purchaser within the meaning of
          the Securities Act, against any losses, claims, damages or
          liabilities, joint or several, to which the Purchaser, or such persons
          may become subject under the Securities Act or otherwise, insofar as
          such losses, claims, damages or liabilities (or actions in respect
          thereof) arise out of or are based upon any untrue statement or
          alleged untrue statement of any material fact contained in any
          Registration Statement under which such Registrable Securities were
          registered under the Securities Act pursuant to this Agreement, any
          preliminary Prospectus or final Prospectus contained therein, or any
          amendment or supplement thereof, or arise out of or are based upon the
          omission or alleged omission to state therein a material fact required
          to be stated therein or necessary to make the statements therein not
          misleading, and will reimburse the Purchaser, and each such person for
          any reasonable legal or other expenses incurred by them in connection
          with investigating or defending any such loss, claim, damage,
          liability or action; provided, however, that the Company will not be
          liable in any such case if and to the extent that any such loss,
          claim, damage or liability arises out of or is based upon (A) any
          untrue statement or alleged untrue statement or omission or alleged
          omission so made in conformity with information furnished by or on
          behalf of the Purchaser or any such person in writing specifically for
          use in any such document; (B) use of the Registration Statement or the
          related Prospectus following a Discontinuation Event, provided
          Purchaser received prior notice of such Discontinuation Event; or (C)
          if the Purchaser fails to deliver a Prospectus, as then amended or
          supplemented, provided that the Company shall have delivered to the
          Purchaser such Prospectus.

          Notwithstanding the foregoing, the Company shall not be liable for any
          losses, claims, damages or liabilities by reason of any compromise,
          consent to entry of judgment, or settlement effected without the
          Company's prior written consent, which consent shall not be
          unreasonably withheld or conditioned.

<PAGE>


     (b)  In the event of a registration of the Registrable Securities under the
          Securities Act pursuant to this Agreement, the Purchaser will
          indemnify and hold harmless the Company, and its officers, directors
          and each other person, if any, who controls the Company within the
          meaning of the Securities Act, against all losses, claims, damages or
          liabilities, joint or several, to which the Company or such persons
          may become subject under the Securities Act or otherwise, insofar as
          such losses, claims, damages or liabilities (or actions in respect
          thereof) arise out of or are based upon any untrue statement or
          alleged untrue statement of any material fact which was furnished in
          writing by the Purchaser to the Company expressly for use in (and such
          information is contained in) the Registration Statement under which
          such Registrable Securities were registered under the Securities Act
          pursuant to this Agreement, any preliminary Prospectus or final
          Prospectus contained therein, or any amendment or supplement thereof,
          or arise out of or are based upon the omission or alleged omission to
          state therein a material fact required to be stated therein or
          necessary to make the statements therein not misleading, and will
          reimburse the Company and each such person for any reasonable legal or
          other expenses incurred by them in connection with investigating or
          defending any such loss, claim, damage, liability or action, provided,
          however, that the Purchaser will be liable in any such case if and
          only to the extent that any such loss, claim, damage or liability
          arises out of or is based upon an untrue statement or alleged untrue
          statement or omission or alleged omission so made in conformity with
          information furnished in writing to the Company by or on behalf of the
          Purchaser specifically for use in any such document. Notwithstanding
          the provisions of this paragraph, the Purchaser shall not be required
          to indemnify any person or entity in excess of the amount of the
          aggregate net proceeds received by the Purchaser in respect of
          Registrable Securities in connection with any such registration under
          the Securities Act.

     (c)  Promptly after receipt by a party entitled to claim indemnification
          hereunder (an "Indemnified Party") of notice of the commencement of
          any action, such Indemnified Party shall, if a claim for
          indemnification in respect thereof is to be made against a party
          hereto obligated to indemnify such Indemnified Party (an "Indemnifying
          Party"), notify the Indemnifying Party in writing thereof, but the
          omission so to notify the Indemnifying Party shall not relieve it from
          any liability which it may have to such Indemnified Party other than
          under this Section 5(c) and shall only relieve it from any liability
          which it may have to such Indemnified Party under this Section 5(c) if
          and to the extent the Indemnifying Party is substantially prejudiced
          by such omission. In case any such action shall be brought against any
          Indemnified Party and it shall notify the Indemnifying Party of the
          commencement thereof, the Indemnifying Party shall be entitled to
          participate in and, to the extent it shall wish, to assume and
          undertake the defense thereof with counsel satisfactory to such
          Indemnified Party, and, after notice from the Indemnifying Party to
          such Indemnified Party of its election so to assume and undertake the
          defense thereof, the Indemnifying Party shall not be liable to such
          Indemnified Party under this Section 5(c) for any legal expenses
          subsequently incurred by such Indemnified Party in connection with the
          defense thereof; if the Indemnified Party retains its own counsel,
          then the Indemnified Party shall pay all fees, costs and expenses of
          such counsel, provided, however, that, if the defendants in any such
          action include both the indemnified party and the Indemnifying Party
          and the Indemnified Party shall have reasonably concluded that there
          may be reasonable defenses available to it which are different from or
          additional to those available to the Indemnifying Party or if the
          interests of the Indemnified Party reasonably may be deemed to
          conflict with the interests of the Indemnifying Party, the Indemnified
          Party shall have the right to select one separate counsel and to
          assume such legal defenses and otherwise to participate in the defense
          of such action, with the reasonable expenses and fees of such separate
          counsel and other expenses related to such participation to be
          reimbursed by the Indemnifying Party as incurred.

<PAGE>


     (d)  In order to provide for just and equitable contribution in the event
          of joint liability under the Securities Act in any case in which that
          an Indemnified Party or any officer, director or controlling person
          thereof, makes a claim for indemnification pursuant to this Section 5
          but it is judicially determined (by the entry of a final judgment or
          decree by a court of competent jurisdiction and the expiration of time
          to appeal or the denial of the last right of appeal) that such
          indemnification may not be enforced, notwithstanding the fact that
          this Section 5 provides for indemnification in such case, then the
          Indemnifying Party will contribute to the aggregate losses, claims,
          damages or liabilities to which it may be subject (after contribution
          from others) in such proportion as is appropriate to reflect the
          relative fault of the Indemnifying Party and the relative fault of the
          Indemnified Party as well as any other relevant equitable
          considerations. Relative fault shall be determined by reference to,
          among other things, whether any untrue statement or omission or
          alleged untrue statement of a material fact or the omission to state a
          material fact relates to information provided by the Indemnifying
          Party or the Indemnified Party, and the parties' relative intent,
          knowledge, access to information and opportunity to correct or prevent
          such statement or omission. Notwithstanding the foregoing, no person
          or entity guilty of fraudulent misrepresentation (within the meaning
          of Section 11(f) of the Act) will be entitled to contribution from any
          person or entity who was not guilty of such fraudulent
          misrepresentation.

     (e)  The provisions of this Section 5 will remain in full force and effect
          and survive the sale by the Purchaser of the Registrable Securities
          covered by the Registration Statement.

<PAGE>


     6. [RESERVED].

     7. MISCELLANEOUS.

     (a)  REMEDIES. In the event of a breach by the Company or by a Holder, of
          any of their respective obligations under this Agreement, each Holder
          or the Company, as the case may be, in addition to being entitled to
          exercise all rights granted by law and under this Agreement, including
          recovery of damages, will be entitled to specific performance of its
          rights under this Agreement.

     (b)  NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent specified
          in Schedule 7(b) hereto, neither the Company nor any of its security
          holders (other than the Holders in such capacity pursuant hereto) may,
          without the consent of the Holder, which consent shall not be
          unreasonably withheld, include securities of the Company in any
          Registration Statement other than the Registrable Securities, and the
          Company shall not after the date hereof enter into any agreement
          providing any such right for inclusion of shares in the Registration
          Statement to any of its security holders. Except as and to the extent
          specified in Schedule 7(b) hereto, the Company has not previously
          entered into any agreement granting any registration rights with
          respect to any of its securities to any person that have not been
          fully satisfied.

     (c)  COMPLIANCE. Each Holder covenants and agrees that it will comply with
          the prospectus delivery requirements of the Securities Act as
          applicable to it in connection with sales of Registrable Securities
          pursuant to the Registration Statement.

     (d)  DISCONTINUED DISPOSITION. Each Holder agrees by its acquisition of
          such Registrable Securities that, upon receipt of a notice from the
          Company of the occurrence of a Discontinuation Event (as defined
          below), such Holder will forthwith discontinue disposition of such
          Registrable Securities under the applicable Registration Statement
          until such Holder's receipt of the copies of the supplemented
          Prospectus and/or amended Registration Statement or until it is
          advised in writing by the Company that the use of the applicable
          Prospectus may be resumed, and, in either case, has received copies of
          any additional or supplemental filings that are incorporated or deemed
          to be incorporated by reference in such Prospectus or Registration
          Statement. The Company may provide appropriate stop orders to enforce
          the provisions of this paragraph. For purposes of this Section 7(d), a
          "Discontinuation Event" shall mean (i) when the Commission notifies
          the Company whether there will be a "review" of such Registration
          Statement and whenever the Commission comments in writing on such
          Registration Statement (the Company shall provide true and complete
          copies thereof and all written responses thereto to each of the
          Holders); (ii) any request by the Commission or any other Federal or
          state governmental authority for amendments or supplements to such
          Registration Statement or Prospectus or for additional information;
          (iii) the issuance by the Commission of any stop order suspending the
          effectiveness of such Registration Statement covering any or all of
          the Registrable Securities or the initiation of any Proceedings for
          that purpose; (iv) the receipt by the Company of any notification with
          respect to the suspension of the qualification or exemption from
          qualification of any of the Registrable Securities for sale in any
          jurisdiction, or the initiation or threatening of any Proceeding for
          such purpose; (v) the occurrence of any event or passage of time that
          makes the financial statements included in such Registration Statement
          ineligible for inclusion therein or any statement made in such
          Registration Statement or Prospectus or any document incorporated or
          deemed to be incorporated therein by reference untrue in any material
          respect or that requires any revisions to such Registration Statement,
          Prospectus or other documents so that, in the case of such
          Registration Statement or Prospectus, as the case may be, it will not
          contain any untrue statement of a material fact or omit to state any
          material fact required to be stated therein or necessary to make the
          statements therein, in light of the circumstances under which they
          were made, not misleading;

<PAGE>


     (e)  PIGGY-BACK REGISTRATIONS. If at any time during the Effectiveness
          Period there is not an effective Registration Statement covering all
          of the Registrable Securities and the Company shall determine to
          prepare and file with the Commission a registration statement relating
          to an offering for its own account or the account of others under the
          Securities Act of any of its equity securities, other than on Form F-4
          or Form S-8 (each as promulgated under the Securities Act) or their
          then equivalents relating to equity securities to be issued solely in
          connection with any acquisition of any entity or business or equity
          securities issuable in connection with stock option or other employee
          benefit plans, then the Company shall send to each Holder written
          notice of such determination and, if within fifteen (15) days after
          receipt of such notice, any such Holder shall so request in writing,
          the Company shall include in such registration statement all or any
          part of such Registrable Securities such holder requests to be
          registered to the extent the Company may do so without violating
          registration rights of others which exist as of the date of this
          Agreement, subject to customary underwriter cutbacks applicable to all
          holders of registration rights and subject to obtaining the consent of
          any selling stockholder(s) to such inclusion under such registration
          statement.



     (f)  AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
          the provisions of this sentence, may not be amended, modified or
          supplemented, and waivers or consents to departures from the
          provisions hereof may not be given, unless the same shall be in
          writing and signed by the Company and the Majority Holders.
          Notwithstanding the foregoing, a waiver or consent to depart from the
          provisions hereof with respect to a matter that relates exclusively to
          the rights of certain Holders and that does not directly or indirectly
          affect the rights of other Holders may be given by Holders of at least
          a majority of the Registrable Securities to which such waiver or
          consent relates; provided, however, that the provisions of this
          sentence may not be amended, modified, or supplemented except in
          accordance with the provisions of the immediately preceding sentence.

<PAGE>


     (g)  NOTICES. Any notice or request hereunder may be given to the Company
          or the Purchaser at the respective addresses set forth below or as may
          hereafter be specified in a notice designated as a change of address
          under this Section 7(g). Any notice or request hereunder shall be
          given by registered or certified mail, return receipt requested, hand
          delivery, overnight mail, Federal Express or other national overnight
          next day carrier (collectively, "Courier") or telecopy (confirmed by
          mail). Notices and requests shall be, in the case of those by hand
          delivery, deemed to have been given when delivered to any party to
          whom it is addressed, in the case of those by mail or overnight mail,
          deemed to have been given five (5) business days after the date when
          deposited in the mail or three (3) business days after the date when
          deposited with the overnight mail carrier, in the case of a Courier,
          the two (2) business days following timely delivery of the package
          with the Courier, and, in the case of a telecopy, when confirmed. The
          address for such notices and communications shall be as follows:

   IF TO THE COMPANY:               B.O.S. Better On-Line Solutions Ltd.
                                    To the address set forth under the
                                    Company's name on the signature page
                                    hereto.

                                    WITH A COPY TO:
                                    Amit, Pollak, Matalon & Ben-Naftali, Erez
                                    & Co.
                                    NYP Tower, 17 Yitzhak Sadeh Street, 19th
                                    Floor
                                    Tel Aviv 67775
                                    Attention: Shlomo Landress, Esq.

                                    Facsimile: (972) 3 561-3620


   IF TO A PURCHASER:               To the address set forth under Purchaser's
                                    name on the signature page hereto.

   IF TO ANY OTHER PERSON WHO IS
   THEN THE REGISTERED HOLDER:      To the address of such Holder as it appears
                                    in the stock transfer books of the Company

or such other address as may be designated in writing hereafter in accordance
with this Section 7(g) by such person.

<PAGE>


     (h)  SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
          and be binding upon the successors and permitted assigns of each of
          the parties and shall inure to the benefit of each Holder. The Company
          may not assign its rights or obligations hereunder without the prior
          written consent of each Holder. Each Holder may assign their
          respective rights hereunder in the manner and to the persons as
          permitted under the Note and the Security Agreement with the prior
          written consent of the Company, which consent shall not be
          unreasonably withheld.

     (i)  EXECUTION AND COUNTERPARTS. This Agreement may be executed in any
          number of counterparts, each of which when so executed shall be deemed
          to be an original and, all of which taken together shall constitute
          one and the same Agreement. In the event that any signature is
          delivered by facsimile transmission, such signature shall create a
          valid binding obligation of the party executing (or on whose behalf
          such signature is executed) the same with the same force and effect as
          if such facsimile signature were the original thereof.

     (j)  GOVERNING LAW. All questions concerning the construction, validity,
          enforcement and interpretation of this Agreement shall be governed by
          and construed and enforced in accordance with the internal laws of the
          State of New York, without regard to the principles of conflicts of
          law thereof. Each party agrees that all Proceedings concerning the
          interpretations, enforcement and defense of the transactions
          contemplated by this Agreement shall be commenced exclusively in the
          state and federal courts sitting in the City of New York, Borough of
          Manhattan. Each party hereto hereby irrevocably submits to the
          exclusive jurisdiction of the state and federal courts sitting in the
          City of New York, Borough of Manhattan for the adjudication of any
          dispute hereunder or in connection herewith or with any transaction
          contemplated hereby or discussed herein, and hereby irrevocably
          waives, and agrees not to assert in any Proceeding, any claim that it
          is not personally subject to the jurisdiction of any such court, that
          such Proceeding is improper. Each party hereto hereby irrevocably
          waives personal service of process and consents to process being
          served in any such Proceeding by mailing a copy thereof via registered
          or certified mail or overnight delivery (with evidence of delivery) to
          such party at the address in effect for notices to it under this
          Agreement and agrees that such service shall constitute good and
          sufficient service of process and notice thereof. Nothing contained
          herein shall be deemed to limit in any way any right to serve process
          in any manner permitted by law. Each party hereto hereby irrevocably
          waives, to the fullest extent permitted by applicable law, any and all
          right to trial by jury in any legal proceeding arising out of or
          relating to this Agreement or the transactions contemplated hereby. If
          either party shall commence a Proceeding to enforce any provisions
          hereunder, then the prevailing party in such Proceeding shall be
          reimbursed by the other party for its reasonable attorneys fees and
          other costs and expenses incurred with the investigation, preparation
          and prosecution of such Proceeding.

<PAGE>


     (k)  CUMULATIVE REMEDIES. The remedies provided herein are cumulative and
          not exclusive of any remedies provided by law.

     (l)  SEVERABILITY. If any term, provision, covenant or restriction of this
          Agreement is held by a court of competent jurisdiction to be invalid,
          illegal, void or unenforceable, the remainder of the terms,
          provisions, covenants and restrictions set forth herein shall remain
          in full force and effect and shall in no way be affected, impaired or
          invalidated, and the parties hereto shall use their reasonable efforts
          to find and employ an alternative means to achieve the same or
          substantially the same result as that contemplated by such term,
          provision, covenant or restriction. It is hereby stipulated and
          declared to be the intention of the parties that they would have
          executed the remaining terms, provisions, covenants and restrictions
          without including any of such that may be hereafter declared invalid,
          illegal, void or unenforceable.

     (m)  HEADINGS. The headings in this Agreement are for convenience of
          reference only and shall not limit or otherwise affect the meaning
          hereof.

                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK;
                             SIGNATURE PAGE FOLLOWS]

<PAGE>


     IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

B.O.S. BETTER ON-LINE SOLUTIONS LTD.             LAURUS MASTER FUND, LTD.


By:                                              By:
      ---------------------                             ---------------------
Name:                                            Name:
      ---------------------                             ---------------------
Title:                                           Title:
      ---------------------                             ---------------------

ADDRESS FOR NOTICES:                             ADDRESS FOR NOTICES:

Beit Rabin, 100 BOS Road                         825 Third Avenue - 14th Floor
Teradyon Industrial Park, Misgav 20179           New York, NY  10022
Israel
Attention:      Nehemia Kaufman, CFO             Attention:  David Grin
Facsimile:      (972) 4 999-0334                 Facsimile:  212-541-4434






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>7
<FILENAME>exhibit_10-1.txt
<TEXT>


                                                                    EXHIBIT 10.1

                         CONSENT OF INDEPENDENT AUDITORS








     We hereby consent to the incorporation by reference in the previously filed
Registration Statements on Form S-8 (No. 333-110696, 333-100971 and 333-11650)
of B.O.S. Better Online Solutions Ltd. of our report dated March 22, 2004, with
respect to the consolidated financial statements of B.O.S. Better Online
Solutions Ltd. included in this Annual Report on Form 20-F for the year ended
December 31, 2003.









                                             /S/ Kost Forer Gabbay & Kasierer

June 17, 2004                                KOST FORER GABBAY & KASIERER
Tel Aviv, Israel                             A member of Ernst & Young Global

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>8
<FILENAME>exhibit_31-1.txt
<TEXT>
                                                                    EXHIBIT 31.1


CERTIFICATION PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934.


I, Adiv Baruch, certify that:


1. I have reviewed this annual report on Form 20-F of B.O.S. Better Online
Solutions Ltd (the "registrant");


2. 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;


3. 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
registrant as of, and for, the periods presented in this annual report;


4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:


(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 registrant, 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;


(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];


(c) evaluated the effectiveness of the registrant'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 annual report based on such evaluation; and


(d) disclosed in this report any change in the registrant'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's internal control over financial reporting.


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):


(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 registrant's ability to record, process,
summarize and report financial data; and


(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.





Date: June 17, 2004


/s/ Adiv Baruch
- ---------------
Adiv Baruch, President and Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>9
<FILENAME>exhibit_31-2.txt
<TEXT>
                                                                    EXHIBIT 31.2


CERTIFICATION PURSUANT TO RULE 13A-14(A) OR RULE 15D-14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934.


I, Nehemia Kaufman, certify that:


1. I have reviewed this annual report on Form 20-F of B.O.S. Better Online
Solutions Ltd (the "registrant");


2. 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;


3. 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
registrant as of, and for, the periods presented in this annual report;


4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:


(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 registrant, 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;


(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];


(c) evaluated the effectiveness of the registrant'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 annual report based on such evaluation; and


(d) disclosed in this report any change in the registrant'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's internal control over financial reporting.


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):


(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 registrant's ability to record, process,
summarize and report financial data; and


(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.





Date: June 17, 2004


/s/ Nehemia Kaufman
- -------------------
Nehemia Kaufman, Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>10
<FILENAME>exhibit_32-1.txt
<TEXT>


                                                                    EXHIBIT 32.1

CERTIFICATION PURSUANT TO RULE 13A-14(B) OR RULE 15D-14(B) OF THE SECURITIES
EXCHANGE ACT OF 1934.

     In connection with the Annual Report on Form 20-F of B.O.S Better Online
Solutions Ltd., a company organized under the laws of the State of Israel (the
"COMPANY"), for the period ending December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "REPORT"), each of the
undersigned officers of the Company certify pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to such
officer's knowledge, that:

1.   the Report fully complies, in all material respects, with the requirements
     of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   the information contained in the Report fairly presents, in all material
     respects, the financial condition and results of operations of the Company
     as of, and for, the periods presented in the Report.


A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.


By: /S/ Adiv Baruch                       By: /S/ Nehemia Kaufman
- -------------------                       -----------------------
Adiv Baruch                               Nehemia Kaufman
President and Chief Executive Officer     Chief Financial Officer

Date:  June 17, 2004



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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