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Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0001178913-07-000454.txt : 20070423
<SEC-HEADER>0001178913-07-000454.hdr.sgml : 20070423

<ACCEPTANCE-DATETIME>20070306161508

<PRIVATE-TO-PUBLIC>

ACCESSION NUMBER:		0001178913-07-000454

CONFORMED SUBMISSION TYPE:	F-1/A

PUBLIC DOCUMENT COUNT:		4

FILED AS OF DATE:		20070306

DATE AS OF CHANGE:		20070313


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:		F-1/A

		SEC ACT:		1933 Act

		SEC FILE NUMBER:	333-139233

		FILM NUMBER:		07675043



	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>F-1/A
<SEQUENCE>1
<FILENAME>zk73470.htm
<TEXT>
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     <!-- Control Number: 73470                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    BOS better online solutions Ltd                                  -->
     <!-- Project Name:   F-1/A                                                            -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>F-1/A</TITLE>
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<TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
filed with the Securities and Exchange Commission on March 6, 2007  </FONT></TD>
</TR>
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<TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Registration
No. 333-139233  </FONT></TD>
</TR>
</TABLE>



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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>UNITED STATES</B> </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="4"><B>SECURITIES AND
EXCHANGE COMMISSION</B> </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2">Washington, D.C. 20549 </FONT> </P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> AMENDMENT NO. 2 </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=4>ON FORM F-1 </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>TO <BR>
FORM F-3 </FONT></H1>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>REGISTRATION STATEMENT <BR>
UNDER THE SECURITIES ACT
OF 1933 </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="5"><B>B.O.S BETTER ONLINE
SOLUTIONS LTD.</B></FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>(Exact name of
Registrant as specified in its charter) </I></FONT></P>


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<TR VALIGN=Bottom>
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     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
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<TR VALIGN=Bottom>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
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     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Israel</B> </FONT></TD>
     <TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3576</B> </FONT></TD>
     <TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Not Applicable</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(State or other jurisdiction of</I></FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(Primary Standard Industrial</I></FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(I.R.S. Employer</I></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>incorporation or organization)</I></FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Classification Code Number)</I></FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Identification No.)</I></FONT></TD></TR>
</TABLE>
<BR>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 20 Freiman Street<BR>
Rishon LeZion, 75100, Israel<BR>
03-954-1000<BR>
<I>(Address and
Telephone Number of Registrant&#146;s principal executive offices) </I> </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Corporation Service
Company <BR>
1133 Avenue of the
Americas, Suite 3100 <BR>
New York, NY 10036 <BR>
Tel: (212) 299-9100 <BR>
<I>(Name, address and
telephone number of agent for service) </I></FONT></P>

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<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Copies
To:  </FONT></TD>
</TR>
</TABLE>



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     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B></B> </FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>Brian Brodrick, Esq</B> </FONT></TD>
     <TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>Shlomo Landress, Adv.</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>Phillips Nizer LLP</B> </FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>Amit, Pollak, Matalon &amp; Co.</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>666 Fifth Avenue</B> </FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>NYP Tower, 17 Yitzhak Sadeh Street</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>New York, New York 10103</B> </FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>Tel Aviv 67775, Israel</B> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>(212) 841-0700</B> </FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"><B>972-3-568-9000</B> </FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Approximate
date of commencement of proposed sale to the public</B>: From time to time after this
registration statement becomes effective. </FONT></P>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the
following box. <FONT size="3" face="Wingdings">x</font> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the
same offering. <FONT size="3" face="Wingdings">o
</font> </FONT></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. <FONT size="3" face="Wingdings">o
</font> </FONT></P>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
this Form is a post-effective amendment to a registration statement filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering. <FONT size="3" face="Wingdings">o
</font> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a), may
determine. </FONT></P>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>THE INFORMATION IN THIS PROSPECTUS
IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.</B> </FONT></P>

<p align=center>
<font size=2></font></p>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> SUBJECT TO COMPLETION,
DATED March 6, 2007 </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROSPECTUS </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>B.O.S BETTER ONLINE
SOLUTIONS LTD. </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,000,000 Ordinary
Shares </FONT></H1>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DISTRIBUTION OF RIGHTS
TO PURCHASE ORDINARY SHARES </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We are distributing transferable
rights to purchase up to 2,000,000 of our ordinary shares to those persons that, as of
5:00 p.m., New York City time (midnight, Israel time) on the record date of March 19, 2007
were shareholders of our company. You will receive one right for each 3.3724 ordinary
shares that you hold on the record date. If you hold 3 or less ordinary shares, you will
not receive any rights. Your rights will be aggregated for all the shares that you own on
the record date and then rounded down to the nearest whole number, so that you will not
receive fractional rights. For example, if you own 4 shares on the record date, you will
receive one right, and if you own 10,000 shares on the record date, you will receive 2,965
rights. Each right will entitle you to purchase, at a subscription price of $2.50, one
ordinary share. The rights are exercisable during a 28-day period, beginning after 5:00
p.m., New York City time (midnight, Israel time) on March 20, 2007 and ending on April 16,
2007 at 5:00 p.m., New York City time (midnight, Israel time), or during a 23-day period,
until April 11, 2007, if you hold your rights through an Israeli brokerage company that
holds the rights through the Company&#146;s nominee company (<I>Hevra Le-Rishumim of Bank
Leumi Le-Israel Ltd.</I>).  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our
ordinary shares trade on the NASDAQ Global Market under the symbol &#147;BOSC&#148; and on
the Tel Aviv Stock Exchange in Israel under the symbol &#147;BOSC.&#148; On March 5<I>,
</I>2007 the last reported sale price of our ordinary shares on the NASDAQ Global Market
was<I> </I>$2.50 per ordinary share and on the Tel Aviv Stock Exchange was NIS 10.61 per
ordinary share. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The rights are transferable and will
be listed for trading for a single day on the NASDAQ Global Market under the symbol
&#147;BOSCR&#148; and on the Tel Aviv Stock Exchange under the symbol &#147;BOSC.R1&quot;.
The trading day will be April 12, 2007. If you hold your rights through an Israeli
brokerage company that holds the rights through the Company&#146;s nominee company
<I>(Hevra Le-Rishumim of Bank Leumi Le-Israel Ltd.</I>), you will be considered to have
instructed your broker to sell all your rights on the Tel Aviv Stock Exchange with no
price limit, if you fail to give your broker instructions regarding the exercise,
non-exercise or sale of the rights prior to April 12, 2007. The purchaser of such rights
shall be able to exercise them until April 16, 2007.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
offering is not secured by an underwriting commitment. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should read both this prospectus and any prospectus supplement before you decide to invest
in our ordinary shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>INVESTING
IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 11 OF THIS PROSPECTUS.</B> </FONT> </P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Neither the Securities and
Exchange Commission nor any state securities commission or the Israeli Securities
Authority has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal offense under
the laws of the United States and the laws of the State of Israel.</B> </FONT></P>


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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
________________________________________<BR>
The date of this prospectus is ________, 2007 </FONT></P>

<p align=center>
<font size=2></font></p>
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<page>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TABLE OF CONTENTS </FONT></H1>


















<TABLE CELLPADDING=3 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Item</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Page</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=90% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk601">Prospectus Summary</a></FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH=3% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk602">Questions and Answers about B.O.S Better Online Solutions Ltd.</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk603">Questions and Answers about the Rights Offering</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk604">Risk Factors</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk605">Forward-Looking Statements</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk606">The Rights Offering</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk607">Recent Developments</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk608">Capitalization</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk609">Dilution; Effect of the Rights Offering on our Outstanding Shares and Convertible Securities</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk610">Expenses of the Issue</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk611">Use of Proceeds</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk612">Price Range of Ordinary Shares</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk613">Selected Consolidated Financial Data</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk614">Operating and Financial Review</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>38</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk615">Results of Operations</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>42</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk616">Liquidity and Capital Resources</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk617">Recent Financial Information</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk618">Industry Overview</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk619">Business</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>61</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk620">Organizational Structure</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk621">Property, Plant and Equipment</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk622">Management</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>74</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk623">Board and Executive Compensation</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>77</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk624">Board Practices</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>78</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk625">Share Ownership</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>81</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk626">Major Shareholders and Related Party Transactions</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>84</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk627">Dividend Policy</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>88</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk628">Material Income Tax Considerations</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>88</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk629">Foreign Exchange Controls and Other Limitations</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>99</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk630">Description of Share Capital and Articles of Association</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>99</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk631">Legal Proceedings</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>105</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk632">Quantitative and Qualitative Disclosure about Market Risk</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>106</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk633">Undertaking to Refrain from Actions not Disclosed in this Prospectus</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>108</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk634">Legal Matters</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>108</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk635">Experts</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>108</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk636">Where You Can Find More Information</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>109</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk637">Enforceability of Civil Liabilities</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>109</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk638">The Israel Securities Authority Exemption</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>110</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><a href="#zk639">Index to Consolidated Financial Statements</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>111</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font size=2>2</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should rely only on the information contained in this prospectus or any supplement. We
have not authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on it. We are
not, and any underwriter or agent is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that the
information appearing in this prospectus is accurate only as of the date on the front
cover of this prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date. </FONT></P>


<p align=center>
<font size=2>3</font></p>
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<a name=zk601></a>



















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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROSPECTUS SUMMARY </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
prospectus does not contain all of the information set forth in the registration
statement, certain parts of which are omitted in accordance with the rules and regulations
of the SEC. Accordingly, you should refer to the registration statement and its exhibits
for further information about us and our ordinary shares. Copies of the registration
statement and its exhibits are on file with the SEC. Statements contained in this
prospectus concerning the documents we have filed with the SEC are not intended to be
comprehensive, and in each instance we refer you to a copy of the actual document filed as
an exhibit to the registration statement or otherwise filed with the SEC. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have not authorized anyone to provide you with information different from that contained
or incorporated by reference in this prospectus. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our rights or our ordinary shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless
the context otherwise requires, all references in this prospectus to &#147;BOS,&#148;
&#147;we,&#148; &#147;our,&#148; &#147;our company,&#148; &#147;us&#148; and the
&#147;Company&#148; refer to B.O.S Better Online Solutions Ltd. and its consolidated
subsidiaries. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
references in this prospectus to &#147;ordinary shares&#148; refer to our ordinary shares,
nominal value NIS 4.00 per share. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
references in this prospectus to &#147;dollars&#148; or &#147;$&#148; are to United States
dollars. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
references in this prospectus to &#147;shekels&#148; or &#147;NIS&#148; are to New Israeli
Shekels. </FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>QUESTIONS AND ANSWERS ABOUT B.O.S
BETTER ONLINE SOLUTIONS LTD. </B>  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
section answers in summary form some questions you may have about B.O.S Better Online
Solutions Ltd. and this rights offering. The information in this section is not complete
and does not contain all of the information that you should consider before exercising
your subscription rights. You should read the entire prospectus carefully, including the
&#147;Risk Factors&#148; section and the documents listed under &#147;Where You Can Find
More Information.&#148; </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>What is B.O.S Better
Online Solutions Ltd.?</FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are an Israeli based company, operating through our two wholly-owned Israeli
subsidiaries:  </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOScom
Ltd. that is engaged in the Software Solutions segment of our business (previously named
         connectivity solutions segment); and </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem
Electronic Technologies 1992 Ltd. (&#147;Odem&#148;) that is engaged in the Supply-Chain
Solutions segment of our business (previously named electronic components segment). </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our Software
Solutions segment,</B> focuses on providing connectivity solutions for the popular IBM
iSeries, enabling customers to extend its capabilities and life cycle. Our server and
associated modules empower the iSeries, providing a scaleable solution for transparent
expansion and growth.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our
Supply-Chain Solutions segment, </B>provides, through Odem, solutions in RFID (Radio
Frequency Identification Devices), semiconductors, electronic components, CCD (Charge
&#150; Coupled Devices), imaging, networking, telecom and automation. </FONT></P>


<p align=center>
<font size=2>4</font></p>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Where are we located? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our
headquarters, R&amp;D and manufacturing facilities are located in two Israeli facilities
&#150; in Rishon Lezion (in the center of Israel) and in Yoqneam (in the north of
Israel). The facilities of our subsidiary, Odem Electronic Technologies 1992 Ltd., are
also located in the city of Rishon Lezion.  </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our
telephone number is 972-3-954-1000. We maintain a web site where potential customers,
investors and others can obtain the most updated information about our activities,
products, press releases and financial information. Our Web site may be found at
www.boscorporate.com. In addition, our subsidiary Odem, maintains a web site showcasing
our services in the field of RFID. The website address is www.yourfid.com. The contents of
our web sites are not incorporated by reference into this Form F-1. </FONT></P>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>QUESTIONS AND ANSWERS
ABOUT THE RIGHTS OFFERING </FONT></H1>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>What is a rights offering?
</B>&nbsp; </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; A rights offering is a distribution
of rights on a pro rata basis to all shareholders of a company. We are distributing to
holders of our ordinary shares, at no charge, one right for each 3.3724 ordinary shares
held by them at 5:00&nbsp;p.m., New York City time, on &nbsp;March 19, 2007, the
&#147;record date&#148;. The 3.3724 ratio was derived by dividing the sum of the total
number of our issued and outstanding ordinary shares as of December 31, 2006 by the dollar
amount being offered in the rights offering, multiplied by the subscription price. If you
hold 3 or fewer ordinary shares, you will not receive any rights. Your rights will be
aggregated for all the shares that you own on the record date and then rounded down to the
nearest whole number, so that you will not receive fractional rights. For example, if you
own 4 shares on the record date, you will receive one right, and if you own 10,000 shares
on the record date, you will receive 2,965 rights. </FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>What securities and how many
securities may be purchased under each right?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
full right entitles the holder to purchase one of our ordinary shares at a price of $2.50
per ordinary share. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>How many rights will you
receive? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Each person who, at the close of
business at 5:00 p.m., New York City time (midnight, Israel time), on March 19, 2007 (the
record date), owns our ordinary shares will receive, at no charge, one right for each
3.3724 ordinary shares owned on the record date. Your rights will be aggregated for all
the shares that you own on the record date. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; You may exercise all of your rights
or a portion of your total rights (but only whole rights), or you may choose not to
exercise any of your rights. In addition, you may sell the rights on either the NASDAQ
Global Market or the Tel Aviv Stock Exchange, during one single trading day, on April 12,
2007. You may pay us the subscription price either in U.S. dollars, or if you are an
Israeli resident, in New Israeli Shekels according to the U.S. dollar/NIS representative
exchange rate published by the Bank of Israel on the day before payment of the
subscription price. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Will the rights be
listed for trading? </FONT></H1>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Yes.
          The rights will be listed on the NASDAQ Global Market under the symbol
          &#147;BOSCR&#148; and the Tel Aviv Stock Exchange under the symbol
          &#147;BOSC.R1&quot;. </FONT></P>


<p align=center>
<font size=2>5</font></p>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Why are we engaging in a
rights offering? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are engaging in this rights offering to provide our company with funds it requires for
general corporate purposes, including working capital and for future mergers and
acquisitions. Initially, the Company had decided to raise equity by way of a public
offering in Israel and alternatively, at management&#146;s discretion, by way of a private
placement of Ordinary Shares and warrants, in either case in compliance with Regulation S
promulgated under the Securities Act of 1933, as amended (the &#147;Act&#148;). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
October 4, 2006, the Company filed a draft prospectus with the Israeli Securities
Authority and the Tel Aviv Stock Exchange in connection with an underwritten offering to
the public in Israel of Ordinary Shares and Warrants. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According
to the Israeli Companies Law of 1999, the aforementioned public offering or private
placement requires shareholders approval. The Company called a special general meeting of
its shareholders for this purpose in Israel on October 19, 2006, at which the shareholders
requested that the Company shall conduct a rights offering rather than the proposed public
offering or private placement. Following discussions at the meeting, the
shareholders resolved that the Company should first attempt to raise at least $3 million
by way of a rights offering, and only if such target is not achieved, then the Company
shall be able to effect the contemplated public offering in Israel or the private
placement. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>How was the subscription
price determined? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
board of directors set the terms and conditions of the rights offering, including the
subscription price, with the objective to reflect recent trading prices of our ordinary
shares, raise the targeted proceeds and provide all of our shareholders with a reasonable
opportunity to make an additional investment in our company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
establishing the commercial terms, including the subscription price, our board of
directors considered the following factors: the strategic alternatives available to us for
raising capital, the market price of our ordinary shares, the pro rata nature of the
offering, our business prospects and general conditions in the securities markets. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
subscription price, however, does not necessarily bear any relationship to our past or
expected future results of operations, cash flows, current financial condition, or any
other established criteria for value. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>How long will the rights
offering last? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; You will be able to exercise your
rights only during a limited period. The rights are exercisable during a 28-day period,
beginning after 5:00 p.m. New York City time (midnight, Israel time) on March 20, 2007 and
ending at 5:00 p.m. New York City time (midnight, Israel time) on April 16, 2007 (the
rights expiration date) or during a 23-day period, until April 11, 2007, if you hold your
rights through an Israeli brokerage company that holds the rights through the
Company&#146;s nominee company (<I>Hevra Le-Rishumim of Bank Leumi Le-Israel Ltd.</I>). If
you hold your shares through a broker, dealer or other nominee (including through members
of the Tel Aviv Stock Exchange), you will be required to comply with the procedural
requirements of such nominee, including the procedures relating to the last time by which
you may be required to provide notice of your intention to exercise your rights (which may
be earlier than the final expiration date of the rights), as well as other procedural
requirements described under the heading &#147;The Rights Offering.&#148; If you do not
exercise your rights by the date and in accordance with the procedures applicable to you,
your ability to exercise the rights and purchase the ordinary shares will expire. </FONT></P>


<p align=center>
<font size=2>6</font></p>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>How do you exercise your
rights? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
will send a rights certificate to each holder of our ordinary shares that on the record
date is registered on our shareholder registry maintained at American Stock Transfer &amp;
Trust Co., the transfer agent for our ordinary shares. The rights certificate will
evidence the number of rights applicable to each holder and will be accompanied by a copy
of this prospectus. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a record holder of our ordinary shares and you wish to exercise your rights, you
should complete the exercise form on the back of the rights certificate and send the
certificate (or a notice of guaranteed delivery), accompanied by the subscription price
following the record date, to the offices of American Stock Transfer &amp; Trust Co., as
our Rights Agent, to the attention of: Reorganization Department, to be received no later
than the expiration date of the rights. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The rights will expire on  April 16, 2007, at 5:00 p.m. New York time, (midnight,
Israel time). You may make your payment to American Stock Transfer by wire transfer or
cashier&#146;s check or a money order drawn on a bank located in the United States payable
to the order of &#147;American Stock Transfer &amp; Trust Co., as Rights Agent.&#148;
Payment made to American Stock Transfer &amp; Trust Co. must be in U.S. dollars. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If you are a record holder of rights
that resides in Israel, you may exercise your rights by delivering the completed exercise
form on the back of the rights certificate to our offices at 20 Freiman St., POB 198,
Rishon Lezion, 75101, Israel, following the record date, accompanied by evidence of a wire
transfer or a cashier&#146;s check or a money order drawn on a bank located in Israel
payable to B.O.S Better Online Solutions Ltd. Payment to us must be either in New Israeli
Shekels in accordance with the representative exchange rate published by the Bank of
Israel on the business day before payment of the subscription price or in U.S. dollars if
requested and we agree to such payment. The completed exercise form and payment must be
delivered to us by midnight Israel time on April 16, 2007 (the rights expiration date).  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a beneficial owner of our ordinary shares and hold them through a broker, dealer
or other nominee (including a member of the Tel Aviv Stock Exchange), see &#147;What
should you do if you want to participate in this rights offering, but your shares are held
in the name of your broker, dealer or other nominee?&quot; </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>How do you transfer your
rights? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The subscription rights are
transferable and will be evidenced by rights certificates. If you are a record holder of
our ordinary shares and wish to transfer your rights to another person, you may do so by
completing the transfer form on the back of your certificate and submitting it to American
Stock Transfer &amp; Trust Co., as Rights Agent, prior to April 12, 2007. If you wish to
sell your rights on the NASDAQ Global Market or the Tel Aviv Stock Exchange, you should
independently engage a broker to execute this sale on your behalf. The rights will be
listed for trading on these exchanges during their regular trading hours for one day only
on April 12, 2007. We cannot assure you that a trading market for the rights will exist or
develop.  </FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>After you exercise your rights,
can you change your mind? </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No. You
cannot revoke the exercise of your rights, even if you later learn           information
about us that you consider to be unfavorable. You should not send           the completed
exercise form on the back of the rights certificate unless you are           certain that
you wish to purchase the ordinary shares.  </FONT></P>


<p align=center>
<font size=2>7</font></p>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Is exercising your
rights risky? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes. The
exercise of your rights involves substantial risks. Exercising your rights
          means buying additional securities, and you should carefully consider this
          purchase as you would do with respect to any other equity investment. Among
          other things, you should carefully consider the risks described under &#147;Risk
          Factors.&#148; </FONT></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Is there an over-subscription
privilege</B>? </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No.
          Unexercised rights will be listed for trading on the NASDAQ Global Market and on
          the Tel Aviv Stock Exchange for one day only on April 12, 2007. Additional
          rights may be purchased from selling shareholders on such day.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Do you have to exercise all of
your rights?</B></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No.
          You may exercise any number of your rights, or you may choose not to exercise
          any rights. However, if you do not exercise your rights and other shareholders
          do, the percentage of our ordinary shares that you own will diminish, and your
          voting and other rights will be diluted.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Can you sell or give
away your rights? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Yes.
          You may transfer or sell, at any time prior to the expiration date (April 16,
          2007, at 5:00 p.m. New York time, midnight, Israel time), all or a portion of
          the rights. You are responsible for all commissions, fees and other expenses,
          including brokerage commissions and transfer taxes, incurred in connection with
          the purchase or sale of rights. The unexercised rights will be listed for
          trading on the NASDAQ Global Market and on the Tel Aviv Stock Exchange for one
          day only on April 12, 2007. For further details regarding trading in our rights,
          please see &#147;The Rights Offering&#150;Transferability of Rights.&#148; </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some
of the tax consequences of selling your rights for certain U.S. and Israeli shareholders
are described herein under the heading &#147;Material Income Tax Considerations.&#148; You
are, however, advised to seek specific tax advice from your personal tax advisor, as this
prospectus does not summarize all tax consequences arising under U.S. state tax laws,
Israeli tax laws, tax laws outside of the U.S. and Israel or any tax laws relating to
special tax circumstances or particular types of taxpayers. </FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>What are the federal income tax
and Israeli income tax consequences of exercising your rights?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
receipt and exercise of your rights are intended to be nontaxable; however, no ruling from
the U.S. Internal Revenue Service or the Israeli Income Tax Authority will be sought.
Therefore, you should seek specific tax advice from your personal tax advisor. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disclosure
of the material income tax consequences in the United States resulting from the
distribution of the rights to a U.S. holder, and related transactions by the U.S. holder,
including the exercise or expiration of rights, and the disposition of rights or ordinary
shares issuable upon exercise of the rights is included under &#147;Material Income Tax
Considerations&#150;United States Tax Considerations&#148;. We have received an opinion of
Phillips Nizer LLP, regarding the material federal income tax consequences. Disclosure of
the material income tax consequences in Israel resulting from the distribution of the
rights to an Israeli holder, and related transactions by the Israeli holder is included
under &#147;Material Income Tax Considerations&#150;Israel Tax Considerations&#148;. This
prospectus does not conclusively summarize tax consequences arising under U.S. state tax
laws, Israeli tax laws, tax laws outside of the U.S. and Israel or any tax laws relating
to special tax circumstances or particular types of taxpayers. </FONT></P>


<p align=center>
<font size=2>8</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>What happens if you
choose not to exercise your rights? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
will retain your current number of ordinary shares even if you do not exercise your
rights. However, if you do not exercise your rights and other shareholders who receive
rights do, the percentage of our ordinary shares that you own will diminish, and your
voting and other rights will be diluted. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If you hold our shares through an
Israeli brokerage company that holds the rights through the Company&#146;s nominee company
(<I>Hevra Le-Rishumim of Bank Leumi Le-Israel Ltd.</I>) and you do not provide notice of
your exercise of the rights or give any other instructions by the time determined by your
broker on April 12, 2007 (the rights trading day), under the rules of the Tel Aviv Stock
Exchange, you will be considered to have provided an instruction to sell all your rights
on the Tel Aviv Stock Exchange with no price limit. The proceeds of such sale shall be
transferred to you. If you do not hold your shares through the nominee company, you may
either elect to sell your unexercised right, or have them lapse unsold. </FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Has our board of directors made a
recommendation regarding this offering?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No.
          Our board of directors makes no recommendation to you about whether you should
          exercise any rights.  </FONT></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>What should you do if you want to
participate in this rights offering, but your shares are held in the name of your broker,
dealer or other nominee?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If you are a beneficial owner of our
ordinary shares and hold them through a broker, dealer or other nominee (including a
member of the Tel Aviv Stock Exchange), you should expect your broker, dealer or other
nominee to notify you of this rights offering and the procedures for exercising or
transferring your rights. If you wish to exercise your rights, you will need to have your
broker, dealer or other nominee act for you. To indicate your decision with respect to
your rights, you should complete and return to your broker, dealer or other nominee the
form provided to you accompanied by the subscription payment payable to your broker,
dealer or other nominee. You should receive this form from your broker, dealer or other
nominee. If you are a beneficial owner of our ordinary shares and hold them through a
broker, dealer or other nominee (including a member of the Tel Aviv Stock Exchange), you
should NOT return your exercise form or transfer the subscription payment directly to us.
Your broker, dealer or other nominee will execute the exercise of your rights through the
appropriate facilities. However, if you own your shares through, a member of the Tel Aviv
Stock Exchange that holds the rights through the Company&#146;s nominee company (<I>Hevra
Le-Rishumin of Bank Leumi Le-Israel Ltd.</I>, the rules of the Tel Aviv Stock Exchange
provide that if no contrary instructions have been received from you by the time
determined by your broker on April 12, 2007 (the rights trading day), you will be
considered to have instructed your broker to sell all your rights on the Tel Aviv Stock
Exchange with no price limit. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>What fees or charges
apply if you exercise your rights? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are not charging any fee or sales commission to issue rights to you and we are not
charging any fee or sales commission, other than the subscription price, to issue the
ordinary shares if you exercise your rights. If you exercise your rights through a broker,
dealer or other nominee, you are responsible for paying any fees that may be charged
thereby. </FONT></P>


<p align=center>
<font size=2>9</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>How will this rights offering
affect the price of our ordinary shares on the Tel Aviv Stock Exchange and on NASDAQ?</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; NASDAQ will not reduce the opening
price of the ordinary shares at the opening of trading on the NASDAQ Ex-day, which is the
first day that our ordinary shares will trade on NASDAQ without entitlement to receive the
rights. The NASDAQ Ex-day will be the first trading day on NASDAQ following the record
date. The NASDAQ Ex-day for the rights offering will, therefore, be March 20, 2007. In
accordance with the rules of the Tel Aviv Stock Exchange, the Tel Aviv Stock Exchange will
reduce the opening price of the ordinary shares at the opening of trading on the Tel Aviv
Stock Exchange Ex-day, which is the first day that our ordinary shares will trade on the
Tel Aviv Stock Exchange following the record date; the Tel Aviv Stock Exchange Ex-day for
the rights offering will, therefore, be March 20, 2007. For this purpose the Tel-Aviv
Stock Exchange employs a reduction formula in which the numerator is the sum of: (i) the
number of shares entitling the shareholder to one right (the &#147;Base Unit&#148;)
multiplied by the share&#146;s closing price on the Tel-Aviv Stock Exchange on the trading
day prior to the Ex-day (the &#147;Closing Price&#148;), and (ii) the subscription price;
and the denominator is the sum of the Base Unit and the number of rights granted to the
holder of a Base Unit, provided however, that if the Closing Price is lower than the
result of the aforementioned formula , the opening price on the Ex-day shall be the
Closing Price. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>When will you receive your new
shares?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If you exercise your rights in this
rights offering and the Rights Agent has received your duly completed exercise form and
your payment has cleared, your purchase of ordinary shares will be effected, and you will
receive certificates representing the ordinary shares purchased upon exercise of the
rights as soon as practicable following the right&#146;s expiration date. We have the
discretion to delay allocation and distribution of any shares you may elect to purchase by
exercise of your privilege in order to comply with state securities laws and regulations.
Brokers may be unwilling to sell your ordinary shares until you have received certificates
representing your ordinary shares. </FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Have any shareholders indicated
that they will exercise their rights?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes.
          Touareg Consulting Ltd. which owns an aggregate of 8.05% of our outstanding
          shares, has indicated its intention to exercise its rights, and may acquire and
          exercise additional rights, if they are available.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Members
of our management have not provided us with any indication as to whether they will
exercise rights to be granted to them. </FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Are there any conditions to the
consummation of the rights offering?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
are no conditions to the consummation of the rights offering. However, we reserve the
right to reject your exercise of rights if your exercise is not in accordance with the
terms of the rights offering or in proper form. Neither we nor the Rights Agent will have
any duty to notify you of a defect or irregularity in your exercise of rights. We will not
be liable for failing to give you that notice. We will also not accept your exercise of
rights if our issuance of shares pursuant to your exercise could be deemed unlawful or
materially burdensome. In addition, we will not be required to issue shares prior to the
rights expiration date. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Can we withdraw the
rights offering? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Yes.
          Our board of directors may withdraw the rights offering in its sole discretion
          at any time prior to 5:00 p.m. New York City time (midnight, Israel time) on
          March 19, 2007 (the record date), for any reason (including, without limitation,
          a change in the market price of our ordinary shares). If we withdraw the rights
          offering, we will issue a press release notifying shareholders of the
          cancellation, and any money received from subscribing shareholders will be
          refunded promptly, without interest.  </FONT></P>


<p align=center>
<font size=2>10</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>How much money will we
receive from the rights offering? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
amount of gross proceeds from the rights offering depends on the number of rights that are
exercised into our ordinary shares. If all the rights are exercised, we will receive gross
proceeds of $5 million. </FONT></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>If the rights offering is not
completed, will my subscription payment be refunded to me?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes.
          The Rights Agent will hold all funds it receives in a segregated bank account
          until completion of the rights offering. If the rights offering is not
          completed, we will immediately instruct the Rights Agent to return your payment
          in full. If you own shares in &#147;street name,&#148; it may take longer for
          you to receive payment because the Rights Agent will send payments through the
          record holder of your shares. You will not be credited interest on your
payment.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>How will we use the
proceeds from the rights offering? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will use the proceeds generated
from the exercise of rights in this rights offering towards general corporate purposes,
including working capital, as well as toward the financing of future mergers and
acquisitions. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>How many shares will be
outstanding after the rights offering if all the rights are exercised?</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of the December 31, 2006, 6,744,798 of our ordinary shares were issued and outstanding.
The number of ordinary shares that will be outstanding after the rights offering depends
on the number of rights that are exercised. If all the rights are exercised in full, an
additional 2,000,000 of our ordinary shares will be outstanding. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Who should I contact if
I have other questions? </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If you have other questions or need
assistance, please contact the Information Agent, The Altman Group at 800-330-5136. </FONT></P>

<a name=zk604></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RISK FACTORS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>You
should carefully consider the risks described below and all the information contained in
this prospectus before making an investment decision regarding our ordinary shares. Our
business, financial condition or results of operations could be materially adversely
affected by any of these risks. The risks described below are not the only risks facing
our company. Additional risks and uncertainties that we are not aware of or that we
currently believe are immaterial may also adversely affect our business, financial
condition, results of operation and liquidity. The trading price of our ordinary shares
could decline due to any of these risks, and you may lose all or part of your investment.</I> </FONT></P>


<p align=center>
<font size=2>11</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risks relating to our business: </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We have had a history of
losses and our future levels of sales and ability to achieve profitability are unpredictable. </I></B> </FONT> </P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have incurred net losses of $3.6 million in 2005, $2.1 million in 2004 and $21,000 in
2003. As of December 31, 2005, we had an accumulated deficit of $42.7 million. Only in the
fourth quarter of 2005 did we manage to breakeven, and there can be no assurance that this
trend will continue. According to our unaudited financial information for the nine months
ended September 30, 2006, we had an operating loss of $773,000, other income of $899,000,
which was mainly due to the receipt of Qualmax Inc. shares and a net loss of $220,000. Our
ability to maintain and improve future levels of sales and profitability depends on many
factors. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>These factors include: </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
continued demand for our existing products;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our
ability to develop and sell new products to meet customer needs;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>management's
ability to control costs and successfully implement our business strategy; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our
ability to manufacture and deliver products in a timely manner.</FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
can be no assurance that we will experience any growth in sales or achieve profitability
in the future or that the levels of historic sales or profitability experienced during
previous years will continue in the future or that our net losses will not increase in the
future. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We may be unable to
maintain our gross profit margins.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
sales and profitability may vary in any given year, and from quarter to quarter. In order
to increase sales and enter into new markets with new products we may find it necessary to
decrease prices in order to be competitive. Additionally, the gross profit margin of our
subsidiary, Odem Electronic Technologies, whose sales accounted for 75% of our total sales
in 2005, and 90% of our total sales in the nine months ended September 20, 2006, tends to
fluctuate. We may not be able to maintain current gross profit margins in the future,
which would have a material adverse effect on our business. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We have limited capital
resources and we may encounter difficulties raising capital.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Continued
expansion requires additional resources and especially working capital. If our efforts to
raise capital do not succeed, our efforts to increase our business and to compete in the
marketplace may be seriously jeopardized, which would have a materially adverse effect on
our business. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>A significant part
of&nbsp;the revenues of our wholly-owned subsidiary, Odem Electronic Technologies 1992Ltd.
(&#147;Odem&#148;), is from one major customer, Israel Aircraft Industries
(&#147;IAI&#148;). Our business relationship with IAI involves the following risks:</I></B> </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>An
interruption in our business relationship with IAI&nbsp;would&nbsp;materially adversely
impact our financial results.</I></B></FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales
to IAI accounted for 14% of our revenues in year 2005 and for 22% in the first nine months
of 2006. An interruption in our business relationship with IAI&nbsp;would result in a
significant reduction in our revenues and in a write-off of inventory, and would have an
adverse effect on our business and results of operations.&nbsp; </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font></FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Significant
appreciation in the cost price of electronic components under a long term sales agreement
with a fixed sales price with IAI, may materially adversely impact our financial results.</I></B></FONT></TD>
</TR>
</TABLE>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2004, Odem entered into a long term sales agreement with IAI for the supply of
electronic components for two models of business jets. The agreement provides for a fixed
sales price of the components during the term of the agreement through December 2008.
Absent the flexibility to increase our prices as a result of increased costs of the
components, significant increased costs may adversely impact our financial results. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>The
relationship with IAI requires us to hold a large inventory, in order to meet its short
lead time and delivery requirements. If we are unable to sell this
inventory on a timely basis, we could incur charges for excess and
obsolete inventory, which would materially adversely affect our
results of operations.</I></B></FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the agreement with IAI, we are obligated to hold inventory of products necessary for three
months of IAI&#146;s production of two models of business jets. This requires us to incur
the costs of purchasing inventory without having an outstanding purchase order for the
products. If we are unable to sell products that are purchased to hold in inventory, we
may incur write-offs and write-downs as a result of slow-moving items, technological
obsolescence, excess inventories, discontinued products and products with market prices
lower than cost. Such write-offs and write-downs could adversely affect our operating
results and financial condition. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We may be unable to maintain
and continue developing marketing and distribution arrangements and expand our reach into
overseas markets. Additionally, we have limited experience in selling in the Far East,
which could have a materially adverse impact on our results of operation.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
2005, nearly half of our revenues were generated from sales outside Israel. If we are not
able to maintain our existing distribution channels and expand to new international
markets, our operating results may be materially adversely affected. Additionally, in 2005
and in the first nine months of 2006, our sales to the Far East accounted for 22% and 11%
of our total sales, respectively. We have limited sales and marketing experience in the
Far East. Furthermore, in October 2005 the major supplier of products sold by Odem in the
Far East territory, opened a headquarters in China, and began selling in competition with
Odem in this territory, causing a substantial decrease in Odem&#146;s sales to the Far
East. If we are unable to compensate for the decrease in Far East sales by increasing
sales to other territories, our business condition and results of operation may be
materially adversely affected. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>In December 2005, we sold
our Communication segment to IP Gear Ltd., a subsidiary of Qualmax Inc., in exchange for
shares of Qualmax Inc. common stock. If Qualmax is not successful in its business, we may lose
the value of our investment.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December 31, 2005 we closed a transaction for the sale of our Communications segment to IP
Gear Ltd., a wholly owned subsidiary of Qualmax Inc., in consideration of common stock of
Qualmax Inc. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September 18, 2006, Qualmax announced that it had consummated the transfer of all of its
assets and liabilities to New World Brands, Inc. (&#147;New World&#148;), in exchange for

Series A Convertible

Preferred Stock of New World convertible into common stock with
approximately 86% of the voting power of New World. The shares of common stock of New
World are quoted on the Over the Counter Bulletin Board. Immediately prior to the closing
of this transaction, New World sold all of its former business operations. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January 10, 2007, we announced that we closed a transaction with Qualmax and its
subsidiaries, New World Brands and IPGear, pursuant to which we converted approximately
$1.5 million payable to us by Qualmax and IPGear into 5.50652 shares of Series A
Convertible Preferred Stock of New World, which are convertible into approximately 16.5
million shares of New World Common Stock, reflecting a conversion rate of $0.09 per one
share of Common Stock. Conversion of the Series A Preferred Stock into Common Stock will
take place automatically upon effectiveness of an amendment to New World&#146;s
certificate of incorporation authorizing an increase in the number of outstanding shares
of Common Stock. </FONT></P>


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<font size=2>13</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the transaction, we agreed to grant New World, contingent upon the
satisfaction of certain conditions, a three-year option to purchase up to 30% of the New
World shares held by us, at prices ranging from $0.12 to $0.24 per share of Common Stock. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we agreed to enter into a lock up agreement, restricting the transfer of our
share holdings in Qualmax and in New World, for up to two years. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New
World has a limited operating history on which to judge whether or not this company will
be successful. If New World is not successful in its business or if New World&#146;s share
price is subject to a prolonged decline, we may lose the value of our investment, and be
required to record an impairment of the investment, which could materially adversely
affect our results of operation. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We have limited order
backlog. If revenue levels for any quarter fall below our expectations, our results of
operations will be adversely affected.</I></B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have a limited order backlog, which makes revenues in any quarter substantially dependent
on orders received and delivered in that quarter. We base our decisions regarding our
operating expenses on anticipated revenue trends, and our expenses level are relatively
fixed, or require some time for adjustment. Hence, revenue levels below our expectations
will adversely affect our results of operations. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>In 2004 we completed the
acquisition of a controlling stake in Odem. In September 2005, we acquired another 23.9%
of Odem&#146;s shares and in November 2005, we increased our holdings in Odem to 100%. The
integration of this acquisition may interrupt the activities of the combined companies and
could have an adverse effect on our business, results of operations, financial condition
or prospects.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
acquisition of Odem involved the integration of a company that had previously operated
independently. The difficulties of combining Odem&#146;s operations with our other
operations included, and continue to be, but are not limited to: the necessity of
coordinating geographically separate organizations and integrating personnel with diverse
business backgrounds, potential difficulties in retaining employees and the associated
adverse effects on relationships with existing partners. The integration may interrupt the
activities of the combined companies&#146; businesses and may result in the loss of key
personnel. This could have an adverse effect on our business, results of operations,
financial condition or prospects. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>The sales of our Software
Solutions segment in the United States depend on one master distributor. In the event
that we cease 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 on our business.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
market Software Solutions in the United States through one master distributor. In 2005 and
in the first nine months of 2006, our sales of Software Solutions (connectivity products)
in the US market accounted for 9% and 8% of our total sales, respectively, and for
approximately 23% and 21% of our gross profit, respectively. In the event that we cease
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
on our business. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Our Software Solutions
segment is 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.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
offer our Software Solutions to the IBM midrange computer communications market. 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 competitors, which may adversely affect our
ability to successfully market our products and services. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>


<p align=center>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
market for our Software Solutions 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some
of our current and potential competitors for Software Solutions 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 us. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>In late 2002 we decided
to wind up the business of our subsidiary, Pacific Information Systems, Inc.(&#147;PacInfo&#148;),
due to its severe financial situation.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
wind up process was accompanied by settlements with a majority but not all of
PacInfo&#146;s creditors. An action by any of such remaining creditors would result in
additional costs to the Company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
certain actions involving PacInfo, if occurred before the end of 2003, may have triggered
a tax event for PacInfo&#146;s former owners (the &#147;Sellers&#148;). In such event, we
may be obligated, under the purchase agreement, to grant the Sellers a loan on a full
recourse basis for certain tax payments the Sellers may be liable for, currently estimated
at approximately $2 million. The purchase agreement provides that the Company is to
receive a security interest in shares of the Company that the Sellers hold 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 we
are required to loan such sum to the Sellers, we may also be required to reimburse the
Sellers for certain interest on taxes that they may owe. It is possible that the wind up
of PacInfo during 2002 and 2003 may have triggered such a tax event for the Sellers, which
would result in our obligation to loan the Sellers such amount and to reimburse them for
interest expenses incidental to the tax event. Such a loan and reimbursement may have a
material adverse effect on our business condition and results of operations. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>If actual market
conditions prove less favorable than those projected by management, additional inventory
write-downs may be required.</I></B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories
may be written down for estimated obsolescence based upon assumptions about future demand
and market conditions and such write-downs could adversely affect our business condition
and results of operations. As of September 30, 2006, inventory is presented net of
$100,000 general provision for technological obsolescence and slow-moving items. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Our acquisitions, to
date, have not always proved successful.</I></B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over
the past years we have pursued the acquisition of businesses, products and technologies.
However, our acquisitions have not always proven to be successful. In June 1998, we
acquired PacInfo, which was based in Portland, Oregon, and in 2001 PacInfo acquired Dean
Technologies LLC (&#147;Dean Tech&#148;), which was based in Grapevine, Texas. Both
businesses have since ceased operations. In September 2004, we acquired the majority of
the assets of Quasar Communications Systems Ltd., which we sold, as part of the sale of
the Communication Solutions segment in 2005, as the segment did not fare well. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisitions
involve a number of 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 future acquisitions we
may undertake. There can be no assurance that we will ultimately be effective in executing
additional acquisitions. Any failure to effectively execute and integrate future
acquisitions could have an adverse effect on our business, operating results or financial
condition. </FONT></P>


<p align=center>
<font size=2>15</font></p>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We depend on certain key
products for a significant part of our gross profit and if sales of the seproducts decline,
it would have a material adverse effect on us.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Software Solutions to the IBM midrange computer communications market contributed 30% of
our gross profit in year 2005 and 29% of our gross profit in the first nine months of the
year 2006. If sales of our Software Solutions 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 our Software Solutions segment. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although
we are developing and introducing new remote data access communication 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>If we are unsuccessful in
developing and introducing new products, we may be unable to expand our business.</I></B> </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We depend on key
personnel and need to be able to retain them and our other employees.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our
ability to retain the employees who have assisted in the development of our products;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our
ability to attract and retain additional qualified personnel to provide technological
depth           and support to enhance existing products and develop new products; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>our
ability to attract and retain highly skilled computer operating, marketing and financial
          personnel.</FONT></TD>
</TR>
</TABLE>
<BR>


<p align=center>
<font size=2>16</font></p>
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<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We may be unable to
successfully defend ourselves against claims brought against us.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are defendants in a number of lawsuits filed against us, and from time to time in the
normal course of our business, may receive written demands for payments from prospective
plaintiffs,. Legal proceedings can be expensive, lengthy and disruptive to normal business
operations, and can require extensive management attention and resources regardless of
their merit. Moreover, we cannot predict the results of all proceedings and there can be
no assurance that we will be successful in defending ourselves against them. An
unfavorable resolution of a lawsuit or proceeding could materially adversely affect our
business, results of operations and financial condition. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We depend on third
parties&#146; licenses for the development of our products.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third
party developers or owners of technologies may not be willing to enter into, or renew,
license agreements with us regarding technologies that we may wish to incorporate in our
products, either on acceptable terms or at all. If we cannot obtain licenses to these
technologies, we may be at a disadvantage compared with our competitors who are able to
license these technologies. In addition, when we do obtain licenses to third party
technologies, we may have little or no ability to determine in advance whether the
technology infringes the intellectual property rights of others. Our suppliers and
licensors may not be required or may not be able to indemnify us in the event that a claim
of infringement is asserted against us, or they may be required to indemnify us only up to
a maximum amount, above which we would be responsible for any further costs or damages.
Additionally, from time to time there may arise disputes with respect to royalties owed to
third parties from which we obtained licenses. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We may be obligated to
indemnify our directors and officers</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, (b) reasonable
litigation expenses, including attorney&#146;s fees, incurred by them pursuant to an
investigation or a proceeding commenced against them by a competent authority and that was
terminated without an indictment and without having a monetary charge imposed on them in
exchange for a criminal procedure (as such terms are defined in the Israeli Companies
Law), or that was terminated without an indictment but with a monetary charge imposed on
them in exchange for a criminal procedure in a crime that does not require proof of
criminal intent, as a result of an act or omission of such person in his capacity as a
director or officer of the Company, and (c) reasonable litigation expenses, including
attorney&#146;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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We may be unable to
effectively manage our growth and expansion, and as a result, our business results may be
adversely affected.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>


<p align=center>
<font size=2>17</font></p>
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<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
inability to manage growth effectively could have a material adverse effect on our
business, financial condition and results of operations. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>The measures we take in
order to protect our intellectual property may not be effective or sufficient.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. Additionally, there are risks that arise from the use of intranet networks and
the Internet. Although we utilize firewalls and protection software, we cannot be sure
that our proprietary information is secured against penetration. Such penetration, if
occurs, could have an adverse effect on our business. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We rely on certain key
suppliers for the supply of components in our products.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 becomes 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. A prolonged disruption in supply may force us to redesign and retest our
products. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One
of Odem&#146;s major suppliers accounted for 25% of our purchases in the year 2005 and for
14% of our purchases in the first nine months of the year 2006. An interruption in our
business relationship with such supplier&nbsp;would have an adverse effect on our business
and results of operations.&nbsp; </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>New industry standards,
the modification of our products to meet additional existing standards or the addition of
features to our products may delay the introduction of our products or increase our costs.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
industry standards that apply to our software segment products are continually evolving.
In addition, since our products are integrated into networks consisting of elements
manufactured by various companies, they must comply with a number of industry standards
and practices established by various international bodies and industry forums. Should new
standards gain broad acceptance, we will be required to adopt those standards in our
products. We may also decide to modify our products to meet additional existing standards
or add features to our products. It may take us a significant amount of time to develop
and design products incorporating these new standards. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>There can be no assurance that
we will not be classified as a passive foreign investment company (a &#147;PFIC&#148;).</I></B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
upon our current and projected income, assets and activities, we do not believe that at
this time BOS is a passive foreign investment company (a &#147;PFIC&#148;) for US federal
income tax purposes, but there can be no assurance that we will not 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 &#147;qualified electing
fund&#148; election for the first taxable year in which the Company is a PFIC. However,
such an election is conditioned upon our furnishing US shareholders annually with certain
tax information. We do not presently prepare or provide such information, and such
information may not be available to US shareholders if we are subsequently determined to
be a PFIC. </FONT></P>


<p align=center>
<font size=2>18</font></p>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We may be required to pay
stamp taxes on documents executed by us on or after June&nbsp;2003.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Stamp Tax on Documents Law, 1961, or the &#147;Stamp Tax Law&#148;, provides that
certain documents signed by Israeli companies are subject to a stamp tax, generally at a
rate of between 0.4% and 1% of the value of the subject matter of the applicable document.
As a result of an amendment to the Stamp Tax Law that came into effect in June&nbsp;2003,
the Israeli tax authorities have commenced enforcement of the provisions of the Stamp Tax
Law. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consequently,
we may be liable to pay stamp taxes on some or all of the documents we have signed since
June&nbsp;2003, which could have a material adverse effect on our results of operations. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recently
promulgated regulations provide for the cancellation of the stamp tax with respect to
documents signed from January 1, 2006 onwards. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>We have significant sales
worldwide and could encounter problems if conditions change in the places where we
market our products.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have sold and intend to continue to sell our products in markets through distributors in
North America, Europe and Asia. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR"  -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
number of risks are inherent in engaging in international transactions, including &#150;</FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>international
sales and operations being limited or disrupted by longer sales and payment
          cycles,</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>possible
problems in collecting receivables,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>imposition
of governmental controls, or export license requirements,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>political
and economic instability in foreign countries,</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>trade
restrictions or changes in tariffs being imposed; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>laws
and legal issues concerning foreign countries.</FONT></TD>
</TR>
</TABLE>
<BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we should encounter such difficulties in conducting our international operations, it may
adversely affect our business condition and results of operations. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>The slowdown in
technology markets and technology-focused corporations in prior years has had an adverse impact
on us and on the value of our shares.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Company, like other technology companies, has been significantly impacted by the market
slowdown in the technology industry in prior years. 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. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Inflation and foreign
currency fluctuations significantly impact on our business results.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
vast majority of our sales are made in US dollars and most of our expenses are in US
dollars and New Israel Shekels (&#147;NIS&#148;). The US 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. </FONT></P>


<p align=center>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>If we are forced to repay
our secured convertible notes in cash, we may not have enough cash to fund our operations
and may not be able to obtain additional financing.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
secured convertible term notes issued in September 2005 and in August 2006, contain
certain provisions and restrictions, which if violated, could result in the full principal
amounts together with interest and other amounts becoming immediately due and payable in
cash. If such an event occurred and if the holder of such notes demanded repayment, we
might not have the cash resources to repay such indebtedness when due. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
of the notes is repayable in monthly installments, commencing January 1, 2006 for the
September 2005 note and December 1, 2006 for the August 2006 note, with principal payments
which start at $15,000 and increase to $55,200. Subject to certain conditions, the monthly
principal and interest payment on the notes may be paid in cash or ordinary shares. If we
are required to pay the note in cash rather than in ordinary shares, it would reduce the
amount of cash available to fund operations. Also, in connection with the issuance of the
notes, we agreed to certain restrictions upon incurring additional indebtedness such as in
case of certain mergers and acquisitions. The existence of debt service obligations and
the terms and anti-dilution provisions of the notes may limit our ability to obtain
additional financing on favorable terms, or at all. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the notes are converted and/or the warrants that were issued with the notes are exercised,
or if we elect to pay principal and/or interest on the notes with our ordinary shares, a
significantly greater number of our ordinary shares will be outstanding and the interests
of our existing shareholders will be diluted. If these additional shares are sold into the
market, it could decrease the market price of our ordinary shares and encourage short
sales although the purchaser of the notes has agreed to not engage in short sales of our
ordinary shares. Short sales and other hedging transactions could place further downward
pressure on the price of our ordinary shares. We cannot predict whether or how many of our
ordinary shares will become issuable as a result of these provisions. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Our assets are subject to
security interests in favor of holders of our secured convertible notes. Our failure to
repay the secured convertible notes, if required, could result in legal action against us,
which could require the sale of all of our assets.</I></B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
repayment of our convertible notes is secured by a first priority floating charge on all
of our company&#146;s assets, present and future as they may be changing from time to
time, and by a first priority fixed charge on all of our right, title and interest in our
wholly-owned subsidiaries, BOScom Ltd. and Quasar Telecom (2004) Ltd. If we are unable to
repay the secured notes when required, the holders of the notes could commence legal
action against us and foreclose on all of our assets to recover the amounts due. Any such
action would require us to curtail or cease operations. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>If we are forced to
immediately pay our short term bank loans, we may not have sufficient resources to fund
our operations and may not be able to obtain additional financing.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
bank loans contain certain provisions and restrictions, which if violated, could result in
the full principal amounts together with interest becoming immediately due and payable, in
cash. If such an event occurred, we might not have sufficient cash resources to repay such
indebtedness and to continue funding our operations. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risks Related to the
Rights Offering: </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>If you do not exercise
all of your rights, you may suffer significant dilution of your percentage ownership of
our ordinary shares.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
rights offering is designed to enable us to raise capital while allowing all shareholders
on the record date to invest in our company. To the extent that you do not exercise your
rights, but rights are exercised by other rightholders, your percentage ownership of our
equity and voting rights will be diluted. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>The price of our ordinary
shares is volatile and may decline after you purchase our ordinary shares.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
cannot assure you that the public trading market price of our ordinary shares will not
decline after you elect to exercise your rights. If that occurs, you may have committed to
buy ordinary shares in the rights offering at a price greater than the prevailing market
price, and could have an immediate unrealized loss. Moreover, we cannot assure you that
following the exercise of your rights you will be able to sell your ordinary shares at a
price equal to or greater than the subscription price. </FONT></P>

<p align=center>
<font size=2>20</font></p>
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<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Once you exercise your
rights, you may not revoke the exercise.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once
you exercise your rights, you may not revoke the exercise, even if less than all of the
rights that we are offering are actually exercised. The public trading market price of our
ordinary shares may decline before the rights expire. If you exercise your rights and,
afterwards, the public trading market price of our ordinary shares decreases below the
subscription price, you will have committed to buying ordinary shares at a price above the
prevailing market price. Moreover, you may be unable to sell your ordinary shares at a
price equal to or greater than the subscription price you paid for such shares. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>The subscription price is
not an indication of our present or future value.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
board of directors set the terms and conditions of the rights offering, including the
subscription price, with the objective to reflect recent trading prices, raise the
targeted proceeds and provide all of our shareholders with a reasonable opportunity to
make an additional investment in our company. In establishing the commercial terms,
including the subscription price, our board of directors considered the following factors:
the strategic alternatives available to us for raising capital, the market price of our
ordinary shares, the pro rata nature of the offering, our business prospects and general
conditions in the securities markets. The subscription price, however, does not
necessarily bear any relationship to our past or expected future results of operations,
cash flows, current financial condition, or any other established criteria for value. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
subscription price does not necessarily bear any relationship to the book-value of our
assets, past operations, cash flow, losses or financial condition. You should not consider
the subscription price for the rights as an indication of our present or future value. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>If you do not act
promptly and follow the subscription instructions, your exercise of subscription rights
may be rejected.</I></B> </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Shareholders who desire to purchase
shares in the rights offering must act promptly to ensure that all required forms and
payments are actually received by the Rights Agent or the Company prior to April 16, 2007,
the expiration date of the rights offering. If you are a beneficial owner of shares, you
must act promptly to ensure that your broker, dealer or other nominee acts for you and
that all required forms and payments are actually received by the Rights Agent or the
Company prior to the expiration date of the rights offering or, for Israeli shareholders
holding through a broker, dealer or other nominee, prior to April 12, 2007, the trading
day. We shall not be responsible if your broker, custodian or nominee fails to ensure that
all required forms and payments are actually received prior to the expiration date of the
rights offering. If you fail to complete and sign the required subscription forms, send an
incorrect payment amount or otherwise fail to follow the subscription procedures that
apply to the exercise of your rights, we may, depending on the circumstances, reject your
subscription or accept it only to the extent of the payment received. Neither we nor our
Rights Agent undertake to contact you concerning an incomplete or incorrect subscription
form or payment, nor are we under any obligation to correct such forms or payment. We have
the sole discretion to determine whether a subscription exercise properly follows the
subscription procedures. </FONT></P>


<p align=center>
<font size=2>21</font></p>
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<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risks related to our location in
Israel: </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>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.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. In July 2006, Israel became involved in a
major military conflict with the Hizbullah organization in Lebanon, which subjected the
north of Israel to missile attacks. Certain of our facilities are located in the north of
Israel near the City of Haifa. Israel&#146;s military operations required the drafting of
a substantial number of reserve soldiers. In addition, the future of the &#147;peace
process&#148; with the Palestinians is uncertain and has deteriorated due to Palestinian
violence, with the threat of a large-scale attack by Palestinians on Israeli civilians and
key infrastructure remaining a constant concern. The past few years of renewed terrorist
attacks by the Palestinians has severely affected the Israeli economy in many ways. In
January 2006, Hamas, an Islamic movement responsible for many attacks against Israelis,
won the majority of the seats in the Parliament of the Palestinian Authority. The election
of a majority of Hamas-supported candidates is expected to be a major obstacle to
relations between Israel and the Palestinian Authority, as well as to the stability in the
Middle East as a whole. 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 &#147;peace process&#148; or by restrictive laws or policies directed
towards Israel or Israeli businesses. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally,
all nonexempt male adult citizens and permanent residents of Israel, including some of the
our 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 we have operated effectively under these requirements since our incorporation, we
cannot predict the full impact of such conditions on us in the future, particularly if
emergency circumstances occur. If many of our employees are called for active duty, our
business may be adversely affected. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
Israel is a party to certain trade agreements with other countries, and material changes
to these agreements could have an adverse effect on our business. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>If the Israeli Government
programs that we benefit from are reduced or terminated, our taxes may increase.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Israeli Law for Encouragement of Capital Investments, 1959, facilities that meet
certain conditions can apply for &#147;Approved Enterprise&#148; status (or be a
&#147;Benefited Enterprise&#148;, if qualified, without prior application and approval).
This status confers certain benefits including tax benefits. The existing facilities of
our wholly owned subsidiary, BOScom, have been designated as Approved Enterprises. If we
attain taxable income in Israel, these tax benefits will help reduce BOScom&#146;s tax
burden. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to maintain our eligibility for the tax benefits BOScom receives, BOScom must
continue to satisfy certain conditions, including making certain investments in fixed
assets and operations and achieving certain levels of export. If BOScom fails to satisfy
such conditions in the future, BOScom could be disqualified from receiving the tax
benefits pursuant to the Approved Enterprise status. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
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 BOScom as a result of the Approved Enterprise
status of BOScom&#146;s facilities and programs) would have an adverse effect on the
Company&#146;s business and financial condition. </FONT></P>


<p align=center>
<font size=2>22</font></p>
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<P STYLE="page-break-after:always"></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>The anti-takeover effects
of Israeli laws may delay or deter a change of control of the Company.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. Shareholder approval
is not required if the company that will not survive the merger is controlled by the
surviving company. Additionally, the law provides some exceptions to the shareholder
approval requirement in the surviving company. Shares held by a party to the merger and
certain of its affiliates are not counted towards 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, provided that 30 days have elapsed since shareholder approval was received and
50 days have passed from the time that a proposal for approval of the merger was filed
with the Registrar. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
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 45% of the voting
power. An acquisition from a 25% or 45% holder, which results in the purchaser becoming a
25% or 45% holder respectively, does not require a tender offer. An exception to the
tender offer requirement may also apply when the additional voting power is obtained by
means of a private placement approved by the general meeting of shareholders. These rules
also do not apply if the acquisition is made by way of a merger. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Israeli Companies Law also provides specific rules and procedures for the acquisition of
shares held by minority shareholders, if the majority shareholder shall hold more than 90%
of the outstanding shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 possibly affecting the price that some investors are willing to pay for the
Company&#146;s securities. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>All of our directors and
officers are non-U.S. residents and enforceability of civil liabilities against them is
uncertain.</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risks related to our ordinary shares: </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Our share price has been
and may continue to be volatile, which could result in substantial losses for individual
shareholders.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
market price of our ordinary shares has been and may continue to be highly volatile and
subject to wide fluctuations. From January 2005 through



February 2007,



the daily closing
price of our ordinary shares has ranged from $2.15 to $3.74 per share. We believe that
these fluctuations have been in response to a number of factors including the following,
some of which are beyond our control: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>actual
or anticipated variations in our quarterly operating results;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>announcements
of technological innovations or new products or services or new pricing practices
         by us or our competitors;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>increased
market share penetration by our competitors;</FONT></TD>
</TR>
</TABLE>
<BR>


<p align=center>
<font size=2>23</font></p>
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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>announcements
by us or our competitors of significant acquisitions, strategic partnerships,
         joint ventures or capital commitments;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>additions
or departures of key personnel; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>sales
of additional ordinary shares.</FONT></TD>
</TR>
</TABLE>
<BR>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, the stock market in general, and stocks of technology companies in particular,
have from time to time experienced extreme price and volume fluctuations. This volatility
is often unrelated or disproportionate to the operating performance of these companies.
These broad market fluctuations may adversely affect the market price of our ordinary
shares, regardless of our actual operating performance. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>The Company&#146;s shares
may be delisted from the NASDAQ Global Market if it does not meet NASDAQ&#146;s continued
listing requirements.</I></B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 (recently
renamed the NASDAQ Global Market) for failure to meet NASDAQ&#146;s minimum bid price and
shareholders&#146; 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&#146;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
August 30, 2004, we received notice from the NASDAQ Stock Market that our ordinary shares
are subject to delisting from the NASDAQ National Market for failure to meet NASDAQ&#146;s
minimum market value of publicly held shares requirement ($5 million) for continued
listing on the National Market. On November 4, 2004, we were notified by NASDAQ that we
have regained compliance with this requirement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January 25, 2005, we received notice from the NASDAQ Stock Market that we were not in
compliance with the minimum $10 million shareholders&#146; equity requirement for
continued listing on the National Market. Following that notice, on January 28, 2005, we
received an additional notice indicating that based on further review of our financial
statements as they appeared in our filing on Form 6-K dated January 10, 2005, it was
determined that the shareholders&#146; equity was $10,601,000 on a pro forma basis as of
September 30, 2004. Therefore we were in compliance with the stockholders&#146; equity
requirement for continued listing on the National Market and the matter had been closed. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June 2, 2005, the Company again received notice from the NASDAQ Stock Market indicating
that based on the results for the period ended March 31, 2005, the shareholders&#146;
equity was $9,425,000, and accordingly not in compliance with the minimum $10,000,000
shareholders&#146; equity requirement for continued listing on the National Market. The
Company was requested to provide by June 17, 2005, its specific plan to achieve and
sustain compliance with the listing requirements. The Company subsequently submitted a
proposed plan of compliance to NASDAQ based upon completing a previously announced private
placement offering of its ordinary shares. On July 11, 2005, the Company was advised by
the NASDAQ Staff that contingent upon completion of the private placement by August 11,
2005, the Staff believed that the Company had provided a definitive plan evidencing its
ability to achieve and sustain compliance with the listing requirements. The private
placement took place in June 2005, and consequently the Company regained compliance with
NASDAQ&#146;s minimum $10,000,000 shareholders&#146; equity requirement for continued
listing on the National Market. However, the Company has been advised by NASDAQ Staff that
the Staff will continue to monitor its ongoing compliance with the stockholder&#146;s
equity requirement and, if at the time of the Company&#146;s next periodic report, the
Company does not evidence compliance, it may be subject to delisting. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
can be no assurance that we will be able to meet and continue to meet these or other
NASDAQ requirements to maintain our NASDAQ Global Market listing, in which case we will
have the right to apply for a transfer of our ordinary shares to the NASDAQ Capital
Market. </FONT></P>


<p align=center>
<font size=2>24</font></p>
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<P STYLE="page-break-after:always"></P>


<a name=zk605></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FORWARD-LOOKING
STATEMENTS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>This prospectus 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 above and elsewhere in this prospectus. You should
therefore not rely on these forward-looking statements, which are applicable only as of
the date hereof. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
urge you to consider that statements which use the terms &#147;believe&#148;, &#147;do not
believe&#148;, &#147;expect&#148;, &#147;plan&#148;, &#147;intend&#148;,
&#147;estimate&#148;, &#147;anticipate&#148;, &#147;projections&#148;,
&#147;forecast&#148; and similar expressions are intended to identify forward-looking
statements. These statements reflect our current views with respect to future events, 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. We disclaim any obligation to publicly revise any
such statements to reflect any change in expectations or in events, conditions, or
circumstances on which any such statements may be based. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Market
data and forecasts used in this prospectus 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. </FONT></P>

<a name=zk606></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>THE RIGHTS OFFERING </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Before exercising any rights, you
should read carefully the information set forth under &#147;Risk Factors.&#148; </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Rights </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We are distributing transferable
rights to shareholders who own our ordinary shares at 5:00 p.m., New York time (midnight,
Israel time) on March 19, 2007, the record date, at no cost to the shareholders. We will
distribute to you one right for each 3.3724 ordinary shares that you own at 5:00 p.m. New
York time (midnight, Israel time) on the record date. Your rights will be aggregated for
all the shares that you own on the record date and then rounded down to the nearest whole
number, so that you will not receive fractional rights. For example, if you own 4 shares
on the record date, you will receive one right, and if you own 10,000 shares on the record
date, you will receive 2,965 rights.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
subscription price for each ordinary share is $2.50 and must be paid to American Stock
Transfer &amp; Trust Co., as Rights Agent, or directly to us under the procedures
described herein. If you hold your shares through an Israeli brokerage company that holds
the rights through the Company&#146;s nominee company (<I>Hevra Le-Rishumim of Bank Leumi
Le-Israel Ltd.</I>), the subscription price is to be paid in New Israeli Shekels
according to the representative exchange rate that will be published by the Bank of
Israel on the day before payment of the subscription price.  </FONT></P>


<p align=center>
<font size=2>25</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
rights are exercisable during a 28-day period, beginning after 5:00 p.m. New York City
time (midnight, Israel time) on March 20, 2007 and ending at 5:00 p.m. New York City time
(midnight, Israel time) on April 16, 2007, or during a 23-day period, until April 11, 2007
if you hold your rights through an Israeli brokerage company that holds the rights through
the Company&#146;s nominee company (<I>Hevra Le-Rishumim of Bank Leumi Le-Israel
Ltd.</I>). In such case, if you fail to give your broker instructions regarding the
exercise, non-exercise or sale of the rights by April 11, 2007, you will be considered to
have instructed your broker to sell all your rights on the Tel Aviv Stock Exchange with no
price limit, on April 12, 2007. We will issue to you certificates representing the
ordinary shares you purchased in this offering as soon as practicable after the rights
expiration date (April 16, 2007), provided that the Rights Agent has received your duly
completed exercise form and your payment has cleared. If you hold your shares through a
broker, dealer or other nominee (including through members of the Tel Aviv Stock
Exchange), your time to exercise will be subject to the timing requirements of your
broker, dealer or other nominee (which may be earlier than the final expiration date of
the rights), in addition to other procedural requirements of your broker, dealer or other
nominee, as described below.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>No Recommendation to
Rights Holders </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are not making any recommendations as to whether or not you should exercise your rights.
You should make your decision based on your own assessment of your best interests after
reading this prospectus.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Withdrawal Right </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our board of directors may withdraw
the rights offering in its sole discretion at any time prior to 5:00 p.m., New York City
time (midnight, Israel time), on March 19, 2007 (the record date) for any reason
(including, without limitation, a change in the market price of our ordinary shares).  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Determination of
Subscription Price </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
board of directors set the terms and conditions of the rights offering, including the
subscription price, with the objective to reflect recent trading prices, raise the
targeted proceeds and provide all of our shareholders with a reasonable opportunity to
make an additional investment in our company. In establishing the commercial terms,
including the subscription price, our board of directors considered the following
factors: the strategic alternatives available to us for raising capital, the market price
of our ordinary shares, the pro rata nature of the offering, our business prospects and
general conditions in the securities markets. The subscription price, however, does not
necessarily bear any relationship to our past or expected future results of operations,
cash flows, current financial condition, or any other established criteria for value.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The subscription price should not be
considered an indication of our actual value, or the actual value of our ordinary shares.
We cannot assure you that the market price of our ordinary shares will not decline during
the rights offering or that the market price of our ordinary shares will not decline after
the rights offering. We also cannot assure you that you will be able to sell the ordinary
shares issuable upon exercise of the rights offering at a price equal to or greater than
the subscription price paid. On March 5, 2007, the last reported sale price of our
ordinary shares on the NASDAQ Global Market was $ 2.50 per share and on the Tel Aviv Stock
Exchange was NIS 10.61 per share. We urge you to obtain a current quote for our ordinary
shares before exercising your rights.  </FONT></P>


<p align=center>
<font size=2>26</font></p>
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<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our Share Price
Following the Rights Offering </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; NASDAQ will not reduce the opening
price of the ordinary shares at the opening of trading on the NASDAQ Ex-day, which is the
first day that our ordinary shares will trade on NASDAQ without entitlement to receive the
rights. The NASDAQ Ex-day will be the first trading day on NASDAQ following the record
date. The NASDAQ Ex-day for the rights offering will, therefore, be March 20, 2007. In
accordance with the rules of the Tel Aviv Stock Exchange, the Tel Aviv Stock Exchange will
reduce the opening price of the ordinary shares at the opening of trading on the Tel Aviv
Stock Exchange Ex-day, which is the first day that our ordinary shares will trade on the
Tel Aviv Stock Exchange following the record date; the Tel Aviv Stock Exchange Ex-day for
the rights offering will, therefore, be March 20, 2007. For this purpose the Tel-Aviv
Stock Exchange employs a reduction formula in which the numerator is the sum of: (i) the
number of shares entitling the shareholder to one right (the &#147;Base Unit&#148;)
multiplied by the share&#146;s closing price on the Tel-Aviv Stock Exchange on the trading
day prior to the Ex-day (the &#147;Closing Price&#148;), and (ii) the subscription price;
and the denominator is the sum of the Base Unit and the number of rights granted to the
holder of a Base Unit, provided however, that if the Closing Price is lower than the
result of the aforementioned formula , the opening price on the Ex-day shall be the
Closing Price. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our Decision will be
Binding on You </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
questions concerning the timeliness, validity, form and eligibility of any exercise of
rights will be determined by us in accordance with the terms of this prospectus, and our
determinations will be final and binding. In our sole discretion, we may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such time as
we may determine, or reject the purported exercise of any right by reason of any defect
or irregularity in such exercise. Subscriptions will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such time as we
determine in our sole discretion. In determining whether to waive any defect or
irregularity regarding the exercise of the rights, we will consider the materiality of
the defect or irregularity. If we determine that any such defect or irregularity is
material then the subscription will not be deemed to have been received or accepted until
such defect or irregularity is cured within such time as we determine in our sole
discretion. We will not be under any duty to notify you of any defect or irregularity in
connection with the exercise of your rights or incur any liability for failure to give
such notification. However, liabilities under the U.S. federal securities laws and
Israeli securities laws cannot be waived.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>No Revocation of
Exercise of Rights </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After you have exercised your rights, you may not revoke that exercise. You should not
exercise your rights unless you are certain that you wish to purchase our ordinary shares. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Method of Exercise of
Rights for Record Holders&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shortly after the date of this prospectus, we will send by registered mail or personal
delivery to each holder of our ordinary shares that is registered on our shareholder
registry maintained at American Stock Transfer &amp; Trust Co. a rights certificate
conferring the number of rights applicable to each holder. The rights certificate will be
accompanied by a copy of this prospectus, and on the back of the rights certificate will
be a rights exercise form and a rights transfer form. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; During the subscription period ending
on April 16, 2007, if you are a record owner of our ordinary shares, you may exercise your
rights by delivering a signed exercise form on the back of your rights certificate or a
notice of guaranteed delivery to American Stock Transfer &amp; Trust Co., our Rights
Agent, at the address noted below together with payment in full of the subscription price
for each right being exercised, by 5:00 p.m., New York City time (midnight Israel time),
on April 16, 2007. This rights offering will not be extended beyond the subscription
period ending on April 16, 2007, except as disclosed in this prospectus.  </FONT></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If you are a record owner and reside
in Israel, you may also exercise your rights by delivering a signed exercise form on the
back of your rights certificate to us at the address noted below, together with payment in
full of the subscription price in New Israeli Shekels for each right being exercised, by
midnight, Israel time, on April 16, 2007. If you are a record owner who resides in Israel,
we may accept payments in U.S. dollars if requested and agreed to by us.  </FONT></P>


<p align=center>
<font size=2>27</font></p>
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<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
and American Stock Transfer &amp; Trust Co. , our Rights Agent, as applicable, may refuse
to accept improperly completed or delivered or unexecuted exercise forms. We and American
Stock Transfer &amp; Trust Co., our Rights Agent, as applicable, must receive payment in
full of the subscription price for each right being exercised together with the exercise
form (or notice of guaranteed delivery).  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are delivering your completed exercise form (or notice of guaranteed delivery) and
payment for the exercise of your rights to American Stock Transfer &amp; Trust Co., our
Rights Agent, please do so by mail, overnight or hand delivery to one of the following
addresses:  </FONT></P>


<TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="BOTTOM">
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="45%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><I>Hand delivery</I></U> </FONT></TD>
     <TD WIDTH="52%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I><U>Mail and Overnight mail</U></I></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">American Stock Transfer &amp; Trust Company</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">American Stock Transfer &amp; Trust Company</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">59 Maiden Lane</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">6201 15th Avenue</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">New York, New York 10038 </FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Brooklyn, New York 11219</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Attention: Reorganization Department</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Attention: Reorganization Department</FONT></TD></TR>
</TABLE>
<BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Record
owners who reside in Israel, and who wish to deliver their completed exercise form and
subscription payment in New Israeli Shekels for the exercise of their rights directly to
us, should do so by mail, overnight or hand delivery to the following address:  </FONT></P>


<TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="BOTTOM">
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD WIDTH="97%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">B.O.S Better Online Solutions Ltd.</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">20 Freiman St. POB 198</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Rishon Lezion, 75101</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Israel</FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Attention: Mr. Eyal Cohen, CFO</FONT></TD></TR>
</TABLE>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
payments to American Stock Transfer &amp; Trust Co., as Rights Agent, must be made in
U.S. dollars by check drawn on a bank located in the United States and payable to &#147;American
Stock Transfer &amp; Trust Co., as Rights Agent,&#148; or by wire transfer of funds to
the account maintained by American Stock Transfer &amp; Trust Co., our Rights Agent, for
this rights offering at JP Morgan Chase, 55 Water Street, New York, New York 10005, ABA
No.021000021, Account No. 323-113052, reference B.O.S Better Online Solutions Ltd.,
Attention: Reorganization Department.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
payments to us shall be made in New Israeli Shekels according to the representative
exchange rate published by the Bank of Israel on the day before payment of the
subscription price and shall be by wire transfer or by check drawn on a bank located in
Israel, and payable to &#147;B.O.S Better Online Solutions Ltd.&#148; Any wire transfer
to us should be made to United Mizrahi Bank Ltd., Haifa Business Center, 2 Palyam St.,
Haifa, Israel, Branch #&nbsp;444, Account #&nbsp;125542, Swift Code: MIZBILIT. We may
accept other forms of payment or payments in U.S. dollars if requested and agreed to by
us.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
will choose the method of delivery of exercise forms and payment of the subscription
price and will bear the risk of such election.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; IF YOU SEND YOUR
COMPLETED EXERCISE FORM  AND PAYMENTS BY MAIL, WE URGE YOU TO
USE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND TO ALLOW A
SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY AND CLEARANCE OF PAYMENT PRIOR TO THE
EXPIRATION DATE. WE STRONGLY URGE YOU TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A CHECK
DRAWN ON A BANK LOCATED IN THE UNITED STATES OR IN ISRAEL. We will not consider any
payment by check, other than a cashier&#146;s check or a money order, to have been made
until the check clears through the account of American Stock Transfer &amp; Trust Co., our
Rights Agent, or to our account, as applicable, before the expiration date. If you do not
exercise your rights by the date and in accordance with the procedures applicable to you,
your ability to exercise the rights and purchase the ordinary shares will expire. Record
holders exercising their rights shall be entitled to receive the ordinary shares promptly
following such exercise.  </FONT></P>


<p align=center>
<font size=2>28</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments
for the exercise of your rights made to American Stock Transfer &amp; Trust Co., our
Rights Agent, will be held in a segregated interest bearing money market account, and
will be sent to us in accordance with our written instructions.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Guaranteed Delivery Procedures in
the United States</B>. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If you want to exercise your rights,
but time will not permit your rights certificate to reach American Stock Transfer &amp;
Trust Co., our Rights Agent, prior to 5:00 p.m., New York City time (midnight, Israel
time), on April 16, 2007, you may exercise your subscription rights if you send, and the
Rights Agent receives, (1) payment in full for each right being exercised, (2) a notice of
guaranteed delivery, substantially in the form provided to you with your rights
certificate, from a member firm of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States, and (3) your properly
completed and duly executed rights certificate, including any required signature
guarantees, within three NASDAQ trading days following the date of your notice of
guaranteed delivery. The notice of guaranteed delivery may be delivered to the Rights
Agent in the same manner as your rights certificate as set forth herein, or may be
transmitted to the Rights Agent by facsimile transmission, to facsimile number
718-234-5001. You can obtain additional copies of the form of notice of guaranteed
delivery by requesting them from the Rights Agent. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Transferability of Rights </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The rights are transferable. You may
sell or otherwise transfer them to others. The unexercised rights will be eligible for
trading on the NASDAQ Global Market and the Tel Aviv Stock Exchange for one day only on
April 12, 2007. If you are one of our affiliates, you may transfer your rights only if
there is an effective registration statement or exemption covering such transfer under the
United States securities laws.   </FONT></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Record holders wishing to transfer
their rights to another person may do so by executing the rights transfer form on the back
of the rights certificate and submitting it to American Stock Transfer &amp; Trust Co.
prior to April 12, 2007. Record holders wishing to sell their rights on the NASDAQ Global
Market or the Tel Aviv Stock Exchange, should independently engage a broker to execute
this sale on their behalf. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If no contrary instructions have been
received by April 16, 2007 and your rights remain unexercised, your rights will expire. If
you hold your shares through an Israeli brokerage company that holds the rights through
the Company&#146;s nominee company <I>(Hevra Le-Rishumim of Bank Leumi Le-Israel
Ltd.</I>), the rules of the Tel Aviv Stock Exchange provide that if no contrary
instructions have been received from you by the time determined by your broker on April
12, 2007, you will be considered to have instructed your broker to sell all your rights on
the Tel Aviv Stock Exchange with no price limit. The purchaser of such rights shall be
able to exercise them until April 16, 2007.   </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
are responsible for all commissions, fees and other expenses, including brokerage
commissions and transfer taxes, incurred in connection with the purchase, sale or
exercise of rights.  </FONT></P>


<p align=center>
<font size=2>29</font></p>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ambiguities in Exercise
of Rights </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you do not specify the number of rights being exercised, or if your payment is not
sufficient to pay the total subscription price for all of the shares that you indicated
you wished to purchase, you will be deemed to have exercised the maximum number of rights
that could be exercised for the amount of the payment received from you. If your payment
exceeds the total subscription price for all of the rights you have elected to exercise,
we will promptly refund to you the balance with no interest.  </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Beneficial Owners Who
Are Not Record Holders </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a beneficial owner of our ordinary shares and hold them through a broker, dealer
or other nominee (including a member of the Tel Aviv Stock Exchange), you should expect
your broker, dealer or other nominee to notify you of this rights offering and the
procedures for exercising or transferring your rights. If you wish to exercise your
rights, you will need to have your broker, dealer or other nominee act for you. To
indicate your decision with respect to your rights, you should complete and return to
your broker, dealer or other nominee the form provided to you accompanied by the
subscription payment. You should receive this form from your broker, dealer or other
nominee with the other rights offering materials. You should NOT return your subscription
form or transfer the subscription payment directly to us.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized
below are the procedures for exercising your rights if you are a beneficial owner whose
ordinary shares are held through the Company&#146;s nominee company (<I>Hevra Le-Rishumim
of Bank Leumi Le-Israel Ltd.</I>).  </FONT></P>


<!-- MARKER FORMAT-SHEET="Head Sub 2 Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Procedures
Applicable to Holders of Shares Through a Nominee Company.</I> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you hold your ordinary shares through an Israeli brokerage company that holds the rights
through the Company&#146;s nominee company (<I>Hevra Le-Rishumim of Bank Leumi Le-Israel
Ltd.</I>), you should expect to receive a letter regarding this rights offering from the
member of the Tel Aviv Stock Exchange through which you hold your shares (the brokerage
company). In that letter, you will be requested to make ONE of the following three
elections:  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp; (1) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exercise your rights and subscribe
for our ordinary shares. If this alternative is elected, you may give a member of the Tel
Aviv Stock Exchange through which you hold your shares an exercise notice commencing after
5:00 p.m., New York City time (midnight, Israel time), on March 20, 2007 and no later than
the time determined by your broker on April 16, 2007. You must attach the subscription
payment to your notice. You will need to arrange with your broker the method of payment of
your subscription payment. The subscription price is to be paid in New Israeli Shekels
according to the representative exchange rate published by the Bank of Israel on the day
before payment of the subscription price; or </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(2) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sell
the rights or any part of them on the Tel Aviv Stock Exchange. If you select this
alternative, you may give your broker price limit instructions as to the sale of the
rights; or </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(3) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Refrain
from exercising your rights and from selling them. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Your notice should reach the member
of the Tel Aviv Stock Exchange through which you hold your shares by no later than April
12, 2007 (the rights trading day) at the time determined by your broker. If notice is not
received from you by such time, you will be considered to have instructed your broker to
sell your rights on the Tel Aviv Stock Exchange, with no price limit.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you hold rights and wish to transfer them to another person, you may do so by executing
the rights transfer form that will be made available to you by your broker.  </FONT></P>


<p align=center>
<font size=2>30</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The rights will trade on the Tel Aviv
Stock Exchange for one trading day, April 12, 2007. Pursuant to the Tel Aviv Stock
Exchange rules, if the trading of our ordinary shares or the rights is halted for a period
in excess of 45 minutes, and the trading does not resume for the remainder of that day
upon which the rights are traded on the Tel Aviv Stock Exchange, an additional trading day
for the rights will take place, and the last day to exercise the rights will be
accordingly extended. If on the day upon which the rights are traded on the Tel Aviv Stock
Exchange the trading of our ordinary shares is halted, yet the cessation of trade
continues for fewer than five consecutive trading days, your instructions with respect to
the rights delivered to your broker shall remain in effect unless contrary instructions
have been received by your broker from you. If the trading of our ordinary shares on the
day upon which the rights are traded on the Tel Aviv Stock Exchange is halted for a period
of more than five consecutive trading days, all prior instructions received by your broker
will be cancelled.   </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Holders of unexercised rights
following the Tel Aviv Stock Exchange rights trading day may exercise them and subscribe
for our ordinary shares by notifying their broker and transferring the subscription
payment. This notice must reach the broker by no later than April 16, 2007 at the time
determined by the broker. If this notice is not received on time, it will not be possible
to exercise these rights. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Under the Tel Aviv Stock
Exchange rules, Tel Aviv Stock Exchange members must
submit to the Tel Aviv Stock Exchange Clearing House a written rights exercise
(subscription) notice on behalf of all their clients wishing to exercise rights no later
than 9:00 a.m. Israel time (2:00 a.m., New York City time) on April 16, 2007. The rights
of holders of our ordinary shares through our nominee company will expire if the brokers
of these holders do not provide an exercise notice as described above. The Tel Aviv Stock
Exchange rules further require brokers to transfer, on the same date, to the Tel Aviv
Stock Exchange Clearing House the subscription payments with respect to their
clients&#146; exercised rights, and the Tel Aviv Stock Exchange Clearing House thereafter
will transfer these payments to us. Under the Tel Aviv Stock Exchange rules, during the
period of March 20, 2007 until April 11, 2007, an exercise notice submitted by a
shareholder who holds ordinary shares through a broker, dealer or other nominee in Israel,
by 12:00 p.m. Israel time, shall be transferred to the Tel Aviv Stock Exchange Clearing
House by 12:00 p.m. Israel time on the next trading day, and shall be cleared by 12:00
p.m. Israel time on the trading day thereafter.    The shares issuable upon exercise of the rights
shall be freely tradeable.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nominee Holders </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a broker, a trustee or a depositary for securities that holds our ordinary shares
for the account of others as a nominee holder, you should notify the respective
beneficial owners of such shares as soon as possible of the issuance of the rights to
find out such beneficial owners&#146; intentions. You should obtain instructions from the
beneficial owner with respect to the rights, as set forth in the instructions we have
provided to you for your distribution to beneficial owners. If the beneficial owner so
instructs, you should complete the appropriate subscription certificates. A nominee
holder that holds shares for the account(s) of more than one beneficial owner may
exercise the number of rights to which all such beneficial owners in the aggregate
otherwise would have been entitled if they had been direct record holders of our ordinary
shares on the record date, so long as the nominee submits the appropriate subscription
certificates and certifications and proper payment to us. If you are a member of the Tel
Aviv Stock Exchange, you must comply with the rules of the Tel Aviv Stock Exchange with
respect to providing notices to and receiving instructions from your clients.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Procedures For DTC (The
Depository Trust Company) Participantsn&nbsp; </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect that your exercise of your subscription privilege with respect to rights may be
made through the facilities of DTC. If you exercise your subscription privilege with
respect to rights through DTC we refer to your rights as DTC Exercised Rights. Please call
the Information Agent, The Altman Group, at 800-330-5136 to obtain copies of the DTC
participant exercise form and the nominee holder certification. </FONT></P>


<p align=center>
<font size=2>31</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Rights Agent and
Information Agent </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have appointed American Stock Transfer &amp; Trust Company as Rights Agent and The Altman
Group as the Information Agent for the rights offering.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Information Agent&#146;s telephone number is 800-330-5136 and its facsimile number is
201-460-0050; Attention: Mr. Domenick DeRobertis, Managing Director. We will pay the fees
and specified expenses of the Rights Agent and Information Agent. </FONT></P>

<a name=zk607></a>



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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RECENT DEVELOPMENTS </FONT></H1>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October 4, 2006 the
Company filed a draft prospectus with the Israeli Securities Authority and the
Tel Aviv Stock Exchange in connection with an underwritten offering to the
public in Israel of Ordinary Shares and Warrants. Following the request of the
Company&#146;s shareholders at a special general meeting held on October 19,
2006, the contemplated offering in Israel was stayed pending the outcome of this
Rights Offering. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s shareholders further resolved, that if the Company shall not be able to
raise at least $3 million via the Rights Offering, then the raise of equity by way of a
public offering in Israel, or alternatively, at management&#146;s discretion, by way of a
private placement, is approved. </FONT></P>





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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September 27, 2006 the Company announced that Mr. Adiv Baruch, President and CEO of the
Company, has notified the Board that he shall be leaving the Company.
On November 1, 2006, Mr. Shmuel Koren assumed his position as our
new President and CEO. Mr. Baruch continues to serve on the Company&#146;s Board of
Directors.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we appointed Mr. Eyal Cohen as our new Chief Financial Officer, effective
January 2007. Mr. Cohen previously served as our controller and prior to that held the
position of Chief Financial Officer at Cellact Ltd. Mr. Cohen replaced Mr. Nehemia
Kaufman. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January 10, 2007, we announced that we had closed a transaction with Qualmax Inc. and its
subsidiaries, New World Brands Inc. and IPGear Ltd., pursuant to which we converted approximately
$1.5 million payable to us by Qualmax and IPGear into 5.50652 shares of Series A
Convertible Preferred Stock of New World, which are convertible into approximately
16,500,000 shares of New World Common Stock, reflecting a conversion rate of $0.09 per one
share of Common Stock. Conversion of the Series A Preferred Stock into Common Stock will
take place automatically upon effectiveness of an amendment to the New World Brands&#146;
certificate of incorporation authorizing an increase. Our registration rights with respect
to the Qualmax Shares shall be applied also towards our New World Shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the transaction, we agreed to grant New World, contingent upon the
satisfaction of certain conditions, a three-year option to purchase up to 30% of the New
World shares held by us, at prices ranging from $0.12 to $0.24 per share of Commons Stock. </FONT></P>


<p align=center>
<font size=2>32</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we agreed to enter into a lock up agreement, restricting the transfer of our
share holdings in Qualmax and in New World, for up to two years. For Additional
information on the Qualamx transaction see Business &#150; Information on the Company. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
have recently completed the previously announced relocation of our headquarters to the
city of Rishon Lezion, in the center of Israel, and of our manufacturing and development
facilities to the city of Yoqneam, in the north of Israel. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also,
in January 2007, the Company appointed Mr. Yoav Brukner as its new Internal Auditor. Mr.
Brukner, a certified public accountant, is a partner with Brukner Ingber, CPA and is
replacing Mr. Shmuel Rozenblum. </FONT></P>

<a name=zk608></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CAPITALIZATION </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table below sets forth our

condensed

 consolidated current liabilities and capitalization at
September 30, 2006 on an actual basis and as adjusted to give effect to the offering,
assuming the offering is fully subscribed for. The amounts as adjusted reflect the gross
proceeds to be received form this rights offering. You should read the table in
conjunction with the section titled &#147;Results of Operations&#148; herein, and with
our consolidated financial statements and notes thereto included herein. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated
Capitalization <BR>
(in US thousands of
dollars) </FONT></H1>


<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As of September 30, 2006</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Actual (unaudited)</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As adjusted (unaudited)</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> &nbsp;</TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="3%"> </TD>
     <TD WIDTH="66%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,788</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   7,788</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><U>Short term debt</U></B></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Secured</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,254</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,254</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Unsecured</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,086</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,086</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total short term debt</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,340</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,340</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><U>Long term debt</U></B></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Secured</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,528</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,528</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Unsecured</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,244</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,244</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total long term debt</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,772</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,772</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><U>Shareholders equity</U></B></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Share capital: Ordinary Shares</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;issued 6,726,061</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,554</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,410</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Additional paid-in Capital</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>48,181</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51,325</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accumulated deficit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(42,881</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(42,881</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total shareholders equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  11,854</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  16,854</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


<p align=center>
<font size=2>33</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<a name=zk609></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DILUTION; EFFECT OF
THE RIGHTS OFFERING ON OUR OUTSTANDING <BR>
SHARES AND CONVERTIBLE
SECURITIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assuming
that all of the rights we are distributing are exercised, we will issue an additional
2,000,000 of our ordinary shares. This would represent an approximate 30% increase over
our 6,744,798 issued and outstanding ordinary shares as of December 31, 2006.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2006, we have a principal amount of $2,574,000 in outstanding convertible
notes, which are convertible into a total of 758,524 ordinary shares, at conversion prices
ranging from $3.08 to $4.08. The convertible notes provide for an adjustment of their
conversion prices, if we issue ordinary shares or securities convertible into ordinary
shares for consideration which is less than the applicable note&#146;s conversion price. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of the right issuance, assuming a full subscription, the number of ordinary
shares issuable upon conversion of the notes will be increased by 43,572, to a total of
802,096. </FONT></P>

<a name=zk610></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXPENSES OF THE ISSUE </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table sets forth all
costs and expenses payable by us in connection with the sale of the securities being
registered hereunder. All of the amounts shown are estimates except for the SEC
registration fee. </FONT></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="80%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Registration and filing fees</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   6,000</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Offering consultants fees and expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Subscription agent fees and expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Information agent fees and expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Legal fees and expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>144,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accounting fees and expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Printing and delivery costs</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Miscellaneous expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 323,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
</TABLE>
<BR>


<a name=zk611></a>




<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>USE OF PROCEEDS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to use the net proceeds from this rights offering towards general corporate
purposes, including working capital as well as towards the financing of future mergers and
acquisitions. The Company&#146;s strategy is to grow through mergers and acquisitions
and, as part of this strategy, we continuously evaluate and have discussions with
potential targets. However, the Company does not have any agreements or understandings
with respect to any acquisition transaction at this time. Our gross proceeds from the
rights offering will depend on the number of rights that are exercised. There can be no
assurance that any of the rights will be exercised. If all of the rights are exercised,
then we will receive immediate proceeds of $5 million, before deducting estimated
expenses payable by us of approximately $323,000.  </FONT></P>


<a name=zk612></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PRICE RANGE OF
ORDINARY SHARES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Since April 1996, our ordinary shares
were traded, and our warrants, until they expired on April 2, 2000, were traded in the
over-the-counter market in the United States, and quoted on what is now called the NASDAQ
Capital Market under the symbol &#147;BOSC&#148; and &#147;BOSCW,&#148; respectively. In
September 2000, our shares started to be traded on what is now called the NASDAQ Global
Market. In January 2002, our shares began trading also on the Tel-Aviv Stock Exchange,
under the symbol &#147;BOSC&#148;, pursuant to the dual-listing regulations of the Israeli
Securities Authority. </FONT></P>


<p align=center>
<font size=2>34</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Prices set forth below are high and
low reported closing prices for our ordinary shares as reported by NASDAQ and the TASE for
the periods indicated. All share prices have been retroactively adjusted to reflect the
1:4 reverse stock split effected May 29, 2003. </FONT></P>


<TABLE CELLPADDING="3" CELLSPACING="0" BORDER="1" WIDTH="100%" RULES="Groups">
<TR VALIGN=Bottom>
     <TH COLSPAN="3" WIDTH="10%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Period</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>NASDAQ</FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>TASE</FONT></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" WIDTH="10%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" WIDTH="10%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>High ($)</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Low ($)</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>High (NIS)</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Low (NIS)</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" WIDTH="10%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT>&nbsp;</TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT>&nbsp;</TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT>&nbsp;</TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT>&nbsp;</TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT>&nbsp;</TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2002</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="27%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Annual</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7.92</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.40</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9.99</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.35</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2003</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Annual</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.97</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.67</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17.42</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2004</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Annual</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.62</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14.98</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.89</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2005</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Annual</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.74</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16.33</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>First Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.50</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.35</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16.33</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.77</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Second Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.79</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13.95</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Third Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.74</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.15</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16.17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.12</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fourth Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.89</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.24</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13.57</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.54</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2006</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Annual</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.97</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.11</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14.58</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9.64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>First Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.97</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.39</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14.58</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.87</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Second Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.84</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13.08</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.27</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Third Quarter</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.84</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.11</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12.85</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9.64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fourth Quarter</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.73</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.40</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.98</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.23</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2006</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>August</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.75</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.38</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12.85</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.46</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>September</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.49</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.11</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.50</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9.64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>October</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.73</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.40</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.98</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.50</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>November</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.58</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.50</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.98</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.23</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.67</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.53</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.37</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.60</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>January</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.61</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.50</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12.48</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.60</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> February </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.56 </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.50</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.95</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.93</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March (until March 5<SUP>th</SUP>) </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.59 </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.50 </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 11.93 </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.61 </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
</TABLE>
<BR>


<a name=zk613></a>



<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SELECTED CONSOLIDATED
FINANCIAL DATA </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
consolidated statement of operations data for B.O.S Better Online Solutions Ltd. set forth
below with respect to the years ended December 31, 2005, 2004 and 2003, and the
consolidated balance sheet data as of December 31, 2005 and 2004, have been derived from
the Consolidated Financial Statements for the year 2005, which have been prepared in
accordance with generally accepted accounting principles (&#147;GAAP&#148;) in the United
States and appear below. The consolidated statement of operations data set forth below
with respect to the years ended December 31, 2002 and 2001, and the consolidated balance
sheet data as of December 31, 2003, 2002 and 2001, 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,
2003, 2004 and 2005 were audited by Kost, Forer Gabbay &amp; Kasierer, an independent
registered public accounting firm and a member of Ernst &amp; Young Global. The selected
consolidated financial data presented below should be read in conjunction with the Notes
to the Financial Statements that appear below. </FONT></P>


<p align=center>
<font size=2>35</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
consolidated statements of operations data for the six months ended June 30, 2005 and 2006
and the balance sheet data as of June 30, 2006 are derived from our unaudited interim
consolidated financial statements that are included elsewhere in this prospectus. The
unaudited interim consolidated financial statements have been prepared on the same basis
as the annual consolidated financial statements and, in the opinion of management, reflect
all adjustments, which include only normal recurring adjustments, necessary to present
fairly the Company&#146;s consolidated financial position as of June 30, 2006 and
consolidated results of operations for the six months ended June 30, 2005 and 2006.
Historical results are not necessarily indicative of the results of operations to be
expected for future periods. See Note 18c to the Consolidated Financial Statements for the
year ended December 31, 2005, for a description of the method that we used to compute our
basic and diluted net loss per share attributable to ordinary shareholders. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement
of Operations Data: (In US thousands of dollars with the exception of per share data </FONT></P>


<p align=center>
<font size=2>36</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months<BR>ended June 2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months<BR>ended June 2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year Ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(unaudited)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(unaudited)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="35%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,042</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,441</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,728</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,282</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27,053</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,593</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,559</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Cost of revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,703</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,300</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,455</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,608</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,025</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,598</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,240</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;&nbsp;Gross profit</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,339</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>7,141</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>4,273</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,674</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>7,028</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3,995</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,319</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;<U>Operating expenses:</U></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Research and development, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,757</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,182</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,846</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,804</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,312</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,324</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>289</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Sales and marketing</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,811</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,705</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,178</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,706</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,563</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,918</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>996</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;General and administrative</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,425</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,697</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,317</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,705</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,267</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,717</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,534</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Restructuring and related costs</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>132</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>678</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;&nbsp;Total operating expenses</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>8,125</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>7,584</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>6,019</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>5,215</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>9,142</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>4,959</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>2,819</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;<U>Operating loss:</U></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,786</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(443</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,746</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,541</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,114</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(964</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(500</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Financial income (expense), net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>427</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>295</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>109</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(158</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(448</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(322</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(206</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Other income (expenses), net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(298</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(95</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,134</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>867</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=22><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;<B>Income (loss) before tax on</B></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;&nbsp;income</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(4,657</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(243</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,592</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,699</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,428</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,259</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>161</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Taxes on income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(204</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(234</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=22><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Equity in losses of an</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;affiliated company</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(137</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(570</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(465</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(308</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,750</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(240</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Minority interest in earnings of</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;a subsidiary</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(17</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(223</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(150</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=22><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Income (loss) from continuing</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4,794</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(813</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,057</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,044</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,605</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,883</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>174</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Net income (loss) related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(8,313</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(7,674</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,036</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>&nbsp;&nbsp;&nbsp;Net income (loss)</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(13,107</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(8,487</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(21</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(2,053</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(3,605</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(1,883</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>)</B> </FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>174</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Basic and diluted net income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;(loss) per share from</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (1.55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.26</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.56</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.39</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   0.03</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=22><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Basic and diluted net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=22><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;income (loss) per share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;from discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2.68</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2.46</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   0.55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   0.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   0.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   0.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   0.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Basic and diluted net income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;(loss) per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (4.23</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2.72</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (0.39</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   0.03</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=22><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Weighted average number of</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=22><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;shares used in computing basic</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;net earning (loss) per share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,097</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,117</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,683</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,631</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,616</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,793</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,625</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Weighted average number of</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;shares used in computing diluted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;net earning (loss) per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,097</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,117</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,683</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,631</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,616</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,793</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,685</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


<p align=center>
<font size=2>37</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As of December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As of June 2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance Sheet Highlighted Data:</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2001</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2002</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(unaudited)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="43%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and Cash Equivalents</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,325</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,246</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,872</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,578</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,346</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,470</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Working Capital (*)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,008</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,980</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,082</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,256</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,200</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,355</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total Assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31,144</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16,485</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,023</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,485</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,646</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21,504</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Short-term banks loan and current maturities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> of long-term bank loans and convertible note</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>286</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,997</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,625</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,797</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-term liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>794</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>794</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>951</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,380</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,550</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,852</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minority interest in a subsidiary</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>809</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Share Capital</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,628</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,690</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,309</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,823</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,432</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,532</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Additional paid in Capital</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>41,161</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>41,319</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43,247</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>44,426</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,588</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,883</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Shareholders' equity</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16,341</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,015</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,541</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,048</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,266</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,947</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(*)Working capital comprises of:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,677</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,525</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,239</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,267</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,793</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,823</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Less: current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,669</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,545</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,157</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,011</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,593</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,468</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom BGCOLOR="#cceeff">
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,008</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,980</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,082</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,256</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,200</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,355</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>




<a name=zk614></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>OPERATING AND
FINANCIAL REVIEW </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Critical accounting
policies </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Use of Estimates </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The preparation of our 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. The Company evaluates its
estimates, including those related to revenue recognition, bad debts, inventories, and
legal contingencies on an ongoing basis. 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. </FONT></P>



<p align=center>
<font size=2>38</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 for the year
ended December 31, 2005. The following accounting policies had the most significant impact
on the Financial Statements for the year ended December 31, 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Investment in an
affiliated company </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>An affiliated company is a company in
which the Company is able to exercise significant influence, but that is not a
consolidated subsidiary and is accounted for by the equity method, net of write-down for
decrease in fair value which is not of a temporary nature. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If there is a sudden and significant
decrease in the fair values of our investments in affiliate companies, we may be required
to write off part of our investments due to impairment. The Company&#146;s investment in
an affiliated company is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the investment may not be recoverable,
in accordance with Accounting Principle Board Opinion No. 18 &#147;The Equity Method of
Accounting for Investments in Common Stock&#148; (&#147;APB No. 18&#148;). The
Company&#146;s investment in Surf has been included as an affiliated company until
September 30, 2005 (see note 6 to the Consolidated Financial Statements for the year ended
December 31, 2005). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During 2005, an impairment of
$1,385,000 has been recorded in &#147;equity in losses of an affiliated company&#148; in
the statement of operations. In 2004 and 2003, based on management&#146;s analysis, no
impairment losses were identified. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Investment in other
companies </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Investment in companies are
investments through which the Company is not able to exercise significant influence over
the investee&#146;s financial policies and which do not meet the fair value availability
criteria of FAS 115 (&#147;readily determined sales price currently available on a
security exchange&#148;), consequently such investments are accounted for by the cost
method. The Company&#146;s investment in such companies is reviewed for impairment
whenever events of changes in circumstances indicate that the carrying amount of the
investment may not be recoverable in accordance with APB No. 18. No impairment has been
identified during 2003 through 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Goodwill, Intangible
Assets and Other Long-Lived Assets </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Under current accounting standards,
we make judgments about the remaining useful lives of goodwill, other intangible assets
and other long-lived assets, including assumptions about estimated future cash flows and
other factors to determine the fair value of the respective assets. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We adopted SFAS No. 144,
&#147;Accounting for the Impairment or Disposal of Long-Lived Assets&#148; as of January
1, 2002. We are required to assess the impairment of long-lived assets, other than
goodwill, tangible and intangible under SFAS No. 144, on a periodic basis, when events or
changes in circumstances indicate that the carrying value may not be recoverable.
Impairment indicators include any significant changes in the manner of our use of the
assets or the strategy of our overall business, significant negative industry or economic
trends and significant decline in our share price for a sustained period. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Upon determination that the carrying
value of a long-lived asset may not be recoverable based upon a comparison of fair value
to the carrying amount of the asset, an impairment charge is recorded. We measure fair
value using discounted projected future cash flows.  </FONT></P>


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<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have adopted SFAS No. 142
&#147;Goodwill and Intangible Assets&#148; issued in July 2001. Pursuant to SFAS No. 142
goodwill and intangible assets that have indefinite useful lives will not be subject to
amortization, but instead will be tested at least annually for impairment. Intangible
assets that have finite useful lives will continue to be amortized over their useful
lives, but without the constraint of an arbitrary. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Goodwill represents excess of the
costs over the net assets of businesses acquired. SFAS No. 142 requires goodwill to be
tested for impairment at least annually or between annual tests in certain circumstances,
and written down when impaired. 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 income and market approaches. 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has recorded no
impairment losses for the years ended December 31, 2005 and 2004 and recorded an
impairment charge on account of fixed assets which amounted to $110,000 for the year ended
December 31, 2003. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventory </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventories are valued at the lower
of cost or market value. Cost is determined as follows: Raw and packaging materials &#150;
moving average cost method. Products in progress and finished products &#150; on the
company&#146;s standard pricing basis (see also Note 4 to the Consolidated Financial
Statements for the year ended December 31, 2005). 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenue Recognition </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company sells its Supply-Chain
products mainly through direct sales and the Software Solutions products mainly through
distributors and resellers channels. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company derives its revenues from
the sale of products, license fees for its products, commissions, maintenance, support and
services. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues from product sales are
recognized in accordance with Staff Accounting Bulletin No. 104 &#147;Revenue Recognition
in Financial Statements&#148; (&#147;SAB 104&#148;) when delivery has occurred,
persuasive evidence of an arrangement exists, the vendor&#146;s fee is fixed or
determinable, no further obligation exists, and collectability is reasonably assured.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues from license fees are
recognized in accordance with Statement of Position (&#147;SOP&#148;) 97-2 &#147;Software
Revenue Recognition&#148;, 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 collection 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues from maintenance and
support are recognized ratably over the period of the maintenance contract. The fair
value of the maintenance is determined based on the price charged when it sold separately
or renewed. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues from commissions are
recognized upon their actual receipt, since under agreements with suppliers consideration
is received on the basis of collection from customers. </FONT></P>


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<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Legal contingencies </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has been a party to
various legal proceedings in the normal course of its business. 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 a corresponding provision was
recorded in this respect. For additional information see &#147;Legal Proceedings&#148;. 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
these proceedings. Such revisions in the estimates of the probable cost could have a
material adverse effect on the Company&#146;s future results of operations and financial
position.</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Stock based compensation</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On January 1, 2006, the Company
adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
&#147;Share-Based Payment&#148; (&#147;SFAS 123(R)&#148;) which requires the measurement
and recognition of compensation expense based on estimated fair values for all share-based
payment awards made to employees and directors. SFAS 123(R) supersedes Accounting
Principles Board Opinion No. 25, &#147;Accounting for Stock Issued to Employees&#148;
(&#147;APB 25&#148;), for periods beginning in fiscal 2006. In March 2005, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 107 (&#147;SAB 107&#148;)
relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption
of SFAS 123(R). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SFAS 123(R) requires companies to
estimate the fair value of equity-based payment awards on the date of grant using an
option-pricing model. The value of the portion of the award that is ultimately expected to
vest is recognized as an expense over the requisite service periods in the Company&#146;s
consolidated income statement. Prior to the adoption of SFAS 123(R), the Company accounted
for equity-based awards to employees and directors using the intrinsic value method in
accordance with APB 25 as allowed under Statement of Financial Accounting Standards No.
123, &#147;Accounting for Stock-Based Compensation&#148; (&#147;SFAS 123&#148;). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company adopted SFAS 123(R) using
the modified prospective transition method, which requires the application of the
accounting standard starting from January 1, 2006, the first day of the Company&#146;s
fiscal year 2006. Under that transition method, compensation cost recognized in the six
months period ended June 30, 2006, includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of January 1, 2006, based on the grant
date fair value estimated in accordance with the original provisions of Statement 123, and
(b) compensation cost for all share-based payments granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions of
Statement 123(R). Results for prior periods have not been restated. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Functional currency </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem&#146;s functional currency as of
December 31, 2004, was other than the U.S. dollar and was translated into U.S. dollars.
Beginning April 1, 2005, Odem&#146;s functional currency became the U.S. dollar, due to
significant changes in circumstances which indicated a functional currency change. These
changes included: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Transition
of budget planning and business performance measurement from New Israeli Shekels (NIS) to
U.S. dollars, as a result of Odem&#146;s integration with BOS. </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Majority
of Odem revenues and expenses became linked to or paid in U.S. dollars.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In accordance with FAS 52,
&#147;Foreign Currency Translation&#148; and since the functional currency changed from a
foreign currency to the reporting currency, U.S. dollars, the translation adjustments as
of March 31, 2005, prior to the change have not been removed from equity and the
translated amounts for non monetary assets as of March 31, 2005, prior to the change became
the accounting basis for those assets in the periods starting April 1, 2005. </FONT></P>


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<font size=2>41</font></p>
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<a name=zk615></a>



<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RESULTS OF OPERATIONS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following management&#146;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 are forward-looking statements that are based on our beliefs and assumptions as well
as information currently available to us. 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. The Company&#146;s discussion and analysis
of its financial condition and result of operations is based upon the Company&#146;s
consolidated financial statements which have been prepared in accordance with generally
accepted accounting principles (&#147;GAAP &#147;) in the United States of America. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comparison of Six Months
Ended June 30, 2006 and Six Months Ended June 30, 2005 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues for the six months ended
June 30, 2006 were $9,559,000, compared to $14,593,000 for the six months ended June 30,
2005. The decrease in revenues is a result of the following two reasons: (a) revenues for
the first six months of 2005 included $2.6 million revenues of our Thin Client and
Software Utilities product lines and of the Communications segment, that were sold during
year 2005; (b) a decline in the sales of the Supply-Chain segment to the Far East from
$3.6 million in the first six months of 2005 to $1.3 million in the first six months of
2006, as a result of increased competition.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit for the six months
ended June 30, 2006 was $2,319,000 (gross margin of 24%) compared to $3,995,000 (gross
margin of 27%) for the six months ended June 30, 2005. The decrease in gross margin
results from the sale of the Thin Client and Software Utilities product lines and of the
Communications segment during year 2005, with respect to which gross margin in the six
months ended June 30, 2005 was 34%. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Research and development expenses for
the six months ended June 30, 2006 were $289,000 compared to $1,457,000 for the six months
ended June 30, 2005. The decrease in research and development expenses results from the
sale of the Software Utilities product line and of the Communications segment, with
respect to which research and development expenses in the six months ended June 30, 2005
were $1,087,000. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Selling and marketing expenses for
the six months ended June 30, 2006 were $996,000 compared to $1,918,000 for the six months
ended June 30, 2005. The decrease in selling and marketing expenses results from the sale
of the Thin Client and Software Utilities product lines and Communications segment, with
respect to which selling and marketing expenses in the six months ended June 30, 2005 were
$787,000. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General and administrative expenses
for the six months ended June 30, 2006 were $1,534,000 compared to $1,717,000 for the six
months ended June 30, 2005. General and administrative expenses for the six months ended
June 30, 2006 includes shares compensation cost in the amount of $240,000 and options
compensation cost of $155,000 compared to option compensation cost only, amounting to
$185,000 in the six months ended June 30, 2005. Exclusive of the shares and option
compensation cost, the general and administrative expenses for the six months ended June
30, 2006 were $1,139,000 compared to $1,532,000 for the six months ended June 30, 2005.
The decrease in the general and administrative expenses is mainly as a result of the cost
reduction effected by the sale of the Thin Client and Software Utilities product lines and
of the Communications segment. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial expenses, net, for the six
months ended June 30, 2006 were $206,000 compared to $322,000 in the six months ended June
30, 2005. The decrease in the financial expenses in comparison to 2005 related to: (a) a
reduction in currency differences expenses of $55,000 and (b) income of $47,000 related to
a $1 million loan granted to IP gear in December 31, 2005. As of June 30, 2006, the
remaining loan balance was $400,000. </FONT></P>


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<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Taxes on income for the six months
ended June 30, 2006 were income of $13,000 compared to expenses of $234,000 in the six
months ended June 30, 2005. The tax expenses and income related to the taxable income of
our subsidiary, Odem. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equity losses of an affiliated
company for the six months ended June 2005, refers to investment in Surf. In September
2005, Surf executed a private placement that diluted the Company&#146;s holdings to 8.7%
of Surf&#146;s issued and outstanding share capital. As a result, the Company ceased to
have the ability to exercise significant influence over Surf and, accordingly, the
adjusted carrying amount of the investment is accounted for based on the cost accounting
method. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In June 2006, the Company invested
$300,000 in Surf, following which it currently holds 7.8% of Surf&#146;s issued and
outstanding share capital. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minority interest in earnings of a
subsidiary in the six months ended June 30, 2005 refers to the Company&#146;s investment
in Odem, which as of November 1, 2005, became a wholly-owned subsidiary of the Company. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income for the six months ended
June 30, 2006 amounted to $174,000 compared to a net loss of $1,883,000 in the six months
ended June 30, 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On a per share basis, the basic and
diluted earning per share for the six months ended June 30, 2006 was $0.03 per share,
compared to basic loss per share of $0.39 in the six months ended June 30, 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comparison of Year Ended
December 31, 2005 and Year Ended December 31, 2004 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues for 2005 were $27,053,000
compared with $8,282,000 in 2004, a 226% increase, which is mainly due to the
consolidation, starting from November 18, 2004, of the results of operation of Odem
(related to the Supply-Chain segment). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Supply-Chain segment accounted
for $20,253,000 (or 75% of our consolidated revenues) in 2005, out of which the sales to
the Far East accounted for $6,083,000 (or 22% of our consolidated revenues in 2005). In
the second half of 2005 and during the first quarter of 2006, we are facing a trend of
decrease in the sales to the Far East, which is partially offset by growth in local sales. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Software Solutions segment
accounted for $3,926,000 (or 14% of our consolidated revenues) in 2005. These revenues
include $864,000 related to the PrintBos product line that was sold during 2005 and Thin
Client product line that was closed at the beginning of 2005. Hence, we expect that the
Software Solutions segment revenues in year 2006 will be lower than what we experienced in
2005. Furthermore, the trend of customer migration from IBM iSeries to different systems
has continued. In response we have increased our sales and marketing activities as
abovementioned and continue to develop new products and solutions in order to maintain our
market share and maintain revenues from the Software Solutions segment. We are
continuously seeking additional distributors and resellers. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit in 2005 totaled
$7,028,000, representing 25.9% of revenues, compared with $3,674,000, constituting 44.4%
of revenues in 2004. The major reason for the decrease in the gross margin was the
consolidation, starting from November 18, 2004, of the results of operation of Odem whose
gross profit represents 18.9% of revenues (see also Note 19 of the Consolidated Financial
Statements for the year ended December 31, 2005). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our future gross margin may be lower
than what we experienced during 2005 as a result of the disposal of the Communication
segment whose gross margin during 2005 was 26% (a gross margin which is higher than that
of the Supply-Chain segment, which generated the majority of our revenues in 2005. See
Note 19a of the Consolidated Financial Statements for the year ended December 31, 2005). </FONT></P>


<p align=center>
<font size=2>43</font></p>
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<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net research and development costs in
2005 amounted to $2,312,000 compared to $1,804,000 in 2004. The increase in research and
development costs in 2005 is related to the development efforts invested in Quasar Telecom
products, prior to the sale of the Communication segment. Grants and participation from
the Office of the Chief Scientist amounted to $296,000 in year 2005 compared to $492,000
in 2004. These grants were related to the Communication segment that was sold at the end
of 2005 and we do not anticipate additional grants and participation in year 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sales and marketing expenses
increased to $3,563,000 compared to $1,706,000 in 2004, mainly due to the consolidation,
starting from November 18, 2004, of the results of operation of Odem. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General and administrative expenses
increased to $3,267,000 in 2005 from $1,706,000 in 2004, mainly due to the consolidation,
starting from November 18, 2004, of the results of operation of Odem.</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As a result of the foregoing, our
operating loss in 2005 was $2,114,000 compared to an operating loss of $1,541,000 in
2004. The operating loss in 2005 is attributed to the Communication segment which was
sold in late 2005, and amounted to $2,400,000.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial expenses amounted to
$448,000 in 2005 compared with expenses of $158,000 in 2004. The major reason for the
increase from 2004 was related to the convertible note (see also Note 14 to the
Consolidated Financial Statements for the year ended December 31, 2005) and to the
consolidation, starting from November 18, 2004, of the results of operation of Odem whose
bank loans as of December 31, 2005 amounted to $2,316,000. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other income for 2005 includes
capital gains of $779,000 related to the sale of the Communication segment and $273,000
related to the sale of the PrintBOS product line. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Taxes on income increased to $204,000
in 2005 from $20,000 in 2004 as result of the consolidation, starting from November 18,
2004, of the results of operation of Odem which has a taxable income. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equity in losses of an affiliated
company, Surf Communication Solutions Ltd., amounted to $1,750,000 in the 2005 as
compared to $308,000 in 2004. The equity loss in 2005 includes an impairment of
$1,385,000 of the investment in Surf. As of December 2005 our investment in Surf amounted
to $722,000. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minority interest in the earnings of
a subsidiary (Odem) amounted to $223,000 in 2005 as compared to $17,000 in 2004. In
November 2005 the Company increased its holding in Odem to 100%. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As a result, net loss from the
continuing operations for 2005 amounted to $3,605,000 compared to loss of $2,044,000 in
2004. On a per share basis, the net loss from the continuing operations in 2005 was -$0.64
per share compared with a -$0.44 net loss per share in 2004. (For details regarding
computation of net loss per share, see Note 18c to the Consolidated Financial Statements
for the year ended December 31, 2005.) </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The total net loss for 2005 was
$3,605,000, compared with loss of $2,053,000 in 2004. On a per share basis, the net loss
in 2005 was -$0.64 per share compared with a -$0.441 net loss per share in 2004. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comparison of Year Ended
December 31, 2004 and Year Ended December 31,2003 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The results of operation of the year
2004 reflected the following strategic actions: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reorganization
in sales and marketing organization in Europe:</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Up until the second quarter of 2003,
we marketed our BOScom products through subsidiaries in the U.K. and France. Since the
third quarter of 2003, 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, the sales and marketing expenses were reduced in 2004
in comparison to 2003. </FONT></P>


<p align=center>
<font size=2>44</font></p>
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<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dividing
the Company operations into three segments: </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commencing in 2004 and subsequent to
the acquisition of a controlling stake of Odem and of most of the assets of Quasar
Communication Systems Ltd. (which were transferred to our subsidiary, Quasar Telecom), the
Company manages its business in three reportable segments, which consist of Software
Solutions, Communication Solutions and supply of Electronic Components (see also Note 19
to the Consolidated Financial Statements). </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>This action was accompanied by an
increase in senior officers which mainly affected the general and administrative expenses
which increased in comparison to 2003. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Business
Combination: </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The abovementioned acquisitions
partially affected the Company&#146;s results of operation, since the results of
operations of Quasar Telecom and Odem were consolidated commencing September 28, 2004 and
November 18, 2004, respectively. As a result, the revenues, cost of goods and general and
administrative expenses were increased in 2004 in comparison to 2003 (see also Note 1b to
the Consolidated Financial Statements). <BR><BR>Revenues for 2004 were $8,282,000 compared with
$5,728,000 in 2003, a 44.6% increase, which is mainly due to the consolidation of Quasar
Telecom and Odem operations. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit in 2004 totaled
$3,674,000, representing 44.4% of revenues, compared with $4,273,000, constituting 74.5%
of revenues in 2003. Cost of revenues of 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
18a to the Consolidated Financial Statements). Excluding such income, the gross profit for
2003 represented 68.6% of revenues compared to 44.4% in 2004. The major reason for the
decrease in the gross margin was the acquisition of Odem in November 2004. Odem&#146;s
gross profit represents 17% of revenues in the year 2004. The gross profit will continue
to decline as a result of the full inclusion of Odem activity in 2005 and thereafter. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net research and development costs in
2004 amounted to $1,804,000 compared to $1,846,000 in 2003. Grants and participation from
the Office of the Chief Scientist amounted to $492,000 in 2004 compared to $283,000 in
2003. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sales and marketing expenses
decreased by 21.7% to $1,706,000 in 2004 compared to $2,178,000 in 2003, mainly due to the
reorganization in sales and marketing which is described above. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General and administrative expenses
increased by 29.4% to $1,705,000 in 2004 compared to $1,317,000 in 2003, mainly due to an
increase in the number of senior officers. Restructuring costs in 2003 amounted to
$678,000 which resulted from ceasing the operation of the Company&#146;s subsidiaries in
Europe.</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As a result of the foregoing, our
operating loss in 2004 was $1,541,000 compared to an operating loss of $1,746,000 in
2003.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial expenses amounted to
$158,000 in 2004 compared with net financial income of $109,000 in 2003. The major reason
for year 2004 financial expenses was related to the convertible note (see also Note 18b to
the Consolidated Financial Statements). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equity in losses of an affiliated
company refers to investment in Surf which amounted to $308,000 in 2004 compared to
$465,000 in 2003. The investment in a company was stated at equity method, since the
Company&#146;s holding in Surf exceeded 20% (see also Note 6 to the Consolidated Financial
Statements). </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minority interest in earning of
subsidiary refers to investment in Odem. The minority rights in Odem amounted to 36.2% of
its earnings (see also Note 1b to the Consolidated Financial Statements). </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As a result, net loss from the
continuing operations for 2004 amounted to $2,044,000 compared with loss of $2,057,000 in
2003. On a per share basis, the net loss from the continuing operations in 2004 was $0.44
per share compared with a $0.56 net loss per share in 2003. (For details regarding
computation of net loss per share, see Note 18c to the Consolidated Financial Statements.) </FONT></P>



<p align=center>
<font size=2>45</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The loss related to the discontinuing
operations for 2004 was $9,000 compared with an income of $2,036,000 in 2003. The income
of 2003 resulted from debt settlement with more than 95% of PacInfo&#146;s external
creditors for an amount which was significantly lower than the face value of the debt.</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The total net loss for 2004 was
$2,053,000, compared with loss of $21,000 in 2003. On a per share basis, the net loss in
2004 was $0.44 per share compared with a $0.01 net loss per share in 2003.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Variability of Quarterly
Operating Results </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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.</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our future results will be affected
by a number of factors including our ability to:  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>increase
the number of products sold,</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>acquire
effective distribution channels and manage them,</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>develop,
introduce and deliver new products on a timely basis,</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>anticipate
accurately customer demand patterns and</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>manage
future inventory levels in line with anticipated demand.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Impact of Inflation and
Currency Fluctuations </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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.</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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).  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the six months ended June 2006 and
in the years ended December 31 2005, 2004, 2003, 2002, and 2001, the inflation rate in
Israel as adjusted for the devaluation of the Israeli currency in relation to the Dollar
was 5.1%, (4.5)% 2.8%, 5.7%, (0.8)%, and (7.8)%, 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 4.44, NIS 4.603, NIS 4.308, NIS 4.379, NIS 4.737, and NIS 4.416,
respectively. As a result, the Company experienced increases in the Dollar costs of
operations in Israel in 2003, 2004 and in the six months ended June 30, 2006, and
decreases in 2005, 2002 and 2001. </FONT></P>


<p align=center>
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<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Effective Corporate Tax
Rate </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to an amendment to the
income Tax Ordinance, approved by the Israeli parliament on July 25, 2005, Israeli
companies are generally subject to income tax on their taxable income at the rate of 31%
for the year 2006, 29% for 2007, 27% for 2008, 26% for 2009 and 25% for year 2010 and
thereafter.</FONT></P>




<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The effective tax rate payable by a
company such as ours which derives part of its income from an &#147;Approved Enterprise,&#148; may
be considerably less. See Note 17b to the Consolidated Financial Statements for the year
ended December 31, 2005, and Tax Benefits under the Law for the Encouragement of Capital Investments, 1959 ahead. Subject to relevant tax treaties, dividends
or interest received by an Israeli corporation from subsidiaries are generally subject to
tax (unless the subsidiary&#146;s income is subject to Israeli corporate tax) regardless
of its status as an Approved Enterprise. Odem and Quasar Telecom operations are subject
to regular income tax rates.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 &#147;controlled foreign corporations&#148; 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&#146;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.</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Grants and Participation</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Under the Law for the Encouragement
of Industrial Research and Development, 1984 (the &#147;Research Law&#148;), research and
development programs approved by a research committee of the Office of the Chief Scientist
(&#147;OCS&#148;) of Israel&#146;s Ministry of Industry, Trade and Labor, are eligible for
grants in exchange for payment to the Government of royalties from the sale of products
developed in accordance with the Program. In order to be eligible, the applicant must be
an Israeli company that proposes to invest in the development of industrial know-how, the
development of new products, the development of new processing or manufacturing procedures
or the development of significant improvements to an existing process or product. A
committee of the OCS reviews the applications, evaluates the feasibility of the proposal,
determines whether or not to approve a grant, and also determines the extent of Chief
Scientist funding (within a range specified by the law) for approved projects. Depending
on the nature of the project, the OCS grants generally amount up to 50% of the approved
research expenses. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Under the terms of the grants we
received from the OCS we are obligated to pay royalties of 3.5% on sales of products
incorporating know-how developed within the framework of each funded program or derived
therefrom (including ancillary services in connection therewith), up to an aggregate of
100% of the dollar-linked value of the total grants received. 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.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. If any of the manufacturing is performed outside
of Israel, the company would ordinarily be required to pay royalties at an increased rate
and to increase the aggregate repayment amount to between 120% and 300% of the grant
amount, depending on the manufacturing volume that is performed outside Israel, except in
special cases that receive the prior approval of the research committee, and subject to
certain payments to be made to the Israeli Government (generally an amount no less that
the aggregate grants plus interest less royalties paid). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Research Law also provides that
know-how from the research may not be transferred to third parties in Israel without prior
approval of the research committee. This approval, however, is not required for the sale
or export of any products resulting from such research and development. Approval of such
transfer of know-how may be granted in specific circumstances, only if the recipient
abides by the provisions of the

Research

 Law and related regulations, including the
restrictions on the transfer of know-how and the obligation to pay royalties in an amount
that may be increased. The

Research

 Law further provides that the know-how developed under
an approved research and development program may not be transferred to any third parties
outside Israel. </FONT></P>


<p align=center>
<font size=2>47</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px">
<HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<P STYLE="page-break-after:always"></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The

Research

 Law imposes reporting
requirements with respect to certain changes in the ownership of a grant recipient. The
law requires the grant recipient and its controlling shareholders and interested parties
to notify the Office of the Chief Scientist of any change in control of the recipient or a
change in the holdings of the significant stockholders of the recipient that results in a
non-Israeli becoming an interested party directly in the recipient and requires the new
interested party to undertake to the Office of the Chief Scientist to comply with the

Research


 Law. In addition, the rules of the Office of the Chief Scientist may require prior
approval of the Office of the Chief Scientist or additional information or representations
in respect of certain of such events. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The funds available for Office of the
Chief Scientist grants out of the annual budget of the State of Israel have been reduced,
and the Israeli authorities have indicated that the government may further reduce or
abolish Office of the Chief Scientist grants in the future. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We recognized grants in the amount of
$296,000 in 2005 and $492,000 in 2004. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of June 30, 2006, the Company has
an outstanding contingent obligation to pay royalties in respect of OCS grants, in the
amount of approximately $3,430,792, compared to $3,500,000 as of December 31, 2005.</FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. As of June 30, 2006, the Company has
an outstanding contingent obligation to pay royalties of $100,000 with respect to these
grants, compared to $64,000 on December 31, 2004.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Conditions in Israel </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 &#147;Risk Factors&#148;.</FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Political and Economic
Conditions</I> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. A
peace agreement between Israel and Jordan was signed in 1994. However, as of the date
hereof, Israel has not entered into any peace agreement with Syria or Lebanon. No
prediction can be made as to whether any other written agreements will be entered into
between Israel and its neighboring countries, whether a final resolution of the
area&#146;s problems will be achieved, the nature of any such resolution or whether civil
unrest will resume and to what extent such unrest would have an adverse impact on
Israel&#146;s economic development or on our operations in the future. </FONT></P>


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<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>There is substantial uncertainty
about how or whether any peace process will develop or what effect it may have upon us.
Since October 2000, there has been a substantial deterioration in the relationship between
Israel and the Palestinians which has resulted in increased violence. The future effect of
this deterioration and violence on the Israeli economy and our operations is unclear. In
July 2006, Israel became involved in a major military conflict with the Hizbullah
organization in Lebanon, which subjected the north of Israel to missile attacks. Certain
of our facilities are located in the north of Israel near the City of Haifa. Israel&#146;s
military operations required the drafting of a substantial number of reserve soldiers. <BR><BR>In
January 2006, Hamas, an Islamic movement responsible for many attacks against Israelis,
won the majority of the seats in the Parliament of the Palestinian Authority. The election
of a majority of Hamas-supported candidates is expected to be a major obstacle to
relations between Israel and the Palestinian Authority, as well as to the stability in the
Middle East as a whole. Ongoing violence between Israel and its Arab neighbors and
Palestinians may have a material adverse effect on our business, financial condition or
results of operations. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Despite the limited 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 the expansion of our business. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. In addition, due to significant economic
measures 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, including our ability
to deliver products to our customers. Following the passage by the Israeli Parliament of
laws to implement the 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The costs of our operations in Israel
are generally incurred in New Israeli Shekels (&#147;NIS&#148;). 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&#146;s
economy has, at various times in the past, experienced high rates of inflation. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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
&#147;Approved Enterprise&#148; status of certain facilities in Israel, could have a
materially adverse effect on future investments by us in Israel. </FONT></P>

<a name=zk616></a>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LIQUIDITY AND CAPITAL
RESOURCES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We finance our activities by
different means, including equity financings, short and long-term loans, and income from
operating activities. </FONT></P>

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<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of June 30, 2006, the Company had
no outstanding bank credit lines except for the Company&#146;s subsidiary, Odem that had
short term and long term bank credit and bank guarantees in favor of certain third parties
amounting to $3,175,000, $10,000 and $378,000, respectively. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem&#146;s credit line as of June
30, 2006 was $4,748,000. There are no restrictions for the use of the loan proceeds, but
there are limitations on the financial ratios of Odem. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of June 30, 2006, the
Company&#146;s long and short term credit, net of convertible note issuance expenses,
amounted to $4,386,000, of which $3,185,000 is credit from Israeli banks to Odem, and the
convertible notes issued to Laurus accounts for the remainder. As of June 30, 2006 we had
$2,470,000 in cash and cash equivalents. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of December 31, 2005, we had
$2,346,000 in cash and cash equivalents and $1,333,000 in marketable securities. The
Company&#146;s long and short term loans as of December 31, 2005, amounted to $3,563,000,
of which $2,316,000 is loans from Israeli banks, and the convertible note issued to Laurus
Master Fund Ltd. accounts for the remainder. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash used in operating activities
for the six months ended June 30, 2006 was $1,402,000 compared to $2,171,000 for the six
months ended June 30, 2005, and $3,900,000 in the year 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the six months ended June 30,
2006 cash provided by investing activities amounted to $706,000 as compared to $663,000 in
the six months ended June 30, 2005. In both periods, the cash provided by investing
activities results mainly from redemption of marketable securities. In 2005 we used
$477,000 in investing activities, mainly as a result of an investment of $1,124,000 in
Odem, grant of a $1,000,000 loan to IP Gear and net proceeds in the amount of $2,316,000
from redemption of marketable securities. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash provided by financing
activities for the six months ended June 30, 2006 amounted to $820,000, which relates
mainly to proceeds from short term bank credit. Net cash provided by financing activities
for the six months ended June 30, 2005 amounted to $3,189,000, which relates mainly to
proceeds of $1,824,000 from short term bank credit and proceeds of $1,452,000 from
issuance of shares. Net cash provided by financing activities amounted to $4,159,000 in
the year 2005, mainly as a result of the issuance of a Convertible Note and short term
bank loans in the net amount of $2,179,000 and the issuance of shares in the amount of
$2,090,000. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Working
capital requirements will vary from time-to-time and will depend on numerous factors,
including but not limited to, the operating results, scope of sales, supplier credit, the
level of resources devoted to research and development, new product introductions, and
marketing and acquisition activities. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. As of June
30, 2006, our average trade receivables&#146; and trade payables&#146; aging days are 90
and 46 days, respectively. The fair value of our financial instruments is similar to their
book 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&#146; indemnities, in excess of the
proceeds received from liability insurance which we obtain, and (d) legal proceedings. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We believe that our cash resources
are sufficient to meet our operating needs for at least the next 12 months. However, it is
our intention to seek to raise additional equity and debt financing, including pursuant to
the rights offering, to fund additional product development, establish distribution
channels in new markets and search for new merger and acquisition opportunities. There is,
however, no assurance that we shall be able to obtain such financing. </FONT></P>

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<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Laurus Convertible Note
Financings</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On June 10, 2004 the Company entered
into a Securities Purchase Agreement with Laurus Master Fund Ltd., under which the Company
issued and sold to Laurus in a private placement (i) a Secured Convertible Term Note of a
$2 million principal amount, due June 10, 2007 and (ii) a Warrant to purchase 130,000
Ordinary Shares at an exercise price of $4.04 per share. The Warrant is exercisable, in
whole or in part, until June 10, 2011. The Note bore interest at a fluctuating interest
rate equal at all times to the WSJ prime rate plus 3%, subject to reduction in any
particular month, if the average closing price of our ordinary Shares for any five
consecutive trading days, exceeds the conversion price by at least 25%. The proceeds from
the private placement were used for general working capital purposes and/or mergers and
acquisitions. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Note was convertible into
Ordinary Shares at a price of $3.08 per share. The note provided that if the Company
issues stock in certain types of transactions at a price lower than the initial conversion
price, then the conversion price will be adjusted to a lower price based on a weighted
average formula. As a result of the price per share in the private placement offering
described below (that closed on June 30, 2005), the conversion price of the convertible
note was reduced to $2.9042. The note was secured by a first priority floating charge on
all of the Company&#146;s assets and by a first priority fixed charge on all of the
Company&#146;s right, title and interest in its wholly-owned subsidiary, BOScom Ltd. <BR><BR>The
principal amount of the Note was repayable in monthly installments, commencing as of
October 1, 2004, in the initial amount of $20,000 eventually increasing to $73,600, and
the note provided that it may be paid in cash or, subject to certain conditions, in
ordinary Shares. Interest on the Note was payable monthly and the note provided that it
may be paid in cash or, subject to certain conditions, in Ordinary Shares. Furthermore,
each month, Laurus could have elected to convert all or a portion of the convertible note
monthly payments (comprised of principal amortization and interest) into ordinary shares.
The conversion of the note and exercise of the warrants are limited by certain
restrictions. In any event, the number of ordinary shares issuable under the note and/or
the warrants shall not exceed an aggregate of 833,085 ordinary shares (subject to certain
adjustments). On March 23, 2005, after Laurus elected to convert $308,000 of the principal
sum of the convertible note, Laurus was issued 100,000 ordinary shares of the Company. On
July 14, 2005, Laurus completed the conversion of the balance of the principal, which had
not been previously converted or repaid, and the accrued interest, into an additional
540,293 ordinary shares, for approximately $1.58 million. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to its undertaking in the
Registration Rights agreement with Laurus the Company filed with the Securities and
Exchange Commission a registration statement on Form F-3 covering the resale of Ordinary
Shares that were issued upon conversion of the Note and that shall be issued upon exercise
of the Warrants. The Registration Rights agreement provided that any delay in registration
and/or effectiveness of the underlying shares of the transaction, or failure to maintain
their effectiveness, will result in penalties to be paid in cash, as liquidated damages.
The registration statement became effective on March 11, 2005. Due to the delay in the
effectiveness of the registration of the shares, we paid Laurus liquidated damages until
March 11, 2005, in the amount of $92,000. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On September 29, 2005, the Company
entered into a Second Securities Purchase Agreement with Laurus, under which the Company
issued to Laurus in a private placement (i) a Secured Convertible Term Note of a $1.5
million principal amount, due September 2008, and (ii) a Warrant to purchase 73,052
ordinary shares at an exercise price of $4.04 per share. The Note is convertible into
ordinary shares at a price of $3.08 per share. The principal amount of the Note is
repayable in monthly installments, commencing as of January 2006, in the initial amount of
$15,000 eventually increasing to $55,200. The Note bears interest at a fluctuating
interest rate equal at all times to the WSJ prime rate plus 1.5% which is subject to
reduction under certain conditions. The interest on the note is payable in monthly
installments, together with the principal monthly repayment. The principal amount and the
interest accrued may be paid, subject to certain conditions, in ordinary shares. Each
month, Laurus may elect to convert all or a portion of the convertible note monthly
payments (comprised of principal amortization and interest) into ordinary shares. If the
market price of the ordinary shares at the time of payment is at least 10% greater than
the conversion price per ordinary share, the monthly payment shall be made in the form of
ordinary shares. </FONT></P>

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<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Warrant is exercisable, in whole
or in part, until September 29, 2012, and payment of the exercise price may be made either
in cash or in a &#147;cashless&#148; exercise (or in a combination of both methods). The
warrant exercise price is also subject to proportional adjustment in the event of
combinations, subdivisions of the ordinary shares or if dividend is paid on the ordinary
shares in ordinary shares. <BR><BR>Pursuant to its undertaking in the Registration Rights
Agreement with Laurus, the Company filed with the Securities and Exchange Commission a
registration statement on Form F-3 covering the resale of ordinary shares that are
issuable upon conversion of the Note and/or exercise of the Warrants, and/or issuable in
payment of principal and interest on the Note. The Registration Rights Agreement provided
that any delay in registration and/or effectiveness of the underlying shares of the
transaction, or failure to maintain their effectiveness, will result in penalties to be
paid in cash, as liquidated damages. The registration statement became effective on
February 8, 2006, and no penalties were incurred. On August 17, 2006 the Company entered
into and closed an additional financing transaction with Laurus. The financing consisted
of a $1.5 million Secured Convertible Term Note with a term of three years. In addition,
BOS granted to Laurus a Warrant to purchase up to 73,052 Ordinary Shares, which is
exercisable, in whole or in part, until August 16, 2013 at an exercise price of $4.04 per
share for the first 24,351 Ordinary Shares acquirable thereunder, and of $5.30 per share
for the additional 48,701 acquirable thereunder. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Note bears interest at a
fluctuating interest rate, which begins at the Prime rate plus 1.5%. <BR><BR>The conversion rate
under the Note is $3.08 per share for the first $500,000 of principal amount payable
thereunder and $4.08 for any additional amount payable thereunder (subject to adjustment).
The principal amount of the Note is repayable in monthly installments commencing as of
December 1, 2006, 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 proceeds from the private placement were to be used for
general working capital purposes and/or mergers and acquisitions. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company also entered into a
Registration Rights agreement with Laurus pursuant to which the Company agreed to prepare
and file with the Securities and Exchange Commission a registration statement covering the
resale of Ordinary Shares that are issuable upon conversion of the Note and/or exercise of
the Warrants, and/or issuable in payment of principal and interest on the Note. The
Registration Rights Agreement provided that any delay in registration and/or effectiveness
of the underlying shares of the transaction, or failure to maintain their effectiveness,
will result in penalties to be paid in cash, as liquidated damages. The registration
statement became effective on December 5, 2006, and no penalties were incurred. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the case of both the Note issued
in September 2005 and the Note issued in August 2005, the following provisions apply: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)
          the Note conversion price is subject to proportional adjustment in the event of
          stock splits, combinations, subdivisions of the ordinary shares or if dividend
          is paid on the ordinary shares in ordinary shares. In addition, if the Company
          issues stock in certain types of transactions at a price lower than the initial
          conversion price, then the conversion price will be adjusted to a lower price
          based on a weighted average formula; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)
          The Note is secured by a first priority floating charge on all of the
          Company&#146;s assets and by a first priority fixed charge on all of the
          Company&#146;s right, title and interest in its wholly-owned subsidiaries,
          BOScom Ltd and Quasar Telecom (2004) Ltd.; and </FONT></P>

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<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c)
          Conversion of the Note and exercise of the Warrants are limited such that at no
          time shall the Note be convertible (or the Warrants be exercised) into that
          number of ordinary shares which, when added to the number of ordinary shares
          otherwise beneficially owned by Laurus, exceed (i) 4.99% of the Company&#146;s
          outstanding ordinary shares, or (ii) 25% of the aggregate dollar trading volume
          of the ordinary shares for the 30-day trading period immediately preceding the
          conversion or exercise notice. These limitations expire, however, in an event of
          default under the Note or with 75 days prior notice by Laurus, provided that in
          no time shall Laurus&#146; beneficial ownership of ordinary shares exceed 19.9%
          of our ordinary shares. In addition, the number of ordinary shares issuable
          under the September 2005 Note, the August 2006 Note and the related Warrants
          shall not exceed an aggregate of 1,270,720 ordinary shares. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>2005 Private Placement</I></B> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On May 24, 2005 the Company entered
into a Share Purchase Agreement, under which the Company issued and sold to certain
Israeli and European investors, in a private placement offering, 953,698 Ordinary Shares
at a price of $2.30 per share for a consideration of approximately $2,040,000 (net of
issuance expenses amounted to $154,000), and 572,219 warrants to purchase Ordinary Shares
reflecting a 60% warrant coverage, exercisable for three years from their date of
issuance. The exercise price under the warrants is $2.50 per Ordinary Share during for the
first year from the issuance, and increasing to $2.75 per Ordinary Share and $3.03 per
Ordinary Share, on the first and second anniversaries of the issuance, respectively. The
principal investor is the Catalyst Fund L.P., the Company&#146;s largest shareholder, that
invested $793,500 and as a result, immediately after the closing of the transaction on
June 30, 2005, held 22.31% of the Company&#146;s outstanding share capital
post-transaction. The Company also entered into a Registration Rights Agreement pursuant
to which it agreed to prepare and file with the Securities and Exchange Commission a
registration statement covering the resale of the Ordinary Shares issued to the investors.
Such a registration statement was filed and became effective on February 8, 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Research and Development </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our research and development efforts
have been focused on Communication

Solutions (until sold in December 2005)


and

on

 Software Solutions. We intend to finance our
research and development activities with our own resources. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Trend information </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commencing the second half of year
2003 we completed the transfer of sales and marketing activities of Software solutions and
Communication products from our subsidiaries abroad to distributors and resellers. We sold
our Communication Solutions segment in late 2005, but this trend is continuing with
respect to the Software segment by increasing the number of distributors and resellers in
order to deepen our penetration in existing markets such as Western Europe and expanding
into new geographical markets such as East Europe. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the Software Solutions segment,
the trend of customer immigration from IBM iSeries to different systems has continued. In
response we have increased our sales and marketing activities as abovementioned and
continue to develop new products and solutions in order to maintain our IBM iSeries market
share and promote the market penetration of our BOSaNOVA Mobile solution that supports
UNIX environment as well. We are continuously seeking additional distributors and
resellers. </FONT></P>

<p align=center>
<font size=2>53</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the second half of year 2005 and during the first half of year 2006, Odem
faced a trend of decrease in its sales to the Far East, which is partially offset by
growth in local sales. This trend has an impact on the growth of our revenues and on our
working capital, inter alia due to the fact that the credit days offered to local Israeli
customers are higher than those for customers in the Far East. <BR><BR>Our gross margin in year
2006 is lower than what we experienced during year 2005 as a result of the disposal of the
Communication segment whose gross margin during year 2005 was 26% (a gross margin which is
higher than that of the Supply-Chain segment, which generated the majority of our revenues
in 2005. See Note 11a of the Interim Consolidated Financial Statements for the six months
ending June 30, 2006). <BR><BR>Since the end of year 2003 we increased our financial resources
through five private placements of debt and equity, and our intention is to further engage
in equity and loan financings in order to engage in acquisition activities, and increase
our marketing activities and the level of resources we devote to research and development.
In addition, we are planning to convert our short term bank loans to long term bank loans
in order to strength our financial position. There is, however, no assurance that we shall
be able to obtain financings or covert our short term bank loans as aforementioned. </FONT></P>




<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Off-balance sheet
arrangements </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 1998, as part of the PacInfo Share
Purchase Agreement between the Company and PacInfo&#146;s former owners (&#147;the
Sellers&#148;), the Company may be obligated to grant the Sellers a loan on a full
recourse basis for certain tax payments the Sellers may be liable for, and reimburse the
Sellers for certain interest on taxes that they may owe, currently estimated at
approximately $ 2 million. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In September 2004 Odem signed a long
term sale agreement for the supply of electronic components (&#147;components&#148;). The
agreement provides for a fixed sales price of the components during the term of the
agreement thru December 2008. Absent the flexibility to increase our prices as a result of
increased costs of the components, significant increased costs may adversely impact our
financial results. In addition, under the agreement, we are obligated to hold inventory of
products necessary for three months of the customer&#146;s production. This requires us to
incur the costs of purchasing inventory without having an outstanding purchase order for
the products. If we are unable to sell products that are purchased to hold in inventory,
we may incur write offs and write downs as a result of slow moving items, technological
obsolescence, excess inventories, discontinued products and products with market prices
lower than cost. Such write offs and write downs could adversely affect our operating
results and financial condition. As of December 31, 2005 we had no write down of write off
of inventory that related to this agreement. </FONT></P>

<p align=center>
<font size=2>54</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tabular disclosure of
contractual obligations </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table of our material
contractual obligations as of June 30, 2006, summarizes the aggregate effect that these
obligations are expected to have on our cash flows in the periods indicated: </FONT></P>








<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Payment due by period</font><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total</font><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Less than 1 year</font><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>1-3 years</font><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>3-5 years</font><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>More than 5<BR>years</font><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></font></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="32%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-term loans (1)</font></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,425,000</font></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    642,200</font></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    782,800</font></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accrued severance pay (2)</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    870,579</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    870,579</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Liabilities related to</font></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>discontinued operation (3)</font></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    237,000</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    237,000</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other liabilities reflected</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>on our Balance sheet (4)</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  6,825,013</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  6,825,013</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating lease - cars</font></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    404,351</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    187,324</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    217,027</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purchase obligation for</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>service and inventory</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,219,595</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,219,595</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Facilities lease</font></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     83,049</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     62,199</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     16,050</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      4,800</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</font></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total</font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 14,064,587</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 11,936,331</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,015,877</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (4,800</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</font></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</font></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,107,579</font></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></font></TD></TR>
</TABLE>
<BR>





<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)&nbsp;&nbsp;&nbsp;&nbsp;
          Does not include discount of $193,602 that related to the convertible note (see
          note 7 of the Interim Consolidated Financial Statements as of June 30, 2006). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)&nbsp;&nbsp;&nbsp;&nbsp;
          This amount reflects our accrued severance pay liability. Out of this amount,
          $707,694 has been previously funded by our contributions to employee plans. The
          time for payment of the accrued severance liability, cannot be predicted and, as
          a result, this amount is presented in the more than 5 years column. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)&nbsp;&nbsp;&nbsp;&nbsp;
          This amount reflects the unsettled liability to the remaining of PacInfo
          creditors. The time of this payment, in whole or in part, cannot be predicted
          and, as a result, this amount is presented in the more than 5 years column. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4)&nbsp;&nbsp;&nbsp;&nbsp;
          This amount reflects the short term bank loans, trade payables, employees and
          payroll accruals, deferred revenues, accrued expenses and other liabilities and
          deferred taxes presented in our balance sheet. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In addition, the above table does not
include (i) 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 is a function of future sales, and (ii) contingent legal claims (see note
15 of the Consolidated Financial Statements for the year ended December 31, 2005). </FONT></P>


<a name=zk617></a>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RECENT FINANCIAL
INFORMATION </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November 20, 2006, the Company filed a Form 6-K with the SEC that included the following

condensed

interim unaudited financial information for the nine months ended September 30, 2005 and
2006 and as of September 30, 2006: </FONT></P>


<p align=center>
<font size=2>55</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>BALANCE SHEETS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>








<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="Bottom">
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>September 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN="Bottom">
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN="Bottom">
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="Bottom">
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="Bottom">
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="84%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;ASSETS</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="Bottom">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CURRENT ASSETS:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,788</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Trade receivables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,563</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Other accounts receivable and prepaid expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>804</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Inventories</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,486</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total current assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,641</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT" COLSPAN="4"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LONG-TERM ASSETS:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Severance pay fund</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>695</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Investment in companies</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,631</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total long-term assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,380</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROPERTY, PLANT AND EQUIPMENT, NET</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>549</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CUSTOMER LIST, NET</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,681</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="Bottom">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>GOODWILL</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>952</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 23,203</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN="3"></TD>
     <TD COLSPAN="2" ALIGN="RIGHT"><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>


<BR>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>September 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="85%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;LIABILITIES AND SHAREHOLDERS' EQUITY</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CURRENT LIABILITIES:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Short term bank credit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,288</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Current maturities of long-term bank loans and convertible note</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>966</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Trade payables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,890</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Employees and payroll accruals</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>328</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Deferred revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>223</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accrued expenses and other liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>645</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,340</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LONG-TERM LIABILITIES:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Bank loans (net of current maturities)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Convertible note (net of current maturities)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,523</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Deferred taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>377</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accrued severance pay</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>867</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total long-term liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,772</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LIABILITIES RELATED TO DISCONTINUED OPERATIONS</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>237</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total shareholders' equity</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,854</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total liabilities and shareholders' equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 23,203</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


<p align=center>
<font size=2>56</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>U.S. dollars in thousands, except per share data</B> </FONT></TD></TR>
</TABLE>
<BR>







<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Nine months ended<BR>
September 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended<BR>
September 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="53%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  14,857</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  20,801</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   5,298</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   6,208</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost of revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,460</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,984</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,220</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,386</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,397</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,817</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,078</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,822</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating costs and expenses:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Research and development</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>410</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,084</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>121</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>627</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Less - grants and participation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(217</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(84</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Sales and marketing</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,463</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,715</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>467</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>797</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;General and administrative stock</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;based compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>517</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>258</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>122</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>74</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;General and administrative</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,780</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,297</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>641</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>764</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total operating costs and expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,170</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,137</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,351</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,178</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(773</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,320</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(273</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(356</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial expenses, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(402</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(360</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(196</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(38</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other income, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>899</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>300</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>273</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss before taxes on income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(276</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,380</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(437</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(121</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Taxes on income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>56</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(297</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(63</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss after taxes on income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(220</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,677</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(394</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(184</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equity in losses of an affiliated<BR>
&nbsp;&nbsp;company</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,720</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,480</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minority interest in earnings of</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;subsidiary</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(230</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (220</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (3,627</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (394</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (1,744</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net earnings (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.03</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.69</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.06</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.28</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>


<BR>


<p align=center>
<font size=2>57</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SEGMENT INFORMATION</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>









<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended September 30, 2006</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Software</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication*</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Supply-Chain</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate<BR>
and<BR>
adjustments</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="41%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    504</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,794</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  5,298</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    310</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    768</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,078</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management fee<BR>&nbsp;&nbsp;&nbsp;expenses (income)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (25</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (196</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    221</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (27</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (116</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (130</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (273</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended September 30, 2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Software</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication*</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Supply-Chain</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate<BR>
and<BR>
adjustments</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    745</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    486</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  5,002</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (25</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  6,208</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    491</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2">1,287  </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,822</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management fee<BR>&nbsp;&nbsp;&nbsp;expenses (income)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (37</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (27</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (340</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    404</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating profit (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     24</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (709</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    318</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     11</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (356</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Nine months ended September 30, 2006</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Software</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication*</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Supply-Chain</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate<BR>
and<BR>
adjustments</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,522</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  13,335</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  14,857</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     975</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2">2,422  </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,397</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management fee<BR>
&nbsp;&nbsp;&nbsp;expenses (income)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (75</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (522</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     597</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (98</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (661</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (773</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Nine months ended September 30, 2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Software</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication*</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Supply-Chain</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate<BR>
and<BR>
adjustments</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,306</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,274</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  15,301</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (80</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  20,801</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,946</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     575</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ </FONT></TD><TD ALIGN=RIGHT> <FONT FACE="Times New Roman, Times, Serif" SIZE="2">3,296  </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   5,817</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management fee<BR>&nbsp;&nbsp;&nbsp;expenses (income)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (165</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (117</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (340</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     622</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating profit (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      97</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (1,857</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,023</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (583</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (1,320</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;* Communication
segment was sold in December 2005. </FONT></P>


<p align=center>
<font size=2>58</font></p>
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<page>


<a name=zk618></a>



<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INDUSTRY OVERVIEW </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company manages its business in
two reportable segments, which consist of Software Solutions and the Supply-Chain
Solutions. A third segment, Communication Solutions, existed until it was sold in the
fourth quarter of 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) Software Solutions </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Software Solutions segment
focuses on providing connectivity solutions for the popular IBM iSeries. 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 &#147;dumb&#148; 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>With the introduction and
proliferation of the personal computers in the 1980s, a substantial amount of corporate
computing power was added to the worker&#146;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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&#146;s ability to more efficiently connect
increased numbers of its personal computer users to host environments through a
&#147;gateway&#148; dedicated to LAN-to-host communication services. The personal computer
software enabling this LAN-to-host connectivity continued to use terminal emulation
technology. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 iSeries in
the area of electronic commerce. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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, Internet, and mobile-devices. <BR><BR>An industry trend
noticed in the late 1990s was a move to a &#147;Thin Client&#148; 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 (&#147;Thin Clients&#148;) are deployed to users throughout the network to
provide the requisite connectivity to host applications. We moved into this arena in early
2003 with a progressive release program culminating in a full suite of Thin Clients and
Ethernet terminals. In the first quarter of 2005, we stopped our activities in the Thin
Client sector and assigned our rights with suppliers to our master distributor in the
United States, as the profit margin for these products was low, its influence on our revenues
marginal, and the risk significant. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Supply-Chain
Solutions </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our Supply-Chain Solutions segment,
provides, through Odem, solutions in RFID (Radio Frequency Identification Devices),
semiconductors, electronic components, CCD (Charge &#150; Coupled Devices), imaging,
networking, telecom and automation. </FONT></P>

<p align=center>
<font size=2>59</font></p>
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<page>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Components are the basic building
blocks of all electronic products and in the twenty-first century the end use of
electronic products spans virtually all sectors of the economy. There are three major end
uses for electronics components (a) information technology (IT); (b) industry; and (c)
logistic and consumer goods. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The twentieth century global
revolution in electronics contributed to both the automation of repetitive tasks and the
more efficient performance of other tasks. This revolution began in the late 1940s,
followed by advances in integrated circuit technology in the late 1950s. Since 1960,
continuous improvements in the production of components and subsystems have allowed prices
to decline sharply, while market size increased dramatically. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>There are two major groups of
components: a large family of active components and a small group of passive components.
Active electronic components are semiconductor products that supplanted the previous
generation of vacuum tube devices. Passive components can interrupt, resist, or otherwise
influence current flow, but cannot control it. Passive components are capacitors,
resistors, connectors, filters and inductors. In general, the &#147;passives&#148; are
used to enhance or supplement the performance of ICs. The demand for electronic components
is a derived demand. The vast majority of both active and passive components are installed
in &#147;original equipment manufacturer&#148; (OEM) products: consumer electronics, motor
vehicles, telecom equipment, factory automation systems, military hardware, and other
goods.  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Since electronic components are so
widely installed, their market is affected by all major macroeconomic variables, such as
capital spending, disposable income and government budgets. </FONT></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Radio Frequency Identification is an automatic identification method, which relies
on storing and remotely retrieving data using RFID tags or transponders. An RFID tag is an
object that can be attached to or incorporated into a product for the purpose of
identification using radio waves. Chip-based RFID tags contain silicon chips and antennae
and can be either passive, or active &#150; in which case they require an internal power
source. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RFID has been a recognized technology
since the 1970s, however until recently, the tags were too expensive for use in many
commercial applications. The technology has many uses such as tracking work in process at
the warehouse, and the finished goods in the supply chain. RFID can help reduce
administrative errors, labor costs associated with scanning bar codes, internal theft,
errors in shipping goods and provide better control over inventory levels. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tags can also solve many of the
problems currently associated with bar codes. Radio waves travel through most non-metallic
materials, so they can be embedded in packaging or encased in protective plastic for
weatherproofing and greater durability. The microchips in the tags can store a unique
serial number for every product manufactured. </FONT></P>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) Communication
Solutions (Sold in 2005) </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 1995 the first Client VoIP
solution was introduced to the market by VocalTec, an Israeli company that demonstrated
telephone calls over the Internet. 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. <BR><BR>As
broadband connectivity grows in popularity for all organizations, major savings on calls
are a potential reason for migrating traditional calls to VoIP. Service availability and
quality of service (QOS) are two key issues that enterprises need to address in the
Internet architecture. The incremental cost savings for
Internet telephony will depend on the mix between on-net and off-net calls. Global
enterprises with extensive private voice networks will realize greater savings on global
destinations by avoiding international tariffs. </FONT></P>


<p align=center>
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<page>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>With the accelerated growth and
penetration of the cellular communication, there is an increased demand to extend the PBX
functionality and connecting branch offices with the mobile community via cellular
gateways in order to reduce communication costs among different operators. </FONT></P>

<a name=zk619></a>



<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BUSINESS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Sub 2 Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Information
on the Company</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We were incorporated in Israel in
1990 and are subject to the Israeli Companies Law 1999 &#150; 5759. We design, integrate
and test our products in our facilities in two locations in Israel. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
executive offices and engineering, development, testing, shipping and service operations
are located in two Israeli facilities: in Rishon Lezion and in Yoqneam. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
telephone number is 972-3-954-1000 and our website address is <U>www.boscorporate.com</U>.
Our subsidiary Odem maintains a website showcasing our services in the field of RFID. The
website address is www.yourfid.com. The information contained on, or linked from, our
website is not a part of this prospectus. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We currently manage our operations
through our two wholly-owned subsidiaries: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOScom
Ltd. that is engaged in the Software Solutions segment of our business; and</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem
Electronic Technologies 1992 Ltd. that is engaged in the Supply-Chain Solutions segment
of          our business.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOScom Ltd.&#145;s subsidiaries are:
Better On-Line Solutions Ltd. in the U.K.; Better On-Line Solutions S.A.S. in France; and
BOS Delaware, Inc., in the

United States.

During 2003, the operation of all BOScom&#146;s subsidiaries
was ceased (only the US subsidiary still exists) and the sales and marketing in Europe and
the United States have since been conducted through master distributors. In February 2006,
BOS filed an application with the Companies House requesting the strike off and
dissolution of Better On-Line Solutions Ltd., the U.K. subsidiary. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem Electronic Technologies has a US
subsidiary, Ruby-Tec Inc., through which Odem markets its products in the United States. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On November 18, 2004, we purchased
63.8% of Odem&#146;s issued and outstanding shares from Odem&#146;s  shareholders,
for $2,740,000, comprised of cash in the amount of $1,971,000 and $769,000 by the issuance
of 290,532 of the Company&#146;s ordinary shares (subject to &#147;lock-up&#148; periods
of 2 to 4 years). We purchased an additional 23.9% and 12.3% from the minority
shareholders on September 29, 2005 and November 1, 2005, respectively, and thus Odem
became our wholly-owned subsidiary. In consideration for the 12.3% of Odem&#146;s shares
purchased in November 2005 the Company paid $554,000 in cash and for the 23.9% of
Odem&#146;s shares purchased in September 2005 the Company (i) issued 232,603 of the
Company&#146;s ordinary shares (subject to &#147;lock up&#148; periods of 2 to 4 years)
and paid $716,000 in cash. </FONT></P>

<p align=center>
<font size=2>61</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In addition, we have an interest in
two companies: </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)
          Surf Communications Solutions Ltd. (&#147;Surf&#148;), a developer and global
          supplier of universal access and network convergence software solutions to the
          wireline and wireless telecommunications and data communications industries. In
          November 2001, the Company invested $1,000,000 as part of a private placement in
          Surf, and converted a convertible loan in the amount of $1,042,000 into
          Preferred Shares in Surf. As a result of this private placement and conversion
          of the loan, the Company held 17% of Surf. In March 2003, the Company purchased
          from Catalyst Investments L.P. (&#147;Catalyst&#148;) most of the Surf shares
          held by Catalyst as a result of which Catalyst held 16.6% of the outstanding
          Company shares, after the issuance. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In September 2005, Surf executed a
private placement and in June 2006 the Company invested $300,000 in Surf as part of such
private placement, following which we held 7.8% of Surf&#146;s issued and outstanding
share capital. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)
          Qualmax Inc. (Pink Sheets: QMXI.PK) and its subsidiaries New World Brands (OTC:
          NWBD.OB) and IP Gear Ltd. Qualmax Inc., is an IT solutions provider focused on
          deployment of best-of breed VoIP, virtual private networks, turnkey network
          design, wireless connectivity and web. On December 31, 2005, we sold our
          Communications related property and equipment, goodwill, technology, trade name,
          existing distribution channels and related contingent liability to the Office of
          the Chief Scientist to IP Gear Ltd., a wholly owned subsidiary of Qualmax. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The consideration paid to the BOS in
the transaction was approximately 3.2 million Qualmax shares of common stock constituting
approximately 16% of Qualmax&#146;s total issued and outstanding Common Stock as of
December 31, 2005, and $800,000 in royalties to be paid at a rate of 4% from future
revenues IP Gear will generate from the disposed segment with the
entire $800,000 due no later than 90 days from the third anniversary of the closing of the
transaction. Additional shares were issuable to the Company at the end of four consecutive
fiscal quarters following the closing of the transaction, contingent upon IP Gear
generating by then a certain level of revenues from the disposed segment (&#147;Earn Out
Shares&#148;). The maximum number of Earn Out Shares that could further be issued to the
Company is approximately 1 million, constituting approximately 5% of Qualmax&#146;s
outstanding shares as of June 15, 2006. On June 8, 2006, Qualmax issued to BOS, on account
of the abovementioned commitment, 250,000 Earn Out Shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Qualmax also issued to the Company a
five-year warrant for the purchase of up to 107,143 shares, constituting less than 1% of
its outstanding shares in Qualmax, at the exercise price of $2.80 per share
(&#147;Warrants&#148;). The Company received certain piggy-back registration rights with
respect to the Qualmax shares and the shares underlying the Warrants. The Company does not
have a representative on the Board of Directors of Qualmax. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In addition, the Company and IP Gear
entered into an Outsourcing Agreement, pursuant to which the Company provided IP Gear with
certain operating services relating to the sold Communications Segment, until December 31,
2006. In accordance with the Agreement, the first three months of services were provided
for no charge. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company also granted a bridge
loan to IP Gear in the amount of $1,000,000. The term of the loan was three years and it
bore interest equal to the Prime rate plus 2.5%, up to a maximum of 12%. In the first 18
months, IP Gear was to pay only the interest accrued on the loan and monthly principal and
interest payments were to commence thereafter. The loan granted to IP Gear was secured by
a first priority floating charge, which may be subordinated to a charge in favor of Bank
of America, NA in the event such charge is recorded. In addition repayment was guaranteed
by Qualmax Inc. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The loan agreement provided that if
the disposed segment would incur in the first quarter of 2006, losses that exceed
$250,000, the principal amount to be repaid under the loan shall be reduced by the excess
losses. In such event, Qualmax was to issue to the Company additional shares of Common
Stock against such reduction, valued at a predetermined price of $1.43 per share. Pursuant
to this provision, in May 2006, Qualmax issued to the Company 244,755 shares, and the
principal amount of the loan was reduced to $650,000.


In June 2006, Qualmax issued to BOS additional
174,825 shares, further reducing the principal amount of the loan, to $ 400,000.


 </FONT></P>

<p align=center>
<font size=2>62</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In addition, the loan was to be
immediately repaid in the event Qualmax raises by way of equity financing (or a series of
equity financings) an aggregate amount equal to at least $4,500,000. <BR>
<BR>
Our Qualmax holdings
as of June 30, 2006, equal approximately 18.5% of Qualmax&#146;s issued and outstanding
Common Stock, including 250,000 earn-out shares and 419,580 shares issued upon conversions
during the first half of 2006, of an aggregate of $600,000 of the bridge loan. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On September 18, 2006, Qualmax
announced that it had consummated the transfer of all of its assets and liabilities to New
World Brands, Inc. (&#147;New World&#148;, NWBD.OB) in exchange for

Series A Convertible


Preferred Stock of New World convertible into common stock with approximately 86% of the
voting power of New World. The shares of common stock of New World are quoted on the Over
the Counter Bulletin Board. Immediately prior to the closing of the transaction, New World
sold all of its former business operations. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On January 10, 2007,  we announced
that we closed a transaction with Qualmax and its subsidiaries, New World Brands and
IPGear, pursuant to which converted approximately $1.5 million payable to us by Qualmax
and IPGear into 5.50652 shares of Series A Convertible Preferred Stock of New World, which
are convertible into approximately 16,500,000 shares of New World Common Stock, reflecting
a conversion rate of $0.09 per one share of Common Stock. Conversion of the Series A
Preferred Stock into Common Stock will take place automatically upon effectiveness of an
amendment to the New World Brands&#146; certificate of incorporation authorizing an
increase

in the number of outstanding shares of
common stock.

Our registration rights with respect to the Qualmax Shares shall be applied also
towards our New World Shares. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In connection with the transaction,
we agreed to grant New World, contingent upon the satisfaction of certain conditions, a
three-year option to purchase up to 30% of the New World shares held by us, at prices
ranging from $0.12 to $0.24 per share of Commons Stock. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In addition, we agreed to enter into
a lock up agreement, restricting the transfer of our share holdings in Qualmax and in New
World, for up to two years. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Discontinued operation &#150;
computer networking:</I> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On June 1, 1998, we acquired 100% of
the share capital of PacInfo, a U.S. corporation which resold, installed and provided
computer networking products to various business entities. In 2001, PacInfo 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&#146;s industry-leading
eServer pSeries and xSeries lines of servers, as well as IBM Total Storage Solutions. In
the fourth quarter of 2002, PacInfo&#146;s operation was wound up. Dean Tech has also
ceased all operations. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our U.S. subsidiaries are Lynk USA,
Inc., and its subsidiary PacInfo, Inc. Both are non-operational and commencing the
beginning of year 2003 we market our products in the U.S. through one Master Distributor.<BR><BR>
In September 2004, the Company purchased most of the assets (and liabilities) of Quasar
Communication Systems Ltd., an Israeli company engaged in the business of developing,
manufacturing and selling cellular communication gateways for an aggregate consideration
of $539,000 by the issuance of 285,000 of the Company&#146;s ordinary shares. The assets
and some of the liabilities of Quasar were transferred into Quasar Telecom (2004) Ltd.
(&#147;Quasar Telecom&#148;), a wholly owned subsidiary of the Company (previously named
Boslynk Ltd.). The acquisition enabled the Company to continue developing the
Communication segment, while offering to the Company&#146;s clients an extended product
line enabling savings in telecommunication expenses for enterprise. In December 2005, the
assets of Quasar Telecom were sold to IP Gear Ltd., a wholly owned subsidiary of Qualmax
Inc. </FONT></P>

<p align=center>
<font size=2>63</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Description of Business
Segments and Product Lines </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) Software Solutions
Segment. </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our Software Solutions segment
focuses on providing connectivity solutions for the popular IBM iSeries, enabling
customers to extend its capabilities and life cycle. Our server and associated modules
empower the iSeries, providing a scaleable solution for transparent expansion and growth.
As the trend of customer immigration from IBM iSeries to different systems has continued,
we have increased our sales and marketing activities and continue to
develop new products and solutions in order to maintain our market share and

our


revenues from the Software Solutions segment. We are continuously seeking additional
distributors and resellers. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Until July 2005, the Software
Solutions segment also included the PrintBOS, an Output Management solution, which
provides design, print, distribution and archiving management solutions and enables
customers to cut costs, enhance brand and marketing clout, and direct output to multiple
distribution channels. The PrintBOS was sold in July 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commencing the second half of year
2003 we completed the transfer of sales and marketing activities of Software Solutions and
VoIP products from our subsidiaries abroad to distributors and resellers.  </FONT></P>



<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Software
Solutions products are based on TCP/IP to Twinax controllers, as well as iSeries full and
rich TCP/IP emulation, that help extend the life cycle of the organization&#146;s iSeries.


The


products

have superior

 emulation capabilities, compatibility and transparency. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Realizing the changing role of this
IBM midrange environment in today&#146;s workplace, our mission is to provide our users
with technologically advanced and cost-effective solutions for connectivity between them
and personal computers, mobile devices and local area networks, whether local or remote.
We sell and support our products worldwide through distributors, and value-added
resellers. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our proprietary products are sold to
users of IBM iSeries, 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 iSeries servers and the growing number of users who
connect to these computers through the Internet, intranets, mobile devices and various
other connectivity products. 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 iSeries server. 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 Software solutions are offered at two levels &#150; 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We are using our expertise in the
midrange computer environment to

also

develop Internet/intranet solution products that will
enable and enhance connectivity between IBM iSeries computers, personal computers and
mobile devices via the Internet and intranets.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2005 and in the first nine months
of the year 2006, 14% and 10% of our sales,

respectively,

 were attributable to sales of Software
solutions and services. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Below is a description by category of
our Software product line: </FONT></P>

<p align=center>
<font size=2>64</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a1) Software based
solutions </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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
iSeries. Development resources in 1999 were directed toward making TCP/IP connectivity
available for Twinax users. The e-Twinax 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our products under this category
include: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA
TCP/IP</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A robust client application that
provides Windows9x/Me/NT/2000/XP users on a TCP/IP network with essential iSeries
connectivity. The product includes BOS&#146;s rich 5250 emulation, Line Printer Deamon
printing capabilities, file transfer and a remote command facility. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA
Secure </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A BOSaNOVA Secure is an all-in-one
solution for totally secure iSeries emulation delivering security from the workstation
through the TCP/IP net to the organization level. Secured TN5250 emulation is a solution
for the Desktop on the TCP/IP net, which implements SSL and SSO (Single Sign ON) with
Kerberos. This security emulation provides a comprehensive net security solution,
including data on the net. While current customers can implement the SSL protocol and SSO
(Single Sign ON) by adding BOSaNOVA Secure to BOSaNOVA TCP/IP, new customers are offered
BOSaNOVA Secure. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA
Web </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In December 1997, we introduced
BOSaNOVA Web, a Java-based application that provides iSeries web-emulation, allowing
organizations to upgrade their iSeries to enable full web benefits. BOSaNOVA Web slashes
communication costs, ensures a friendly, cost effective, transparent work environment

and

installs rapidly and easily without a client install. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loaded on a central server and
managed by a network supervisor, BOSaNOVA Web allows normal user changes to occur
hassle-free. Whether moving users to new workstations, upgrading software, pushing out new
applications, or enhancing security, users simply log on to receive the correct
workstation parameters for their jobs. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The server and users are managed
easily and economically via the browser. The Network Supervisor can change or modify
parameters from any enterprise computer whether internal or external. There is no need to
use the server&#146;s computer for changes or upgrades. It is all done seamlessly via the
web and from a remote workstation. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Application upgrades and parameter
changes are automatically delivered to end-users as soon as they log on via the browser to
the web server integrated into BOSaNOVA Web. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA Web eliminates the need for
both additional &#147;push&#148; software and expensive technical support at the desktop.
Additionally, the client/server architecture means current cache capabilities can be used,
thus enabling upgrades in real-time. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The client/server architecture allows
all internal and external iSeries users to benefit from the network. Users access the
iSeries through the BOSaNOVA web server which incorporates a web server. The server
encodes all transmitted information, complying with SSL standards, amplified by user
verification via a client certificate. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOS&#146;s Printer Client technology
is embedded in BOSaNOVA Web to enable to print via the web. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA
Spooler </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>65</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In April 2006, we released the new
BOSaNOVA Spooler product, which is an iSeries Spool Printing Solution for WEB Application
Servers. iSeries spooled files can be printed and managed, from any web environment
workstation connected to the organization&#146;s server via the internet. It is easily
integrated with other Web application servers such as IBM WebSphere&reg; and Microsoft
IIS&reg;. The BOSaNOVA Spooler has an advanced, flexible mechanism for direction of Telnet
Printer Sessions, tailored to the needs of every organization. The server and users are
managed easily and economically via the browser-based BOSaNOVA Spooler Administrator
Configurator. The System Administrator can change or modify parameters from any enterprise
computer, whether internal or external. Users can simply log in and receive the correct
workstation parameters. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA
Mobile </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In March 2006, we announced the new
BOSaNOVA Mobile product, which combines the convenience of mobile instruments with the
ability, stability and power of a BOSaNOVA platform. The system converts mobile
instruments such as mobile terminals and cellular telephones to mobile work stations while
using the familiar emulation of the fixed work stations. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA Mobile is based on a server
architecture, enabling central management of work stations, without the need to make local
definitions for every mobile instrument in the network. It enables dynamic and remote
identifications of users, configurations of mobile work stations, automatic installation
and updating of software in the cellular instrument and the mobile terminal. In addition,
the system provides a solution to the problem of instability in the network, enables
maintaining and retrieving information up to the point when the mobile instrument was cut
off. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA Mobile enables end users to
perform their work from any place, while using the familiar emulation of work stations in
mobile terminals and cellular instruments. The mobile instruments maintain a work
environment recognized from end stations. In addition, the Screen Designer module, which
is part of the BOSaNOVA Mobile enterprise server, enables end users to redesign their
working screens so they will fit to the size of the mobile screen without changing the
application itself. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The creation of the BOSaNOVA Mobile
is part of the process to expand the basket of solutions of the BOSaNOVA products family
to additional fields, while maintaining the capability of central management and control
tools, also when using advanced instruments. BOSaNOVA Mobile also enables all
organizations to shorten the work process, to make the work of agents in the field much
more efficient and to keep them all up-to-date in real-time. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Sub 2 Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(a2)
Hardware and software based solutions</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The e-Twin@x Controller, which made
its debut in 1999, supplies a secure, encrypted TN5250e connection to the iSeries 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-TwinStar, 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our products under this category
include: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>e-Twin@x
Controller </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>This product provides IP over Twinax
connection to local and remote Series, 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). </FONT></P>

<p align=center>
<font size=2>66</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Native
Plus </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>An IBM-compatible Twinax card with
5250 Stealth Technology&#153;. This product does not require a memory segment of the
personal computer or its valuable resources in order to facilitate interaction with the
hardware. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOSaNOVA
Plus </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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&#153;. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a3) Software Utilities </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Until July 2005 the Software
Solutions segment had an additional product line &#150; the PrintBOS Output Management
product, which was introduced in late 1998 as an innovative Enterprise Output Management
solution answering a growing demand for central printing and output management solutions
in medium and large IT organizations. PrintBOS is implemented as the central solution for
layout design, printing, faxing, e-mailing, archiving, barcode printing, cheque printing
and secured printing in banks, insurance companies and medium and large corporations. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On July 18, 2005, BOScom signed an
asset purchase agreement with Consist Technologies Ltd. and Consist International Inc.
(collectively, &#147;Consist&#148;), for the sale of its PrintBOS product line in
consideration of $500,000 and a contingent payment in each of the next three years equal
to 6-10% of future revenues exceeding $1,000,000 per year, generated by Consist from the
PrintBOS product line. The Company has accounted for a gain of $273,000 in 2005. As of
September 30, 2006, the Company has received $375,000 and the remaining $125,000 has been
placed in escrow, pending repayment of royalties to the Office of the Chief Scientist
(&#147;OCS&#148;) on sales of PrintBOS products. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Supply-Chain
Solutions Segment </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our Supply-Chain Solutions segment,
provides, through Odem, solutions in RFID (Radio Frequency Identification Devices),
semiconductors, electronic components, CCD (Charge &#150; Coupled Devices), imaging,
networking, telecom and automation. Odem is a major solution provider and distributor of
electronic components and advance technologies in the Israeli market. </FONT></P>






<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We constantly
seek growth opportunities by developing new marketing channels for our products in North
America, Europe and emerging markets in Eastern Europe, Asia-Pacific and South America. We
intend to continue to raise funds in order to expand operations and capitalize on merger
and acquisition growth opportunities. <BR><BR>Below is a description of our Supply-Chain product
line. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(b1)</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Radio
Frequency Identification Devices (RFID) solutions </B> </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RFID is the use of radio frequencies
to read information from a small device known as a tag that can be sensed at a distance by
radio frequencies. The tag can be any small device such as pendants, beads, nails, labels,
microwires and fibers.


According to a research entitled "RFID Forecasts, Players &amp; Opportunities
2007-2017", which was released on February 2007 by IDTechEX, a knowledge based
company specializing in providing independent marketing, technical and business
advice and services on RFID smart labels, the total RFID market value (including
all hardware, systems, integration etc.) across all countries is expected to
reach $4.96 Billion in 2007.

We believe


that the future years shall bring another new development &#150; the tagging of high
volume items &#150; notably consumer goods, drugs, and postal package &#150; at the
request of retailers, military forces and postal authorities. </FONT></P>

<p align=center>
<font size=2>67</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2004, Odem started to provide
products and solutions in the field of RFID and successfully implemented an RFID solution
in the Maccabia sports event and in a dairy farm (identification of cattle), both in
Israel. On January 10, 2007, we announced that Odem has entered into an agreement with
Environmental Solutions Europe Holdings B.V. (&#147;ESE&#148;) for the supply of RFID tags
for tagging garbage bins and collection containers. ESE is a major provider of waste
management services in Europe. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(b2)</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Electronic
Components </B> </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem imports electronic components
and distributes them to the local defense and civilian electronic industries. It
represents suppliers of components in four categories: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1)
          Active Components &#150; semiconductors, transistors, detectors, diodes,
          integrated circuits, hybrid modems, cellular components, communication ICs,
          memories, displays, and LEDS; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2)
          Passive Components &#150; capacitors, thermistors, varistos, oscillators,
          crystals, resistors, C-DC converters, and power supplies; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3)
          Electro-mechanical Components &#150; relays, connectors, circuit breakers,
          filters, transformers, plugs, thermostats, switches, etc. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4)
          Discontinued Semiconductors- made by Intel, Fairchild, Harris, Microchip,
          National, Quality SMC, Texas Instruments, Vantis, Motorola, and more. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In September 2004, Odem entered into
a long term sales agreement with the Israel Aircraft Industries Ltd. (IAI) for the supply
of certain electronic components to be used by IAI in the manufacture of certain models of
business jets through December 2008. The agreement provides for a fixed sales price of
components during its term and also requires Odem to hold inventory of products necessary
for three months of IAI&#146;s production relating to such components. Appendix A to the
agreement includes a list of the more than 260 individual electronic components covered by
the agreement with their prices, that except for a few components (the most expensive of
which is priced below $800), are below $100. IAI has the right to add additional
components to the agreement at prices to be negotiated by the parties, which shall be no
less favorable than the prices that Odem charges to its other customers. The agreement
does not include a requirement for any minimum purchase quantities by the IAI. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sales to IAI accounted for 14% of our
revenues in the year 2005 and for 22% of our revenue in the first nine months of 2006,
however the vast majority of Odem&#146;s sales to the IAI was made pursuant to individual
purchase orders on standard terms that are not subject to the above agreement. An
interruption in our business relationship with the IAI would materially adversely impact
our financial results. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(b3)</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Data
systems </B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem provides full access solutions
for IT and telecommunications (LAN/WAN) applications, selling communication servers,
multi-protocol print servers, server adapters, USB products, switches, fiber optics
equipment, ADSL and XDSL routers, modems, VoIP equipment, ATM devices, and more. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(b4)</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Image
Processing Products </B> </FONT> </TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem markets image processing
products, charge-coupled-device (CCD) and CMOS imaging technologies. The products and
technologies Odem markets in this field, such as CCD &amp; CMOS sensors, line and area
scan and camera interface items, are used in applications of management and quality
control in production lines for products such as semiconductors, PCBs, and textiles. </FONT></P>

<p align=center>
<font size=2>68</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2005, and in the nine months ended
September 30, 2006, 75% and 90% of our sales were attributable to sales of the Electronic
Components Solutions segment. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) Communication
Solutions (Sold in 2005) </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our Communication products included
multi-path, intelligent routing VoIP gateways, GSM gateways and other cellular gateways.
Designed for the corporate market, these devices enable major reduction of inter-office,
long-distance and cellular-to-line communication costs using VPN, cellular-to-cellular
networks or the public Internet to carry telephone calls. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Additionally, they extend PBX
functionality to enterprise branch offices. Supporting standard protocols, the gateways
are built on robust platforms to allow modular incorporation of value-added applications.<BR><BR>
Designed for the enterprise market and OEMs, our Claro VoIP solutions were the preferred
choice for sites requiring just a few connections through mid-market sites with hundreds
of connections. Our VoIP products were distinguished by their seamless integration. For
end users, this means absolutely no change in their familiar work environment, eliminating
a learning curve. For enterprises, it translates into a more affordable, attractive
investment, as VoIP products fit in with existing equipment, and demand no changes or
additions, delivering significant, measurable economies of cost. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Cellular Gateways Solutions of
Quasar Telecom became an integral part of the Communication segment with their acquisition
in 2004. Quasar Telecom&#146;s proven cellular technology created gateways between the
corporate PBX and cellular network to enable cost savings of communication cost. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2005, 11% of our sales were
attributable to sales of Communication products and services. As aforementioned, the
assets of the Communication Solutions segment were sold to Qualmax&#146;s subsidiary,
IPGear Ltd. in the fourth quarter of 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Marketing, Distribution
and Sales </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We market our products primarily to
medium and large sized corporations through a combination of direct sales, indirect
distribution and original equipment manufacturers. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the United States, we market our
Software solutions through one master distributor 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. Odem
(Supply-Chain solutions) markets its products and services in the United States through a
wholly owned company, Ruby-Tech, Inc., located in Sherbourn, Massachusetts. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In Europe, we market our Software
solutions 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. <BR><BR>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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our Software solutions&#146; largest
customer is our master distributor located in Phoenix, Arizona, and Odem&#146;s largest
customer is located in Israel. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our Company&#146;s sales do not
fluctuate seasonally, with the exception that third quarter sales are affected
(set back) by vacations in Europe and the holidays in Israel, and December and January
sales are affected (set back) by the Christmas season. Revenues of our subsidiary, Odem,
fluctuate in times of security tension as a result of increased sales to the defense
industries. </FONT></P>

<p align=center>
<font size=2>69</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table sets forth our
revenues (in thousands of US$) from the continuing operations, by major geographic area,
for the periods indicated below: </FONT></P>







<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months<BR>
ended June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>%</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>%</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>%</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>%</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="17%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>United States</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,087</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,615</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,252</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>39</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,974</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>52</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Europe</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>447</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,887</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,066</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,198</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Far East</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,253</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,083</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>701</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Israel and others</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,772</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>71</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,468</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,263</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>40</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,556</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total Revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,559</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27,053</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,282</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,728</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Manufacturing </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The products of our subsidiary
BOScom, are designed, integrated and tested at our facilities in 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 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 volatile and availability of electronic components
may vary due to changing demand in the market. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem distributes products that are
manufactured by third party suppliers. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Employees </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of June 30, 2006, we employed 70 employees (including employees of our subsidiaries).
All of our employees are employed in Israel. Of the 70 employees, 21 employees are
in administration and finance, 22 employees in marketing and sales, 9 employees in
research and development, 3 employees in technical support, and 15 employees in
manufacturing and related activities. As of December 31, 2005, we employed 98 employees
(the decrease in the number of employees in 2006 compared to 2005, is mainly due to the
sale of the Communication segment in December 31, 2005). As of December 31, 2004, we
employed 93 employees. As of December 31, 2003, we employed 57 employees worldwide (the
increase in the number of employees in 2004 compared to 2003, is mainly due to the
acquisition of Odem). We believe that our relations with our employees are satisfactory.
We have not experienced a collective labor dispute or strike. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, allotment of vacation and sickness
days, procedures for dismissing employees, determination of severance pay and other
conditions of employment. </FONT></P>

<p align=center>
<font size=2>70</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146; 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Intellectual Property </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 &#147;trade
secrets&#148; or subject to copyright protection. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On May 10, 2006 the Company received
a written demand from IDEAL Software GmbH, a German corporation, in which it claims that
the Company owes it &#128;1.13 million for unpaid license fees. On June 11, 2006 the
Company filed with the Haifa District Court in Israel a claim against IDEAL.

Recently,

we announced that we entered into a settlement of this dispute, pursuant to

which,

on December 21, 2006, we paid IDEAL an amount of &#128;110,000, and agreed
to withdraw the claim we filed against IDEAL. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Competition </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Software Solutions:</U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The

Software Solutions

market is subject to
rapidly changing technology and evolving standards incorporated into personal computers,
networks and host computers. BOScom&#146;s products compete with products that have
already been on the market for a number of years and are manufactured by competitors, most
of which have substantially greater financial, marketing and technological resources and
name recognition than ours. <BR><BR>Our competitors include IBM, Perle, Advanced Business Link,
IGEL, CLI PowerTerm, NLynx, NetManage, Attachmate, and Seagull, Adobe, Optio and
Formscape. </FONT></P>

<p align=center>
<font size=2>71</font></p>
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<page>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Supply-Chain Solutions:</U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The common practice in the industry
is that suppliers and manufacturers usually grant a non-exclusive representation right in
a specific territory. As long as sales reach a reasonable level and the relationship
between the parties is good, the supplier will usually not grant another representation in
the agreed territory. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Although most of Odem&#146;s
representation agreements are not on an exclusive basis, in most cases it does not have a
local competitor who distributes components from the same source. However, there may be
competition in case of similar components made by other manufacturers. In October 2005,
Odem&#146;s major supplier to the Far East market opened headquarters in China,

causing a substantial decrease in Odem&#146;s sales to

the Far East. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The number of instances in which
territorial-based distributing agreements are challenged by large foreign distributors,
who receive a special discount on large volume purchases from the suppliers and compete
with the local distributor by selling directly to its customers, is increasing. Still,
despite inferiority in pricing, local distributors have some advantages over such
competition by providing close and continuous technical support, large inventory, a wide
spectrum of products and short reaction time. <BR><BR>Odem currently represents about 45 overseas
suppliers, of which approximately 29 are electronic components suppliers, 5 are suppliers
of IT equipment, 5 are suppliers of market image-processing products and 6 are suppliers
of RFID tags. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The electronic market is
characterized by multiple agents and distributors. Five local electronic component
competitors &#150; Telsys Ltd., Nisco Projects Ltd., STG Ltd., Semicom Ltd. and Rapac
Electronics Ltd., are publicly traded on the Tel Aviv stock exchange. Other large and
influential competitors which are active in the electronic components market are
Eastronics Ltd., STG International Ltd., Chayon Computers Ltd., RDT Ltd. and Abnet
Communications Ltd. There is an increase in the number of distributors that are owned by
international companies. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Strategy </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s strategy is to
enable organizations to increase operational efficiencies while leveraging their existing
infrastructure. We will continue to focus and enhance our existing product lines and
continue to search for additional growth through mergers and acquisitions, while our main
focus in the near future shall be on expanding

our  RFID

applications and actively searching for
acquisition opportunities, in the growing RFID field. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The key elements of our strategy are
as follows: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Increase
Representations. We continue to search for additional companies to represent through
         our Electronic Components segment.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 own sales representatives. </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acquisition
of companies or businesses that will increase our sales and profit, or acquisition of
complementary technologies or products that we can sell through our existing distribution
network. </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Maximize
efficiency for IBM midrange market. Through our Software Solutions segment, we intend to
expand and support our connectivity 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. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>72</font></p>
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<page>


<a name=zk620></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ORGANIZATIONAL
STRUCTURE </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s wholly owned
subsidiaries include: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In Israel &#150; (1) BOScom Ltd. (2)
Quasar Telecom, which obtained the assets BOS acquired in September 2004 from Quasar
Communication Systems Ltd. The assets of Quasar Telecom were sold to IP Gear Ltd., a
subsidiary of Qualmax Inc. as part of the sale of the Communications Segment in the fourth
quarter of 2005. (3) Odem, which we purchased on November 18, 2004 from Odem&#146;s
existing shareholders, and in which by November 2005 our holdings increased to 100%. Odem,
an Israeli company, is a major solution provider and distributor of RFID and electronics
components and advance technologies in the Israeli market. <BR><BR>In Europe &#150; BOScom had 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&#146;s products
abroad. In mid-2003 we decided, due to cost-efficiency considerations, to cease operations
in Europe through the subsidiaries and to market through distributors and resellers, and
the subsidiaries are no longer operational and have been closed. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the U.S. &#150; (1) Ruby-Tech
Inc., a wholly owned subsidiary of Odem, (2) Lynk USA Inc., a subsidiary of BOS, and its
subsidiary PacInfo (both Delaware corporations) and PacInfo&#146;s subsidiary, Dean Tech
Technologies Associates, LLC. (&#147;Dean Tech&#148;), a Texan corporation, and (3) BOS
Delaware Inc. a Delaware corporation. Only Ruby-Tech is still operational. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The voting power we (or our
subsidiaries) have in all subsidiaries, equates to our shareholdings. <BR><BR>The Company also has
an interest in Surf Communication Solutions Ltd. in which it has been investing since
1997, and in Qualmax Inc.

and its subsidiary New World Brands Inc.

 in which it has been invested since December 2005. </FONT></P>

<a name=zk621></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROPERTY, PLANTS AND
EQUIPMENT </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Our
executive offices and engineering, development, testing, shipping and service operations
are currently located in two Israeli facilities (in Rishon Lezion and in Yoqneam), and
occupy a total of approximately 1,719 square meters. BOS occupies 537 square meters in
Rishon Lezion, pursuant to a lease which expires in January 2002. Odem occupies 792 square
meters in Rishon Lezion, of which 302 square meters are owned by Odem and the remaining
space is rented pursuant to lease agreements for various periods, with terms that expire
within one to three years. BOScom occupies a total of 390 square meters in Yoqneam,
pursunat to leases that expire within one to three years. The current monthly rental fee
for these lease agreements amounts to $9,134. In 2005, Quasar Telecom occupied 374 square
meters in Rehovot, pursuant to a lease that was assigned to IP Gear commencing January 1,
2006.<BR><BR>Our average monthly rental fee in 2005 and 2006
amounted to $16,000 and $10,000, respectively. </FONT></P>

<p align=center>
<font size=2>73</font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The facilities in
Yoqneam are located in a part of Israel, which has been designated by the
government as a &#147;Development A&#148; area. This designation relates to the benefits
available to us as an &#147;Approved Enterprise&#148; under Israeli law, that entitles us
and our shareholders to reduced income tax rates on our income and on dividend
distributions. </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We believe that our facilities are
sufficient to accommodate our anticipated needs in the foreseeable future. </FONT></P>

<a name=zk622></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MANAGEMENT </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set
forth below is information regarding our directors and senior management. </FONT></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Name</FONT><HR WIDTH="95%" SIZE="1" COLOR="BLACK" NOSHADE ALIGN="LEFT"></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Age</FONT><HR WIDTH=90% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Position</FONT><HR WIDTH="95%" SIZE="1" COLOR="BLACK" NOSHADE ALIGN="LEFT"></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="40%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Edouard Cukierman</FONT></TD>
     <TD WIDTH="10%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>42</FONT></TD>
     <TD WIDTH="50%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chairman of the Board of Directors</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Shmuel Koren</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President and Chief Executive Officer</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Eyal Cohen</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>37</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief Financial Officer</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Adiv Baruch</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Joel Adler</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>52</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Avishai Gl&uuml;ck</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Andrea Mandel-Mantello</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Ronen Zavlik</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Jean-Marc Bally</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dr. Yael Ilan</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>57</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>External Director</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Prof. Adi Raveh</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>58</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>External Director</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Avidan Zelichovsky</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem's CEO, Head of RFID &amp; Supply-Chain Segment</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Shai Sadeh</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Senior VP, Software Solutions Segment</FONT></TD></TR>
</TABLE>
<BR>


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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Edouard Cukierman</B> has been a director since May 2003, and Chairman of the
          Company since June 2003. Mr. Cukierman is the founder and CEO of Catalyst
          Investments and Chairman of Cukierman &amp; Co. Investment House. Since 1993,
          Cukierman &amp; Co. Investment House realized &#128; 1.7 Billion  of Corporate
          Finance transactions. Mr. Cukierman is a former Board member of Orex, MTI
          Wireless and other technology companies. He was the President and CEO of the
          Astra Fund. He served as a Board member of Otto Capital, a Singapore based VC
          fund. He was the former President of the Supervisory Board of Citec-Environment
          and Services in Paris. He is currently a Board member of Lamina Technologies in
          Switzerland. He is also on the Board of Sar-El, an Israeli Defense Forces
          volunteer organization. He serves as an Officer of the IDF Spokesman Unit, and
          is part of the Hostage &amp; Crisis Negotiation Team (Reserves). Mr. Cukierman
          holds an MBA from INSEAD, Fontainebleau, France and a B.Sc from the Technion
          &#150; Israel Institute of Technology. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Shmuel Koren</B> has been serving as the Company&#146;s President and CEO Since
          November 2006. From 1999 to 2006 Mr. Koren served as the Chief Financial Officer
          of Visonic Ltd. (LSE: VSC.L; TASE: VSC.TA). Prior to joining Visonic, Mr. Koren
          worked at Oren and Horowitz (an Israeli CPA firm), where he served for five
          years as a senior manager specializing in public companies and Israeli IPOs. Mr.
          Koren is a certified public accountant in Israel. He holds a B.A. degree in
          Business and Accounting from the Tel Aviv College of Business, an International
          M.B.A degree from the Herriot-Watt University Business School and a Masters
          degree in Law (LL.M.) from Bar Ilan University. </FONT></P>

<p align=center>
<font size=2>74</font></p>
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<page>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Eyal Cohen</B> was appointed the Company&#146;s Chief Financial Officer on
          January, 2007. From 2004 through 2006 Mr. Cohen served as the Company&#146;s
          controller, and prior to that held the position of Chief Financial Officer at
          Cellact Ltd. From 1998 to 2001, Mr. Cohen was the controller of e-SIM Ltd.
          (NASDAQ:ESIMF) and in the years 1995-1997 held an audit manager position in
          PricewaterhouseCoopers. Mr. Cohen holds an B.A. in Accounting and Business
          Administration from the College of Management in Tel-Aviv and is a certified
          public accountant in Israel and in the United States,<I> </I>in the state of
          Maine. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Adiv Baruch</B> has been a director since February 2004 and the Company&#146;s
          President and CEO service provider from January 1, 2004 and until October 31,
          2006. 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, that was acquired
          by Ness. He has served as a founder and an executive or director for several IT
          companies and Internet start-ups, and was significantly involved in the M&amp;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 in several public and private
          companies, including MLL Software Industries Ltd. and Maayan Ltd., two Israeli
          public companies traded on the TASE, as well as for Zone 4 Play Inc. He has a
          B.Sc. in Information Systems and Industrial Engineering from the Technion &#150;
          Israel Institute of Technology. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September 27, 2006 the Company announced that Mr. Adiv Baruch has notified the Board that
he shall be leaving the Company. The Company further announced that the
new President and CEO will be Mr. Shmuel Koren. Mr. Koren assumed his position on November
1, 2006. Mr. Baruch continues to serve on the Company&#146;s Board of Directors. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
Joel Adler </B>has been a director since June 2005. Mr. Adler is a partner in
Mishcon de Reya a leading law firm in London. He specializes in mergers &amp;
acquisitions and corporate finance work, in particular international corporate
transactions . Joel advises a number of major Israel based companies on their
business activities in the UK and Europe and on IPO of foreign companies on the
London Stock Exchange (AIM). Mr. Adler joined Mishcon de Reya as a partner in
2006, from the London law firm of Speechly Bircham, where he was a partner from
1999 .Previously Mr. Adler was head of the corporate department of Rakisons (now
part of US law firm Steptoe &amp; Johnson). He gained his experience with other
leading law firms in London Herbert Oppenheimer Nathan &amp; Vandyck (now Denton
Wilde Sapte) and DJ Freeman . He is a member of the Israeli Bar and worked for
the well-known Israeli law firm Caspi &amp; Co. for two years. Mr. Adler holds a
law degree from Bar Ilan University in Israel, and an LLM from London
University. He was born and educated in Vienna.  </FONT> </P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Avishai Gl&uuml;ck</B> has been a director since February 2004. He serves as the
          Executive Vice President of Catalyst Investments. Mr. Gl&uuml;ck has financial
          management, accounting and tax consultation experience, as well as extensive
          knowledge of the Israeli high tech market, having screened hundreds of companies
          for Catalyst and as a senior corporate consultant at E&amp;Y Israel. Mr.
          Gl&uuml;ck currently serves as a director in Onset Technology Ltd. Prior to
          joining Catalyst, he held the position of Corporate Finance Consultant and
          accountant with Ernst &amp; Young&#146;s Israeli affiliate Kost Forer &amp;
          Gabbay, a leading Israeli CPA firm with a dominant position among Israeli
          technology companies. Mr. Gl&uuml;ck has a BA from Tel-Aviv University in
          Accounting and Economics and is a licensed CPA. </FONT></P>

<p align=center>
<font size=2>75</font></p>
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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Andrea Mandel-Mantello</B> 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. 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&#146;Agricoltura in Rome. During his investment banking career
          Mr. Mandel-Mantello has pioneered several financial instruments in Italy
          including securitisations, equity linked products and high yield bonds. He is
          currently on the boards of Telit Plc (telecom equipment) listed on AIM; Coraline
          S.p.A., a company set up to acquire the business of Frette S.p.A. (luxury
          homeware products); and Moto S.p.A., a joint venture between Cremonini S.p.A.
          and Compass Group Plc (motorway restaurants). He holds a Bachelors degree in
          Economics and Political Science from Yale University. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Ronen Zavlik</B> 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&#146;ariv
          Holdings Ltd, Extra Plastic Ltd., Israel Land Development Malls and Shopping
          Centers Ltd., Rapid Vision Ltd., and Optima Management and Investments 66 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. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Jean-Marc Bally</B> was elected to the Board in May 2006. Since March 2006 he
          has been serving as the General Partner &amp; Managing Director of Schneider
          Electric Ventures, a venture capital company with &#128;50 Millions under
          management. Previously, Mr. Bally was an Investment Partner at Schneider
          Electric Ventures for 5 years where he was responsible for communications and IT
          industries investments across Europe focusing in particular on microtechnologies
          and electronics. Mr. Bally currently serves as a director in Ixiasoft Inc.
          (Canada), ConnectBlue ab (Sweden), Tracetel SA (France) and HBA SA (France) and
          holds an observer position in Microbridge Technologies Inc. (Canada), Netasq SA
          (France) and Tronic&#146;s Microsystems SA (France). Prior to his engagement
          with Schneider Electric Ventures, Mr. Bally spent 5 years in Corporate Finance
          in Schneider Electric SA. Mr Bally holds a Masters (License) degree in
          Mathematics from Blaise Pascal University &#150; Clermont-Ferrand, an additional
          Masters degree in Business Management from Grenoble Graduate School of Business,
          and an executive education from INSEAD. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Dr.
          Yael Ilan</B> 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 &#150; Israel&#146;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 &#150; the Israeli Government hi-tech
          cooperation initiative. From 2002, Dr. Ilan serves as the industrial coordinator
          in the Electrical Engineering Department of the Technion. 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. </FONT></P>

<p align=center>
<font size=2>76</font></p>
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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Prof.
          Adi Raveh</B> 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 serves as an
          external director at Clal Insurance Company Ltd. Since 2002 he serves as the
          Chairman of the Board of Jerusalem Capital Markets Underwriting limited. He also
          serves as a director of Meitav &#150; a Mutual Funds Management company (since
          1995), and as a director of Peilim &#150; a Portfolio Management company &#150;
          part of Bank Hapoalim Group (since 1996). Since 1992 he is a director who
          represents the Hebrew University at Hi-Tech &#150; 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. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Avidan Zelichovsky </B>is the head of the Company&#146;s RFID &amp; Electronic
          Division and the CEO of the Company&#146;s subsidiary, Odem Electronic
          Technologies 1992 Ltd., which he first joined in 1996, as a sales engineer. Mr.
          Zelichovsky holds a B.A. in Business Administration from the Tel Aviv College of
          Management and an LL.M. from the Ben-Gurion University. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Mr.
          Shai Sadeh</B> has been Senior VP, Connectivity Segment since April 2004.
          Previously, from 1994 to 2004 he served in several executive capacities at
          Sintec/Formula Group; he was the founder and CEO of Tochna Veod, a Formula Group
          company; Manager of IBM iSeries (AS/400) Technical Support team; and founder of
          the Sintec Group Professional Services Division. Mr. Sadeh has a BA in Social
          Sciences from Tel Aviv University and is studying towards an M.B.A at the Hebrew
          University in Jerusalem. </FONT></P>

<a name=zk623></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOARD AND EXECUTIVE
COMPENSATION </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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 $5,900, and a
participation fee in meetings of approximately $300. On February 18, 2003 the shareholders
approved compensation for all directors who are not employees or
consultants<SUP>1</SUP>, including directors appointed in the future, at the same rate
the external directors of the Company are paid. Additionally, the Company&#146;s directors
are granted options (see &#147;Share Ownership&#148; ahead). The Company does not have any
contracts with any of its non employee/consultant directors, that would provide for
benefits upon termination of service. </FONT></P>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><SUP>1</SUP>
          However, on August 5, 2004 the shareholders approved an exception
          &#150; 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 &amp; Co. Investment House Ltd. (a service
          provider to the Company). </FONT></P>


<p align=center>
<font size=2>77</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following tables present 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, 2006: </FONT></P>


<TABLE CELLPADDING="3" CELLSPACING="0" BORDER="1" WIDTH="600" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TD WIDTH="50%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All directors and<BR> officers as a group<BR>(then 16 persons)</FONT></TD>
     <TD WIDTH="25%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 1,732</FONT></TD>
     <TD WIDTH="25%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 114</FONT></TD></TR>
</TABLE>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2005 and in 2006, we received CFO services from Mocha Global Managerial Services Ltd., with
the services provided by Mr. Nehemia Kaufman. Commnecing January 2007, these services are
no longer provided and the Company has appointed Mr. Eyal Cohen as its CFO. In 2005 and until October 31, 2006 we received managerial/CEO services from Signum Ltd.,
with the services provided by Mr. Adiv Baruch. Mr. Baruch was replaced by Mr. Shmuel Koren
on November 1, 2006. Figure also includes consulting and other fees paid to Cukierman
&amp; Co. Investment House Ltd., of which Mr. Edouard Cukierman, the Company&#146;s
Chairman, is (indirectly) a controlling shareholder. </FONT></P>

<a name=zk624></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BOARD PRACTICES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Board of Directors is currently comprised of nine 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has determined that Messrs. Adler, Bally, Gl&uuml;ck, Mandel-Mantello, Zavlik and
Raveh and Ms. Ilan, who constitute a majority of the Board of Directors, are independent
directors under the applicable Nasdaq Stock Market requirements. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;external
directors&#148;. 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&#146;s
control, has or had, on or within the two years preceding the date of the person&#146;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). </FONT></P>

<p align=center>
<font size=2>78</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, no person may serve as an external director if the person&#146;s position or
other business activities create, or may create, a conflict of interest with the
person&#146;s responsibilities as an external director or interfere with the person&#146;s
ability to serve as an external director or if the person is an 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. The external directors must have professional
qualifications to serve as a director, and at least one of the external directors must be
a financial expert. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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, no alternate directors have been appointed. A
director may appoint an alternate to serve in his place as a member of a committee of the
Board of Directors, even if the alternate currently serves as a director, as long as he
does not already serve as a member of that committee. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Officers
serve at the discretion of the Board or until their successors are appointed. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According
to the provisions of our Articles of Association and the Companies Law, the Board of
Directors convenes in accordance with the Company&#146;s requirements, and at least once
every three months. In practice, the Board of Directors convenes more often. Furthermore,
our Articles of Association provide that the Board of Directors may also pass resolutions
without actually convening, provided that all the directors entitled to participate in the
discussion and vote on a matter that is brought for resolution agree not to convene for
discussion of the matter. Resolutions passed without convening, shall be passed by an
ordinary majority (just as in the case of convened meetings) and shall have the same
effect as resolutions passed at a duly convened meeting. </FONT></P>

<p align=center>
<font size=2>79</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with the requirements of the Nasdaq Stock Market, commencing on July 31, 2005,
nominees for directors will be recommended for selection by a majority of the independent
directors. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit
Committee: </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
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&#146;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 one participated in the meeting at which the
action or transaction was approved. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to comply with the Sarbanes-Oxley Act of 2002, the Board of Directors has expanded
the role of the Company&#146;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&#146;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&#146;s external and internal auditors must also report regularly to the Audit
Committee at its meetings, and the Audit Committee discusses with the Company&#146;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&#146;s financial statements, as and when it deems it appropriate to do so. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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&#146;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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has determined that the members of the audit committee meet the applicable Nasdaq
Stock Market and SEC independence standards. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2003 the Company adopted an Audit Committee Charter which sets forth the responsibilities
of the committee. A copy of this charter is available on the Company&#146;s website. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remuneration
Committee: </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
role of the Remuneration Committee is to provide assistance and make recommendations to
the Board of Directors regarding matters related to the compensation of 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, generally 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). </FONT></P>

<p align=center>
<font size=2>80</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commencing
July 31, 2005, in accordance with Nasdaq rules, the compensation of the Company&#146;s
chief executive officer and other executive officers is recommended to the Board of
Directors by a majority of the independent directors on the Company&#146;s Board of
Directors. </FONT></P>

<a name=zk625></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SHARE OWNERSHIP </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2006, out of our directors and officers, then consisting of 12 persons,
only Mr. Edouard Cukierman, Mr. Baruch Adiv and Mr. Joel Adler, all directors of the
Company, held ordinary shares of the Company. Mr. Edouard Cukierman held 21,666 ordinary
shares, Mr. Baruch Adiv held 65,000 ordinary shares, and Mr. Joel Adler held 108,695
ordinary shares.<SUP>1</SUP> As of December 31, 2006 we have granted our officers and
directors options to acquire an aggregate of 1,117,619 ordinary shares under our Stock
Option Plans.<SUP>2</SUP> The average exercise price of these options is $2.537 per
option. Of these options, none have been exercised until now and 295,284 had vested as of
December 31, 2006. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February 18, 2003 the Company&#146;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; 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. Due to following share fluctuation, at the recommendation of the Board of
Directors, the shareholders resolved on August 5, 2004, that future issuances to new
directors will have an exercise price equal to the average closing price of the shares on
the Nasdaq Global Market on the 20 trading days preceding their appointment. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
shareholders approved on August 5, 2004, that Edouard Cukierman, Chairman of the Board,
will be granted 7,500 options under the same terms as all other directors, despite his
being (indirectly) a controlling shareholder and senior executive of Cukierman &amp; Co.
Investment House Ltd. (a service provider to the Company), and therefore not eligible for
options according to the current shareholder resolution. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
shareholders also approved on June 29, 2005, to grant all directors of the Company
(including external directors), who are not employees or consultants of the Company (or
who have been granted options similar to all directors despite their employment and/or
services), an additional 7,500 options to purchase ordinary shares of the Company on the
third anniversary of their service as directors, under the same terms approved by the
shareholders on February 18, 2003 and as amended on August 5, 2004. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June 29, 2005, the shareholders approved the grant of 20,000 options to purchase ordinary
shares of the Company under the 2003 Israeli Share Option Plan, to Signum Ltd., the
company that provided management services to the Company until December 31, 2006, as a
bonus for year 2004, at an exercise price of $3.08 per share, vesting over 24 months from
date of grant in 24 equal parts, 1/24 per month, exercisable until five years from date of
grant. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May 18, 2006 the shareholders approved to (i) grant Mr. Adiv Baruch, who was the
Company&#146;s President and CEO, a bonus of 65,000 ordinary shares (for no
consideration), (ii) to grant Mr. Edouard Cukierman, the Chairman of the Board of
Directors, a bonus of 21,666 ordinary shares (for no consideration), and (iii) to grant
Signum Ltd. and Edouard Cukierman 187,100 options and 233,876 options, respectively, to
purchase ordinary shares of the Company, pursuant to the Company&#146;s 2003 Israeli Share
Option Plan, at an exercise price of $2.68 which is equal to the average closing price of
the Company&#146;s shares on the Nasdaq Global Market on the 20 trading days preceding the
shareholders&#146; meeting date at which the grant was approved (the &#147;Grant
Date&#148;), to be vested in three equal parts on the first, second and third anniversary
of the Grant Date, for a maximum exercise period of 3 years from the vesting date of each
portion of the Grant. </FONT></P>


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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><SUP>1</SUP>&nbsp;&nbsp;&nbsp;&nbsp;
          Mr. Joel Adler, a director of the Company, is one of the beneficiaries of a
          discretionary trust that owns Brada Investments Limited, a shareholder of the
          Company. Number of ordinary shares does not include 65,217 options of Brada
          Investments Limited to purchase ordinary shares of the Company. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><SUP>2</SUP>&nbsp;&nbsp;&nbsp;&nbsp;
          Includes options granted to Mocha Global Managerial Services Ltd. and to Signum
          Ltd. Does not include 65,217 options of Brada Investments Limited, a
          shareholder of the Company owned by a discretionary trust of which Mr. Joel
          Adler, a director of the Company, is one of the beneficiaries. </FONT></P>


<p align=center>
<font size=2>81</font></p>
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<page>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share
Option Plans </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
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. 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Share Option Plans, the terms and conditions under which options 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 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due
to a tax reform in Israel, after January 1, 2003 the Company may not grant options
pursuant to an &#147;old&#148; 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. In any event, after the adoption of the 2003 Plan (see
below), the Board of Directors resolved that no further grants shall be made from the
previously adopted plans. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2003
Plan </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May 2003 the Company&#146;s shareholders approved the adoption of the 2003 Israeli 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. Subsequently, the shareholders approved an increase of the shares reserved
for issuance under the Plan, to 1 million, and then to 1.5 million. The Board of Directors
has resolved that no further grants shall be made from the previous plans. The Company has
elected the benefits available under the &#147;capital gains&#148; alternative. Pursuant
to the 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&#146;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 from time to time, as permitted by the Tax Ordinance. 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 &#147;Trustee&#148;) 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 date of grant. </FONT></P>

<p align=center>
<font size=2>82</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2006 we had 1,202,580 options outstanding under this plan with the
exercise prices as set forth below. As of December 31, 2006, 343,579 of these options were
vested. </FONT></P>






<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600" ALIGN="CENTER">
<TR VALIGN="BOTTOM">
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise Price Per Share $</FONT><HR WIDTH="95%" SIZE="1" COLOR="BLACK" NOSHADE ALIGN="LEFT"></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Outstanding</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM">
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="Left" COLSPAN="3"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Less than $0.01</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1.84</FONT></TD>
        <TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="46%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45,000</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,961</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2.28</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.4795</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.554</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2.58</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>67,261</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.631</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2.68</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>615,576</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.695</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>296,282</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3.08</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>30,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3 width=100%></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3 width=30%></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Total</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>1,202,580</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2001
Plan </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2002, the Company&#146;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&#146;s employees, directors, consultants or service providers, as determined by
the Board of Directors or its authorized sub-committee. As of December 31, 2006, we had
101,137 options outstanding under this plan, 75,000 at an exercise price of $4.00 per
share and 26,137 at an exercise price of $6.80 per share. All of the outstanding options
had vested as of December 31, 2006. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2000
Plan </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2001, the Company&#146;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,
2006, we had 26,575 options outstanding under this plan at an exercise price of $28.00 per
share. All of the outstanding options had vested as of December 31, 2006. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1999
Plan </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 1999, the Company&#146;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, 2006, there were no options outstanding
under this plan. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1995
Plans </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 1995, we adopted the following plans: (i) the Stock Option Plan (Incentive and
Restricted Share Options) (the &#147;ISO/RSO Plan&#148;), which provides for the grant of
incentive and restricted stock options and (ii) the Section 102 Stock Option/Stock
Purchase Plan (the &#147;Section 102 Plan&#148; and together with the ISO/RSO Plan, the
&#147;Share Option Plans&#148;). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Share Option Plans provide for the grant of options to purchase up to an aggregate of
50,000 ordinary shares. As of December 31, 2006, we had 750 options outstanding under this
plan at an exercise price of $18.00. All of the outstanding options had vested as of
December 31, 2006. </FONT></P>

<p align=center>
<font size=2>83</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk626></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS </FONT></H1>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table sets forth, as of December
31, 2006, information to the best of the Company&#146;s knowledge, as to each person known
to the Company to be the beneficial owner of more than five percent (5%) of the
Company&#146;s outstanding Ordinary Shares. Except where indicated, to the best of the
Company&#146;s knowledge based on information provided by the owners, the beneficial
owners of the Ordinary Shares listed below have sole investment and voting power with
respect to those shares. Applicable percentage ownership in the following table is based
on 6,744,798 shares outstanding as of December 31, 2006. <BR>
<BR>
The voting rights of our major
shareholders do not differ from the voting rights of other holders of our ordinary shares. </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Catalyst Fund may be deemed to be a
&#147;Controlling Shareholder&#148; of the Company, as defined under the Israeli Companies
Law. Cukierman &amp; Co. Investment House Ltd. may be deemed a controlling person of
Catalyst, and is (indirectly) controlled by Mr. Edouard Cukierman, the Company&#146;s
Chairman of the Board, and the Chief Executive Officer of the general managing partner of
Catalyst. </FONT></P>






<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Shares Beneficially Owned</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Name and Address</FONT><HR WIDTH="50%" SIZE="1" COLOR="BLACK" NOSHADE ALIGN="LEFT"></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Number</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Percent</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="75%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Catalyst Fund, LP(1)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 Daniel Frisch Street,<BR>
Tel-Aviv 64731, Israel</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,292,275</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19.2</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Touareg Consulting Ltd.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Omar Hodge Building, Wickhams</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cay 1</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Road Town, Tartola, British</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Virgin Islands</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>541,150</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jacob and Sara Neuhof (3)<BR>
5 Yitzhak Berger Street,<BR>
Rishon Letzion 75260, Israel</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>450,135</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.7</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
</TABLE>
<BR>


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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)
          &#147;Catalyst Fund&#148; refers collectively to Catalyst Fund L.P., Catalyst
          Fund II L.P. and Catalyst Fund III, L.P., all of which are limited partnerships
          organized and existing under the laws of the State of Israel, and which share
          the same general partner, Catalyst Investments L.P. Mr. Edouard Cukierman may be
          deemed to have sole voting and dispositive power with respect to the shares held
          by Catalyst. Mr. Cukierman disclaims beneficial ownership in such shares, except
          to the extent of his proportionate interest in them as an indirect shareholder
          in the general partner of Catalyst Fund. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)
          Does not include 207,000 warrants to purchase Ordinary Shares of the Company. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)
          Jacob Neuhof holds 225,861 ordinary shares and his spouse, Sara Neuhof, holds
          224,274 ordinary shares. As they are husband and wife, each is deemed to
          indirectly hold the shares of the other, however, each disclaims beneficial
          ownership of these shares. </FONT></P>

<p align=center>
<font size=2>84</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The changes in holdings of the major
shareholders over the last three years, are detailed to the best of our knowledge in the
table below: </FONT></P>




<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Holdings as of:</FONT><HR WIDTH="95%" SIZE="1" COLOR="BLACK" NOSHADE ALIGN="LEFT"></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="52%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Catalyst Fund, LP</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>947,275</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>947,275</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,292,275</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,292,275</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jacob and Sara Neuhof</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>217,532</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>450,135</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>450,135</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Touareg Consulting Ltd.</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>541,150</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
</TABLE>

<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The shareholders&#146; holdings
reflect their voting rights. The Company&#146;s major shareholders do not have different
voting rights than other shareholders, with respect to their shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of December 31, 2006, there were
32 record holders of ordinary shares, of which 8 were registered with addresses in the
United States, representing approximately 48.5% 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Related Party
Transactions</U> </FONT> </H1>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>M&amp;A Addendum to the
Services Agreement of Cukierman &amp; Co. </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2003, the Company&#146;s audit
committee and Board of Directors approved the engagement of Cukierman &amp; Co. Investment
House Ltd. (&#147;Cukierman &amp; Co.&#148;), to provide non-exclusive investment-banking
services and business development services to the Company, effective as of April 15, 2003.
Cukierman &amp; 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 the Chief
Executive Officer of the general partner of Catalyst Fund, the Company&#146;s largest
shareholder. For its services, Cukierman &amp; 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. The agreement provided that the success fees for securing M&amp;A
transactions shall be discussed by the parties and drafted as a future addendum to the
agreement. Such an addendum was approved on August 22, 2004, and it provides Cukierman
&amp; Co. with a success fee of 3.5% of the proceeds exchanged in an M&amp;A transaction
(see also Note 20a to the Consolidated financial statements for year 2005). Since the
execution of the Services Agreement, Cukierman &amp; Co. have been granted success fees
for a number of private placements and M&amp;A transactions secured by the Company. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Grant of Shares and
Options and to Mr. Cukierman </FONT></H1>




<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
shareholders approved on August 5, 2004, that Edouard Cukierman, Chairman of the Board,
will be granted 7,500 options at an exercise price of $1.84 under the same terms as all
other first time directors (See &#147;Share Ownership&#148;). The shareholders also
approved, on June 29, 2005, to grant all directors of the Company, an additional 7,500
options to purchase ordinary shares of the Company on the third anniversary of their
service as directors. Following this decision Edouard Cukierman was granted 7,500 options
at an exercise price of $2.695 (See &#147;Share Ownership&#148;). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On May 18, 2006 the shareholders
approved a grant to Mr. Edouard Cukierman of 21,666 ordinary shares (for no
consideration), and 233,876 options to purchase ordinary shares of the Company, pursuant
to the Company&#146;s 2003 Israeli Share Option Plan, at an exercise price of $2.68. The
options&#146; exercise price was equal to the average closing price of the Company&#146;s
shares on the Nasdaq Global Market on the 20 trading days preceding the shareholders&#146;
meeting date at which the grant was approved (the &#147;Grant Date&#148;). The options
vest in three equal parts on the first, second and third anniversary of the Grant Date,
and expire from May 2010 through May 2012 (See &#147;Share Ownership&#148;). </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consulting Agreement
Between Boscom and Zvi Greengold </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On August 5, 2004, at the
recommendation of the audit committee and Board of Directors, the shareholders approved a
consulting agreement between the Company&#146;s subsidiary, BOScom Ltd. and Mr. Zvi
Greengold (who until August 5, 2004 was a director of the Company and Chairman of the
Board of Directors of BOScom, and until December 31, 2006 was an observer on the
Company&#146;s Board of Directors), effective September 1, 2003, and that the consulting
fee of NIS 4,500 per month (approximately $1,000) plus applicable VAT and reimbursement of
expenses, in addition to the remuneration and options Mr. Greengold received 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 consulting agreement was
terminated on December 31, 2006. </FONT></P>

<p align=center>
<font size=2>85</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On September 26, 2004 the Board of Directors resolved
that Mr. Greengold, shall not be compensated for his participation as an observer in the
Board meetings, but will continue to hold the options granted to him in August 2003 while
he was a director, just like the Company directors. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consulting Agreement
between BOScom and Israel Gal </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On June 29, 2005, at the
recommendation of the audit committee and the Board of Directors, the shareholders
approved a consultancy agreement between BOScom and Xorcom Ltd., a company controlled by
Israel Gal, who was a director of the Company until May 10, 2005 and who was employed by
the Company and BOScom in various positions, the most recent as CTO of VOIP products in
BOScom. On December 31, 2004 the employment was terminated and Mr. Gal began providing
consultancy services (as well as aid in the preparation of the Chief Scientist proposal
and outsourcing of hardware) to BOScom, through his company, Xorcom Ltd. The term of the
consultancy agreement was January 1, 2005 through June 30, 2005. The amount paid for Mr.
Gal&#146;s consulting services amounted to $83,000, which was equal to the amount borne by
the employer with respect to his salary as of December 31, 2004. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management Agreement
With Signum Ltd. </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s audit committee,
Board of Directors and shareholders have approved 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. Mr. Adiv Baruch is one of the controlling shareholders of Signum. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Signum was entitled to a monthly gross
management fee of NIS 79,698, (approximately $18,000) plus Value Added Tax, based on a NIS
&#150; US Dollar exchange rate of NIS 4.4 to 1 US Dollar, that shall be adjusted at the
beginning of every calendar quarter in accordance with the NIS &#150; US Dollar exchange
rate on the last day of the previous quarter.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Additionally, Signum was granted
options to purchase 216,282 ordinary shares of the Company (equal to five percent (5%) of
the Company&#146;s issued and outstanding share capital, on a fully diluted and as
converted basis, on November 23, 2003). The options 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&#146;s stock option plan (i.e. until 22.5.2013). The
exercise price is $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&#146;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 annual goals set by the Company&#146;s Board of Directors. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Furthermore, pursuant to the
agreement, Signum had 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. </FONT></P>

<p align=center>
<font size=2>86</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On June 29, 2005, the shareholders approved the grant of 20,000 options to
purchase ordinary shares of the Company under the 2003 Israeli Share Option Plan, to
Signum, as a bonus for year 2004, at an exercise price of $3.08 per share, vesting over 24
months from the date of grant in 24 equal parts, 1/24 per month, exercisable until June
2010. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On May 18, 2006, the shareholders
approved (i) the grant to Mr. Adiv Baruch of 65,000 ordinary shares (for no consideration)
and (ii) the grant to Signum of options to purchase 187,100 ordinary shares of the
Company, pursuant to the Company&#146;s 2003 Israeli Share Option Plan, at an exercise
price of $2.68. The options&#146; exercise price was equal to the average closing price of
the Company&#146;s shares on the Nasdaq Global Market on the 20 trading days preceding the
shareholders&#146; meeting date at which the grant was approved (the &#147;Grant
Date&#148;). The options vest in three equal parts on the first, second and third
anniversary of the Grant Date, and expire from May 2010 through May 2012. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On September 27, 2006, Mr. Baruch
notified the Board that he shall be leaving the Company at the end of 2006 at which time
the Management Agreement expired. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assignment of Voting
Rights to Mr. Yair Shamir </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 was at the time 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 (see Note 6 to the Consolidated Financial Statements for the year ended December
31, 2005), 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&#146;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. In January 2006, the
option to purchase from Catalyst shares in Surf expired. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indemnity Undertakings
by the Company to its Directors and Officers </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On February 18, 2003, the
Company&#146;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). On May 18, 2006, at the recommendation of
the audit committee and the Board of Directors, the shareholders approved amendments to
the indemnity undertakings, in light of changes to the Companies Law. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Settlement Agreement
Between The Company, Catalyst Investments L.P, And Certain Shareholders </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In January 2003, the Company&#146;s
Board of Directors approved the transaction with Catalyst (&#147;Transaction&#148;),
pursuant to which Catalyst was issued Company shares, in exchange for the sale of most of
its Surf shares to the Company. Shortly thereafter, certain shareholders filed suit
against the Company demanding that a shareholders meeting be convened. The Company&#146;s
position was that the shareholders lack voting authority with regard to the Transaction. </FONT></P>

<p align=center>
<font size=2>87</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In February 2003, a settlement
agreement reached between the parties provided for the dismissal of the lawsuit, so that
the Transaction could be executed without the need for shareholder approval. Under the
settlement agreement, Catalyst was 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Private Placement with
Certain Investors, Including Catalyst </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On June 30, 2005 the Company closed a
Share Purchase Agreement with certain investors, including the Catalyst Fund L.P., which
is the Company&#146;s largest shareholder. </FONT></P>




<a name=zk627></a>





<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DIVIDEND POLICY </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company does not currently have a
dividend policy. 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 that time.
This will include our earnings and financial condition. We may only pay cash dividends in
any fiscal year, out of &#147;profits&#148;, as defined under Israeli law. Any dividends
paid out of Approved Enterprise earnings (i.e. tax exempt income) will be liable to tax.
As we cannot currently distribute dividends, no provision has been made for this
additional tax in our Financial Statements. </FONT></P>

<a name=zk628></a>




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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MATERIAL INCOME TAX
CONSIDERATIONS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of the material tax consequences in Israel and the United States to
individual and corporate residents of Israel and the United States resulting from the
distribution of the rights we are distributing, the purchase or sale of the rights, the
exercise of the rights and the sale of the ordinary shares issuable upon exercise of the
rights. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
the extent that the discussion is based on tax legislation that has not been subject to
judicial or administrative interpretation, we cannot assure you that the tax authorities
will accept the views expressed in this summary. This summary is not intended, and should
not be construed, as legal or professional tax advice and is not exhaustive of all
possible tax consequences that may be relevant to each person&#146;s decision to exercise
or sell the rights we are distributing, or the sale of our ordinary shares issued upon the
exercise of the rights. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prospective
purchasers of our ordinary shares and other securities should consult their own tax
advisors as to the United States, Israel or other tax consequences of the purchase,
ownership and disposition of our securities, including, in particular, the effect of any
foreign, state or local taxes. </FONT></P>



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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Israeli Tax
Considerations </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of the material Israeli tax consequences and certain Israeli
government programs affecting the Company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;controlled foreign corporation&#148; 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&#146;s primary source of
income is passive income. The tax reform also substantially changes the taxation of
capital gains. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July 25, 2005, the Israeli Parliament Knesset passed Amendment no. 147 to the Income Tax
Ordinance, which came into effect on January 1, 2006. The Amendment made considerable
changes the taxation of securities traded on a stock exchange. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Tax Benefits under the Law for the
Encouragement of Capital Investments, 1959.</B> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Law for the Encouragement of
Capital Investments, 1959 (the &#147;Investment Law&#148;) 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 &#147;Approved Enterprise&#148;. 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The principal stated objectives of
the Investment Law are to promote the development of industry, the creation of jobs and
the growth of exports. An amendment to the Investment Law that became effective on April
1, 2005, limits the scope of enterprises which may be approved by the Investment Center by
setting criteria for the approval of a facility as an Approved Enterprise, such as
provisions generally requiring that at least 25% of the Approved Enterprise&#146;s income
will be derived from export. Additionally, the amendment enacted major changes in the
manner in which tax benefits are awarded so that companies no longer require Investment
Center approval in order to qualify for tax benefits (although approval is required if
grants are sought). Rather, a company may claim the tax benefits offered by the Investment
Law directly in its tax returns, provided that its facilities meet the criteria for tax
benefits set out by the amendment (a &#147;Benefited Enterprise&#148;). We cannot assure
that we will receive approvals in the future for Approved or Benefited Enterprise status. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Generally, taxable income of a
company derived from an Approved Enterprise is subject to company tax at a maximum rate of
25% (subject to the percentage of the foreign shareholders holding in the company), rather
than at the regular rate, for the benefit period. This period is ordinarily seven years or
up to ten years if the company qualifies as Foreign Investors&#146; Company, 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A company owning an Approved
Enterprise may elect to receive an alternative package of benefits, in lieu of entitlement
to grants. Under the alternative package, a company&#146;s undistributed income derived
from an Approved Enterprise will be exempt from company tax for a period of between two
and ten years from the first year of taxable income, depending on the geographic location
of the Approved Enterprise within Israel, and such company will be eligible for a reduced
tax rate for the remainder, if any, of the otherwise applicable benefits period. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The tax-exempt income attributable to
the Approved or Benefited 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, the Company will be to tax in respect of the gross
amount of the dividend at the otherwise applicable rate of 25%, (or lower in the case of a
qualified foreign investment company which is at least 49% owned by non-Israeli
residents). Dividends paid out of income derived by an Approved or Benefited Enterprise
(or out of dividends received from a company whose income is derived from a Benefited
Enterprise) are generally subject to withholding tax at the rate of 15% (deductible at
source). The reduced rate of 15% is limited to dividends and distributions out of income
derived from an Approved or Benefited Enterprise during the benefits period and actually
paid at any time up to 12 years thereafter (this time limit does not apply to an FIC). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>However, the Investment Law provides
that terms and benefits included in any certificate of approval already granted will
remain subject to the provisions of the Law as they were on the date of such approval.
Therefore a facility that was approved as an Approved Enterprise prior to the amendment
will generally not be subject to the provisions of the amendment. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Investment Center of the Ministry
of Industry and Trade granted BOScom an Approved Enterprise status under the alternative
package of benefits. Since BOScom is located in &#147;Zone A&#148;, the portion of income
derived from this Approved Enterprise program will be exempt from tax for a period of ten
years, commencing when BOScom begins to realize net income from this programs. The period
of tax benefits of BOScom Approved Enterprise has not yet commenced, because we have yet
to realize taxable income. BOS was also granted an Approved Enterprise status which
entitled the BOS for some tax benefits, but during 2002, as part of the transfer of
operations from the BOS to BOScom, all tax benefits that were related to the Approved
Enterprise of BOS, were transferred to BOScom. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. If BOScom derives income from sources other than the Approved
Enterprise, such income will be taxable at the regular corporate tax rate. Odem and Quasar
Telecom do not enjoy the status of an Approved Enterprise. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax Benefits and Grants
for Research and Development </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax Benefits Under the
Law for the Encouragement of Industry (Taxation), 1969 </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>According to the Law for the
Encouragement of Industry (Taxation), 1969, or the Industry Encouragement Law, an
&#147;Industrial Company&#148; is a company resident in Israel that at least 90% of its
income, in any tax year, determined in Israeli currency, exclusive of income from certain
government loans, capital gains, interest and dividends, is derived from an
&#147;Industrial Enterprise&#148; owned by it. An &#147;Industrial Enterprise&#148; is
defined as an enterprise whose major activity in a given tax year is industrial production
activity. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following preferred corporate tax
benefits are available to Industrial Companies, among others: (a) deduction of purchases
of know-how and patents over an eight-year period for tax purposes; (b) deduction over a
three-year period of expenses involved with the issuance and listing of shares on the Tel
Aviv Stock Exchange or, on or after January 1, 2003, on a recognized stock market outside
of Israel; (c) an election under certain conditions to file a consolidated tax return with
additional related Israeli Industrial Companies that satisfy conditions set forth in the
law; and (d) accelerated depreciation rates on equipment and buildings. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Eligibility for the benefits under
the Industry Encouragement Law is not subject to receipt of prior approval from any
governmental authority. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Until December 31, 2001 the Company
qualified as an &#147;Industrial Company&#148; within the definition of the Industry
Encouragement Law. In January 2002, subsequent to the Company&#146;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 &#147;Industrial
Company&#148; and therefore the benefits described above are not available since then. We
believe that BOScom is qualified as an Industrial Company under the Industry Encouragement
Law but we cannot provide any assurance that the Israeli authorities will agree with our
assessment, nor continue to qualify as an Industrial Company or that the benefits
described above will be available in the future. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Special Provisions
Relating to Taxation Under Inflationary Conditions </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Income Tax Law (Inflationary
Adjustments), 1985, generally referred to as the Inflationary Adjustments Law, is intended
to adjust the corporate tax system to the rate of inflation, i.e., to tax profits on an
inflation-adjusted basis. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Under the Inflationary Adjustments
Law, results for tax purposes are measured in historical cost terms and are subject to a
series of adjustments based on movements in the Israel consumer price index. We are taxed
under this law. The discrepancy between the change in (1) the Israel consumer price index
and (2) the exchange rate of the NIS to the dollar, each year and cumulatively, may result
in a significant difference between taxable income and the income denominated in dollars
as reflected in our financial statements. In addition, subject to certain limitations,
depreciation of fixed assets and losses carried forward are adjusted for inflation on the
basis of changes in the Israel consumer price index. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The salient features of the
Inflationary Adjustments Law can be described generally as follows: </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)
          A special tax adjustment for the preservation of equity whereby certain
          corporate assets are classified broadly into fixed (inflation immune) assets and
          non-fixed assets. Where a company&#146;s equity, as defined in such 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, linked to the
          increase in the consumer price index. If the depreciated cost of fixed assets
          exceeds a company&#146;s equity, then such excess multiplied by the applicable
          annual rate of inflation is added to taxable income. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)
          Subject to certain limitation set forth in the Inflationary adjustments Law,
          depreciation deductions on fixed assets and losses carried forward are adjusted
          for inflation based on the increase in the Israel consumer price index. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c)
          Gains on the sale of certain listed securities which are taxed at a reduced rate
          with respect to individuals are taxable at a company tax rate in certain
          circumstances. However, dealers in securities are subject to the regular tax
          rules applicable to business income in Israel. As of January 1, 2006, the
          relevant provisions governing taxation of companies on capital gains derived
          from the sale of traded securities are included in the Tax Ordinance, and the
          Adjustments Law no longer includes provisions in this regard. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d)
          Accelerated depreciation rates on equipment and buildings. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Capital Gains Tax on
Sales of Ordinary Shares </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Israeli
law generally imposes a capital gains tax on the sale of any capital assets by residents
of Israel, as defined for Israeli tax purposes, and on the sale of assets located in
Israel, including shares in Israeli companies by both residents and non-residents of
Israel, unless a specific exemption is available or unless a tax treaty between Israel and
the shareholder&#146;s country of residence provides otherwise. In general, the
distribution of the rights we are distributing and the exercise of the rights into
ordinary shares will not be subject to Israeli tax. The law distinguishes between the real
gain and the inflationary surplus. The real gain is the excess of the total capital gain
over the inflationary surplus, computed on the basis of the increase in the Israel
consumer price index between the date of purchase and the date of sale. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of January 1, 2006, the tax rate applicable to capital gains derived from the sale of
shares, whether listed on a stock market or not, is 20% for Israeli individuals, unless
such shareholder claims a deduction for financing expenses in connection with such shares,
in which case the gain will generally be taxed at a rate of 25%. Additionally, if such
shareholder is considered a &#147;significant shareholder&#148; at any time during the
12-month period preceding such sale (i.e. such shareholder holds directly or indirectly,
including jointly with others, at least 10% of any means of control in the company), the
tax rate will be 25%. Israeli companies are subject to the corporate tax rate on capital
gains derived from the sale of shares, unless such companies were not subject to the
Adjustments Law (or certain regulations under Section 130A of the Tax Ordinance) at the
time of publication of the aforementioned amendment to the Tax Ordinance, in which case
the applicable tax rate is 25%. However, the different tax rates will not apply to dealers
in securities and shareholders who acquired their shares prior to an initial public
offering. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
tax basis of shares acquired prior to January 1, 2003 will be determined in accordance
with the average closing share price in the three trading days preceding January 1, 2003.
However, a request may be made to the tax authorities to consider the actual adjusted cost
of the shares as the tax basis if it is higher than such average price. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-Israeli
residents are generally exempt from Israeli capital gains tax on any gains derived from
the sale of shares of Israeli companies publicly traded on a recognized stock exchange or
regulated market outside of Israel, provided that such capital gains are not derived from
a permanent establishment in Israel, that such shareholders are not subject to the
Inflationary Adjustment Law and that such shareholders did not acquire their shares prior
to the issuer&#146;s initial public offering. However, non-Israeli corporations will not
be entitled to such exemption, if an Israeli resident (i) has a controlling interest of
25% or more in such non-Israeli corporation, or (ii) is the beneficiary or is entitled to
25% or more of the revenues or profits of such non-Israeli corporation, whether directly
or indirectly. In the event that an exemption is not available, taxation of the
non-Israeli resident may be subject to the provisions of a tax treaty, if such treaty
exists between Israel and the applicable country. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
some instances where our shareholders may be subject to Israeli tax on the sale of their
ordinary shares, the payment of the consideration may be subject to the withholding of
Israeli tax at the source. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The US-Israel Tax Treaty </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;United States-
Israel Tax Treaty&#148;), 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 &#147;Treaty United States Resident&#148;)
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&#146;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&#146;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. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Taxation of Non-Resident
Holders of Ordinary Shares </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-residents
of Israel are subject to income tax on income accrued or derived from sources in Israel.
These sources of income include passive income such as dividends, royalties and interest,
as well as non-passive income from services rendered in Israel. On distributions of
dividends, other than bonus shares or stock dividends, by a publicly traded company,
income tax is withheld at the source at the rate of 20%; unless a different rate is
provided in a treaty between Israel and the shareholder&#146;s country of residence. Under
the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of shares who is
a resident of the United States is 25% or 12.5% if such U.S. resident is a corporation
which holds, directly or indirectly, shares representing at least 10% or more of our
issued voting power during the part of the tax year which precedes the date of payment of
the dividend and during the whole of its prior tax year. However, under the U.S.-Israel
Tax Treaty and the Investments Law, dividends generated by an Approved Enterprise (or
Benefiting Enterprise) are taxed at the rate of 15%. </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>United States Tax
Considerations </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
discussion of material United States federal income tax considerations below (other than
statements as to whether we are a &#147;passive foreign investment company&#148; and
statements regarding our earnings and profits) is based on an opinion of U.S. tax counsel,
Phillips Nizer LLP. Subject to the limitations described in the next paragraph, the
following describes the material United States federal income tax consequences resulting
from the distribution to a &#147;U.S. Holder&#148; and related transactions by the U.S.
Holder, including the exercise or expiration of rights, and the disposition of rights or
ordinary shares. For purposes of this discussion, a U.S. Holder means (1) any U.S. person
who receives a distribution of rights pursuant to this rights offering and who holds such
rights or ordinary shares issued upon the exercise of the rights (&#147;Initial U.S.
Holder&#148;) and (2) any U.S. person other than an Initial U.S. Holder who acquires such
rights or ordinary shares issued upon exercise of such rights (&#147;Subsequent U.S.
Holder&#148;). For purposes of our discussion, a U.S. person is: </FONT></P>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
citizen or resident of the United States;</FONT></TD>
</TR>
</TABLE>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
corporation created or organized in the United States or under the laws of the United
States                   or any State;</FONT></TD>
</TR>
</TABLE>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>an
estate, the income of which is includable in gross income for U.S. federal income tax
                  purposes regardless of its source; or</FONT></TD>
</TR>
</TABLE>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a
trust, if a court within the United States is able to exercise primary supervision over
the                   administration of the trust and one or more U.S. persons have the
authority to control all                   substantial decisions of the trust or if the
trust has validly elected to be treated as a U.S.                   person under
applicable Treasury regulations.</FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
discussion is based on current provisions of the Internal Revenue Code of 1986, or the
Code, as amended, current and proposed Treasury regulations promulgated thereunder, and
administrative and judicial decisions as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. This discussion is not a representation of, nor
does it address, all aspects of United States federal income taxation that may be relevant
to any particular U.S. Holder based on such U.S. Holder&#146;s individual circumstances.
In particular, this discussion considers only U.S. Holders that will own rights or
ordinary shares as capital assets at all relevant times and does not address the potential
application of the alternative minimum tax or U.S. federal income tax consequences to U.S.
Holders that are subject to special treatment, including U.S. Holders that: </FONT></P>

<p align=center>
<font size=2>94</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>are
broker-dealers or insurance companies;</FONT></TD>
</TR>
</TABLE>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>have
elected mark-to-market accounting;</FONT></TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>are
financial institutions or financial services entities;</FONT></TD>
</TR>
</TABLE>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>hold
rights, debentures, or ordinary shares as part of a straddle, hedge or conversion
                  transaction with other investments;</FONT></TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>own
directly, indirectly or by attribution at least 10% of our voting power; or</FONT></TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>have
a functional currency that is not the U.S. dollar.</FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally,
the discussion does not consider the tax treatment of persons who hold rights or ordinary
shares through a partnership or other pass-through entity or the possible application of
U.S. federal gift or estate tax. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
DISCUSSION DOES NOT ADDRESS THE IMPACT OF AN INVESTOR&#146;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 OR THE RIGHTS,
INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS AND POSSIBLE CHANGES
IN THE TAX LAWS. </FONT></P>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Distribution
of Rights.</B> </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initial
U.S. Holders will not be required to recognize taxable income upon the distribution of
rights pursuant to the rights offering. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Basis
and Holding Period of Rights.</B>&nbsp;&nbsp;&nbsp; </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
discussion under this subheading applies only to Initial U.S. Holders. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If, in
accordance with Section&nbsp;307 of the Code, the fair market value of the rights which we
distribute to a U.S. Holder is less than 15% of the fair market value of such U.S.
Holder&#146;s ordinary shares with respect to which such rights were distributed, such
U.S. Holder&#146;s basis in the rights distributed generally will be zero. A U.S. Holder
may elect, however, to allocate the basis of the U.S. Holder&#146;s ordinary shares
between such ordinary shares and the rights received in proportion to their relative fair
market values on the date of distribution. This election may be made pursuant to
Section&nbsp;307 of the Code and will be given effect only if the U.S. Holder exercises or
sells the rights. To make the election, a U.S. Holder must attach a statement to the U.S.
Holder&#146;s U.S. Federal income tax return for the taxable year in which the rights are
received. The election will be irrevocable once made. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the fair market value of the rights which we distribute to a U.S. Holder is 15% or more of
the fair market value of such U.S. Holder&#146;s ordinary shares with respect to which
such rights were distributed, such U.S. Holder will be required to allocate its basis
between such ordinary shares and such rights in proportion to their relative fair market
values. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
either case, a U.S. Holder&#146;s holding period for the rights that we distribute to such
U.S. Holder will include the holding period of such U.S. Holder&#146;s ordinary shares
with respect to which such rights were distributed. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Exercise
of Rights; Basis and Holding Period of Acquired Shares; Sale Exchange or Other Disposition
of Acquired Shares.&nbsp;</B>&nbsp;&nbsp; </FONT></P>

<p align=center>
<font size=2>95</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
discussion is qualified by the discussions below under the subheading &#147;Tax
Consequences if We Are a Passive Foreign Investment Company.&#148; </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
U.S. Holder will not recognize gain or loss upon the exercise of the rights. A U.S.
Holder&#146;s basis in our ordinary shares acquired through exercise of the rights
generally will equal the sum of (i)&nbsp;the subscription price paid by such U.S. Holder
to acquire such ordinary shares and (ii)&nbsp;such U.S. Holder&#146;s basis in the rights
exercised. A U.S. Holder&#146;s holding period in our ordinary shares acquired will begin
on the day such U.S. Holder exercises the rights. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
the sale, exchange or other disposition of our ordinary shares acquired upon the exercise
of rights, a U.S. Holder generally will recognize gain or loss equal to the difference
between the amount realized and such U.S. Holder&#146;s basis in such ordinary shares.
Such gain or loss will be capital gain or loss and will be long-term capital gain or loss
if a U.S. Holder&#146;s holding period exceeds one year at the time of the sale, exchange
or other disposition. Long-term capital gains of certain non-corporate taxpayers generally
are taxed at lower rates than items of ordinary income. The deductibility of capital
losses is subject to limitations. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains
and losses recognized by a U.S. Holder on a sale, exchange or other disposition of rights
or ordinary shares generally will have a U.S. source for foreign tax credit purposes. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Expiration
of Rights.</B>&nbsp;&nbsp;&nbsp;&nbsp; </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
an Initial U.S. Holder receives rights pursuant to the rights offering and allows the
rights to expire unexercised, then such U.S. Holder will not be permitted to recognize a
taxable loss. In addition, such U.S. Holder&#146;s basis in our ordinary shares will not
be affected by this rights offering and such U.S. Holder&#146;s decision to allow its
rights to expire and will remain the same as before the rights offering. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Sale,
Exchange or Other Disposition of Rights</B>. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
the sale, exchange or other disposition of rights, a U.S. holder generally will recognize
capital gain or loss equal to the difference between the amount realized and such U.S.
holder&#146;s basis in the rights. Such gain or loss will be long-term capital gain or
loss if a U.S. holder&#146;s holding period in the rights is more than one year on the
date of the sale, exchange or other disposition. Long-term capital gains generally are
taxed at lower rates than items of ordinary income. The deductibility of capital losses is
subject to limitations. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Tax
Consequences if We Are a Passive Foreign Investment Company</B> </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
foreign corporation generally will be treated as a &#147;passive foreign investment
company&#148; (&#147;PFIC&#148;) if, after applying certain &#147;look-through&#148;
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. </FONT></P>

<p align=center>
<font size=2>96</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 2006. 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. Holder 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. Holder may be required, in certain circumstances, to pay an interest
charge together with tax calculated at maximum rates on certain &#147;excess
distributions,&#148; including any gain on the sale or certain dispositions of ordinary
shares. In order to avoid this tax consequence, a U.S. Holder (i) may be permitted to make
a &#147;qualified electing fund&#148; 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&#146;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. Holder 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&#146;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. Holders of
changes in circumstances that would cause the Company to become a PFIC. U.S. Holders
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 Prospectus. The Company does not currently intend
to take the action necessary for a U.S. Holder to make a &#147;qualified electing
fund&#148; election in the event the Company is determined to be a PFIC. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dividends Paid on the
Ordinary Shares </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distributions
paid on ordinary shares (including any Israeli taxes withheld) to a U.S. Holder will be
treated as ordinary dividend income for United States federal income tax purposes to the
extent of the Company&#146;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&#146;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. Holders), regardless of whether a payment in Israeli currency is
actually converted to US Dollars at that time. U.S. Holders 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Qualified
dividend income received by an individual (as well as certain trusts and estates) U.S.
Holder for taxable years beginning before January 1, 2009 are taxed at reduced rates of
either 5 or 15 percent, depending upon the amount of such shareholder&#146;s taxable
income. If a non-corporate U.S. Holder 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 above) 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
&#147;qualified foreign corporation.&#148; A &#147;qualified foreign corporation&#148;
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 &#147;qualified foreign
corporation&#148;. In the event ordinary shares should not be readily tradable on an
established securities market in the United States, non-corporate U.S. Holders 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. </FONT></P>

<p align=center>
<font size=2>97</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Credit for Israeli Taxes
Withheld </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
Holder&#146;s United States federal income tax liability at such U.S. Holder&#146;s
election. The Code provides limitations on the amount of foreign tax credits that a U.S.
Holder 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 &#147;passive income&#148; for the purpose of computing a U.S.
Holder&#146;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. Holders 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. Holders 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. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax Consequences for
Non-U.S. Holders of Ordinary Shares </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Except as described in
&#147;Information Reporting and Back-up Withholding&#148; below, a non-U.S. holder of
ordinary shares will not be subject to U.S. federal income or withholding tax on the
payment of dividends on, and the proceeds from the disposition of, ordinary shares,
unless: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
item is effectively connected with the conduct by the non-U.S. holder of a trade or
business in             the United States and:</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 2-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(i) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>in
the case of a resident of a country which has a treaty with the United States, the item
is                   attributable to a permanent establishment; or </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 2-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(ii) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>in
the case of an individual, the item is attributable to a fixed place of business in the
                  United States; </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
non-U.S. holder is an individual who holds the ordinary shares as a capital asset and is
present             in the United States for 183 days or more in the taxable year of the
disposition and does not qualify             for an exemption; or</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
non-U.S. holder is subject to tax under the provisions of U.S. tax law applicable to U.S.
            expatriates.</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Information Reporting
and Back up Withholding. </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A non-corporate U.S. Holder may,
under certain circumstances, be subject to information reporting requirements and
&#147;backup withholding&#148; 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. Holder: (a) fails to furnish its social security or other taxpayer
identification number (&#147;TIN&#148;) within a reasonable time after the request
therefore; (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. Holders should consult their tax advisors
regarding their qualification for exemption, if applicable. The amount of backup
withholding from a payment to a U.S. Holder generally will be allowed as a credit against
such U.S. Holder&#146;s federal income tax liability and may entitle such U.S. Holder to a
refund, provided that the required information is furnished to the IRS. </FONT></P>

<p align=center>
<font size=2>98</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk629></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FOREIGN EXCHANGE
CONTROLS AND OTHER LIMITATIONS </FONT></H1>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All exchange control restrictions
previously 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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At this time, due to the removal of
the restrictions, 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. There are no limitations on
the Company&#146;s ability to import and export capital. </FONT></P>


<a name=zk630></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DESCRIPTION OF SHARE
CAPITAL AND ARTICLES OF ASSOCIATION </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company is authorized to issue
35,000,000 Ordinary Shares, nominal value NIS 4.00 per share. As of December 31, 2006,
6,744,798 shares were outstanding. As of December 31, 2006 we have 1,331,042 options
issued to directors, officers and employees to purchase ordinary shares under our various
options plans as well as 1,626,847 ordinary shares underlying convertible notes and
warrants to purchase ordinary shares, issued to investors and service providers, as
follows: </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Options to directors,
officers and employees: </FONT></H1>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise Price Per Share $</FONT><HR WIDTH="95%" SIZE="1" COLOR="BLACK" NOSHADE ALIGN="LEFT"></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Outstanding</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Expiration Date</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="16%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.00</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="20%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,000</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="50%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nov. 2014</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.84</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Aug. - Nov. 2008</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,961</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mar. 2007 - Aug. 2013</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.28</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,500</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2010</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.48</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nov. 2010</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.55</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,500</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nov. 2011</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.58</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>67,261</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Oct. 2013</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.631</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,500</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Feb. 2011</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.68</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>615,576</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mar. 2007 - May 2012</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.695</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22,500</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>May 2011</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>296,282</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mar. 2007 - Mar. 2016</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.08</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>30,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mar. 2007 - June 2010</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>75,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2011</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.80</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26,137</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jan. 2007 - Jun. 2011</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>750</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mar. 2007 - Nov. 2009</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26,575</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jan. 2007 - June 2011</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
      <TD> &nbsp;</TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>1,331,042</B> </FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font size=2>99</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Warrants and Convertible Notes
issued to investors and service providers:</B> </FONT></P>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise price per share $</FONT><HR WIDTH="95%" SIZE="1" COLOR="BLACK" NOSHADE ALIGN="LEFT"></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Outstanding</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Expiration Date</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="14%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.30</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="20%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="50%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dec. 2010</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.08</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mar. 2007</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.50<SUP>(3)</SUP></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>441,785</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><SUP>(1)</SUP></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2008</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.50<SUP>(3)</SUP></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,434</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><SUP>(2)</SUP></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2008</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.08-4.08</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>758,524</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><SUP>(4)</SUP></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sept. 2008 - Aug. 2009</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.04</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>227,403</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2010 - Aug. 2013</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.30</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>48,701</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>August 2013</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
      <TD> &nbsp;</TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>1,626,847</B> </FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
</TABLE>

<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issued
in June 2005 </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issued
in July 2005 </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
exercise price of the warrants increases to $2.75 per ordinary share and
               $3.03 per ordinary share, on the first and second anniversaries of the
issue                date. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Relates
to the maximum amount of shares underlying the notes issued to the                Laurus
Master Fund. </FONT></TD>
</TR>
</TABLE>
<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Memorandum and Articles of Association</B> </FONT></P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In March 2002 the Company adopted new Articles of Association, in view of the
Israeli Companies Law, 1999. Since then, certain articles of the Article of
Association have been amended.
</FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Set forth below is a summary of
certain provisions of our Memorandum and Articles of Association. This summary is not complete and should be
read together with our Memorandum and Articles of Association previously filed. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>1.</I></B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Objects
of the Company:</I></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The company&#146;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&#146;s Articles of Association (Article
2) allow it to engage in any legal business. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>2.</I></B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><I>Provisions
related to the directors of the Company:</I></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Board of Directors may issue
shares and other securities, which are convertible or exercisable into shares, up to the
limit of the Company&#146;s authorized share capital. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) Approval of Certain Transactions
under the Companies Law: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We are subject to the provisions of
the Israeli Companies Law 1999, which became effective on February 1, 2000. </FONT></P>

<p align=center>
<font size=2>100</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Companies Law codifies the
fiduciary duties that an Office Holder has to the Company. An &#147;Office Holder&#148; 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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>An Office Holder&#146;s fiduciary
duties consist of a Duty of Loyalty and a Duty of Care. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Duty of Loyalty includes: the avoidance
of any conflict of interest between the Office Holder&#146;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&#146;s affairs that the Office Holder has received due
to his position. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Companies Law requires that an
Office Holder of a company promptly disclose to the company&#146;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&#146;s Board of Directors which discusses the particular
transaction. An Office Holder is deemed to have a &#147;personal interest&#148; 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 &#147;Extraordinary
Transaction&#148; is defined as a transaction &#150; other than in the ordinary course of
business, not on market terms, or that is likely to have a material impact on the
company&#146;s profitability, assets or liabilities. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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&#146;s interests. In the case of an Extraordinary Transaction, the
company&#146;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. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)
          Borrowing powers exercisable by the Directors are not specifically outlined in
          the Company&#146;s Articles of Association, however, according to Article 15:
          &#147;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&#148;. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c)
          The Company&#146;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. </FONT></P>



<p align=center>
<font size=2>101</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>3.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>With
regard to the rights, preferences and restrictions attaching to the           shares, the
Company&#146;s Articles of Association provide the following:</B> </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) Dividends, Rights to Share in the
Company&#146;s Profits and Rights to Share in any Surplus upon Liquidation <BR><BR>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&#146;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). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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&#146;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&#146; 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&#146;s
declaration is listed in the shareholders&#146; 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. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) Voting Rights </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All holders of paid-up ordinary
shares of the Company have an equal right to participate in and vote at the Company&#146;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). Such voting rights may
be affected in the future by the grant of any special voting rights to the holders of a
class of shares with preferential rights. 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&#146;s Articles of Association (Article 14.3). </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) Election of Directors. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s directors are
elected by the shareholders at a shareholders&#146; meeting. The Ordinary Shares do not
have cumulative voting rights in the election of directors. The holders of Ordinary Shares
conferring more than 50% of the voting power present by person or by proxy at the
shareholders&#146; meeting, have the power to elect the directors. The directors elected
shall hold office until the next annual meeting, or sooner if they cease to hold office
pursuant to the provisions of the Company&#146;s Articles. In addition, the Board of
Directors may appoint a director (to fill a vacancy or otherwise) between shareholder
meetings, and such appointment shall be valid until the next annual meeting or until such
appointee ceases to hold office pursuant to the provisions of the Company&#146;s Articles.
In compliance with the Companies Law, the Company has two external directors. The external
directors are also appointed by the shareholders and their term of office is three years.
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. </FONT></P>

<p align=center>
<font size=2>102</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d) Redemption </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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&#146;s recommendation and the terms determined (Article 27). </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(e) Capital Calls by the
Company </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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). </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(f) Discrimination </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>No provision in the Company&#146;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. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>4.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Modification
of Rights of Holders of Stock</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>So long as not otherwise provided in
the shares&#146; 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&#146;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&#146; issue terms (Article 10.2). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The above mentioned conditions are
not more onerous than is required by law. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>5.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Annual
General Meetings and Extraordinary General Meetings</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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
&#147;annual meetings&#148;. The Company&#146;s other meetings shall be called
&#147;special meetings&#148; (Article 12.1). The annual meeting&#146;s agenda shall
include a discussion of the Board of Directors&#146; 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&#146;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). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=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
&#147;requisition&#148;) (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&#146;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). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Notice to the Company&#146;s members
regarding the convening of a general meeting shall be sent to all the shareholders listed
in the Company&#146;s shareholders&#146; 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). </FONT></P>

<p align=center>
<font size=2>103</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>No discussions may be commenced at
the general meeting unless a quorum is present at the time of the discussion&#146;s
commencement. A quorum is the presence of at least two shareholders holding at least 33?%
of the voting rights (including presence through a proxy or a voting instrument), within
half an hour of the time fixed for the meeting&#146;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 &#147;the adjourned meeting&#148;) (Article
13.2). The quorum for the commencement of the adjourned meeting shall be any number of
participants. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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). </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>6.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Limitations
on the rights to own securities</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>There are no limitations on the
rights to own the Company&#146;s securities, including the rights of non-residents or
foreign shareholders to do so. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>7.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Change
of Control</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. Shareholder approval isn&#146;t required if the company that will
not survive is controlled by the surviving company. Additionally, the law provides some
exceptions to the shareholder approval requirement in the surviving company. 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 provided
that 30 days have elapsed since shareholder approval was received and 50 days have elapsed
from the time that a proposal for approval of the merger was filed with the Registrar. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 45% of the voting power of the company. An acquisition from a 25% or 45%
holder, which turns the purchaser into a 25% or 45% holder respectively, does not require
a tender offer. An exception to the tender offer requirement may also apply when the
additional voting power is obtained by means of a private placement approved by the
general meeting of shareholders. 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. </FONT></P>

<p align=center>
<font size=2>104</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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&#146;s shares or of a class of shares, that shareholder
shall be precluded from purchasing any additional shares (an exemption exists
where the shareholder held prior to and following February 2000, over 90% of any
class of shares, in which case he may purchase additional shares by a tender
offer that was accepted by a majority of the offerees). 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.</FONT></TD>
</TR>
</TABLE>
<BR>





<a name=zk631></a>



<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LEGAL PROCEEDINGS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In July 2002, the Company received a
claim letter from a car leasing vendor, under which it claims that the Company&#146;s
termination notice of the leasing agreement in March 2002 constituted a breach of the
agreement and the car vendor is demanding compensation of which the nominal sum is
approximately $292,000. No legal proceeding has been filed. At this stage, according to
the Company&#146;s counsel assessment, the prospects of vendor to prevail and recover a
significant amount, seem remote. The financial statements do not include any provision for
this claim. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In September 2003, a supplier filed a
legal claim in the amount of $107,000 against the Company&#146;s subsidiary (Odem). The
claim alleges the breach of an agreement for the purchase of products. Odem has filed a
counterclaim alleging that the supplier&#146;s products were imcompatible with the
required specifications and asking for damages. In August 2006, the court ruled that the
supplier is to pay Odem approximately $54,000 dollar (which amount includes value added
tax and litigation costs). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In March 2006, BOS&acirc;NOVA EURL, a
French company and former distributor of the Company, filed against the Company and others
a claim with the French Tribunal, in the amount of 1.4 million Euros, alleging breach of
exclusive distributor rights in France. This claim follows a previous motion for temporary
injunctive relief that was filed against the Company&#146;s new French distributor, said
motion ultimately denied by French Trade Tribunal. The Company&#146;s management is not
yet able to assess the probability of successfully defending the existing claim. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On May 10, 2006 the Company received
a written demand from IDEAL Software GmbH (&#147;IDEAL&#148;), a German corporation, in
which it claims that the Company owes it for unpaid license fees. On June 11, 2006 the
Company filed with the Haifa District Court in Israel a claim against IDEAL. Recently, we announced that we entered into a settlement of this dispute with IDEAL,
pursuant to which, on December 21, 2006, we paid IDEAL an amount of 110,000
Euros, and we agreed to withdraw the claim we filed in Israel. </FONT></P>

<p align=center>
<font size=2>105</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk632></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK. </FONT></H1>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Currency Exchange Rate
Risk Management </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;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 and Euro.
The balance of monetary assets in comparison to liabilities in non-dollar currencies in
the Balance Sheet as of June 30, 2006, December 31, 2005 and December 31, 2004
(&#147;Balance Sheet Exposure&#148;) is presented in the table below. The data is
presented in US Dollars (in thousands): </FONT></P>









<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30, 2006</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2004</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Israeli<BR>
currency (1)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>non-dollar<BR>
Currencies<BR>
(2)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Israeli<BR>
currency<BR>
(1)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>non-dollar<BR>
Currencies<BR>
(2)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Israeli<BR>
currency<BR>
(1)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>non-dollar<BR>
Currencies<BR>
(2)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>U.S.$</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>U.S.$</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>U.S.$</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>U.S.$</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>U.S.$</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>U.S.$</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="31%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Current assets:</B> </FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash and cash equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>524</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>655</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>152</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>873</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>244</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Trade receivables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,586</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,847</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>260</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,794</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>121</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other accounts receivable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>208</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>499</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>390</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Total assets</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,318</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,001</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>412</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,057</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>365</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Current liabilities:</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Short term loans from banks</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,155</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,271</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,354</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current maturities of long-term bank loans</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>48</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Trade payables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>893</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>129</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,643</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>91</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,514</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other accounts payable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>290</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>887</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>988</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,358</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>129</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,829</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>91</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,904</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Bank loans (net of current</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>maturities)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Total liabilities</B> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,368</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>129</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,846</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>91</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,958</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Net</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,050</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(102</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>155</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>321</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,099</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>344</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>
<BR>

<p align=center>
<font size=2>106</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)&nbsp;&nbsp;&nbsp;&nbsp;
          The above does not include balances in Israeli currency linked to the US dollar. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para (List) Flush Lv 0- TNR" FSL="Workstation" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)&nbsp;&nbsp;&nbsp;&nbsp;
          Primarily Euro. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 Israeli Shekels and the USD
currencies. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The selling prices of our products in
Israel and Europe are collected in the local currency. The purchases and salary expenses
in Israel are paid in the local currency. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A material change in currency
exchange rate of the NIS or Euro compared to the US Dollar may have an effect on the
Company&#146;s financial results and cash flow. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Credit Risk Management </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The company sells its products and
purchases products from vendors on credit terms. The trade receivables of the Company are
derived from sales to customers located primarily in Israel, the United States, the Far
East and Europe. The Company generally does not require collateral; however, in certain
circumstances, the Company may require letters of credit, other collateral, additional
guarantees or advanced payments. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Provisions are made for doubtful
debts on a specific basis and, in management&#146;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. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The table below presents the accounts
receivables balance by geographical market as of June 30, 2006, December 31, 2005 and
December 31, 2004: </FONT></P>


<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30, 2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="61%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>United States</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   391</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   799</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   734</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Europe</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>467</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>345</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Far East</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>44</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>170</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Israel and others</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,889</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,308</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,465</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5,199</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,557</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>

<p align=center>
<font size=2>107</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interest Rate Risk </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s exposure to market
risk for changes in interest rates, is due to its investment of its surplus funds, loans
and Convertible Note that carried variable interest. <BR><BR>The Company has a conservative
investment policy. According to this policy the Company invests in bank deposits and in
high level marketable securities. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A material change in yields of the
securities which the company invests in and the need of cash before the securities&#146;
maturation, may have an effect on the Company&#146;s financial results and cash flow. <BR><BR>A
material change in interest we receive on our bank deposits or pay on our loans and
Convertible Note may have an effect on the Company&#146;s financial results and cash flow. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Bank Risk </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company invests and manages the
majority of its funds in three banks, which are among the five largest in Israel. </FONT></P>

<a name=zk633></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UNDERTAKING TO REFRAIN
FROM ACTIONS <BR>
NOT DISCLOSED IN THIS
PROSPECTUS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By
signing this prospectus, we and our directors undertake as follows: </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>not
to take any action which is not disclosed in the prospectus concerning this rights
offering and distributing or dispersing of the securities offered hereunder to the
public, not to grant to purchasers of these securities rights which are not referred to
in the prospectus;</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>not
to enter into any agreement with any third party that to the best of our knowledge has
entered into arrangements which conflict with sub-paragraph (a); and</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>to
inform the Israel Securities Authority if we become aware of any arrangement with a third
party, which conflicts with sub-paragraph (a).</FONT></TD>
</TR>
</TABLE>
<BR>

<a name=zk634></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LEGAL MATTERS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
validity of the securities offered in this prospectus will be passed upon for us by Amit,
Pollak, Matalon &amp; Co., our Israeli counsel. Certain matters set forth herein under
&#147;Material Tax Considerations &#150; United States Tax Considerations&#148; will be
passed upon for us by Phillips Nizer LLP, our US counsel. </FONT></P>

<a name=zk635></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXPERTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
consolidated financial statements, included herein for the year ended December 31, 2005,
as amended, have been audited by Kost Forer Gabbay &amp; Kasierer, independent registered
public accounting firm and a member of Ernst &amp; Young Global as set forth in their
report thereon included herein. Such consolidated statements are included herein in
reliance upon such report given on the authority of such firm as experts in auditing and
accounting. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
consolidated financial statements of our consolidated subsidiary Odem Electronic
Technologies 1992 Ltd., for the year ended December 31, 2004, as amended have been audited
by Kesselman &amp; Kesselman, independent registered public accounting firm and a member
of PricewaterhouseCoopers, as set forth in their report thereon included herein. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
value attributed to our holdings in Surf Communication Systems Ltd., as of September 30,
2005, was supported by an external valuation prepared by Variance Economic Consulting Ltd. </FONT></P>

<p align=center>
<font size=2>108</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
value attributed to our holdings in Qualmax Inc., as of December 31, 2005, was supported
by an external valuation prepared by Melnik Oded Business Advisory Ltd. </FONT></P>

<a name=zk636></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>WHERE YOU CAN FIND
MORE INFORMATION </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have filed with the SEC a registration statement on Form F-1 under the Securities Act of
1933, with respect to the securities offered by this prospectus. However, as is permitted
by the rules and regulations of the SEC, this prospectus, which is part of our
registration statement on Form F-1, omits certain non-material information, exhibits,
schedules and undertakings set forth in the registration statement. For further
information about us, and the securities offered by this prospectus, please refer to the
registration statement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, that are applicable to a foreign private issuer. In
accordance with the Exchange Act, we file reports, including annual reports on Form 20-F
by June 30 of each year. We also furnish to the SEC under cover of Form 6-K material
information required to be made public in Israel, filed with and made public by any stock
exchange or distributed by us to our shareholders. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
registration statement on Form F-1 of which this prospectus forms a part, including the
exhibits and schedules thereto, and reports and other information filed by us with the SEC
may be inspected without charge and copied at prescribed rates at the SEC&#146;s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of this material are
also available by mail from the Public Reference Section of the SEC, at 100 F. Street,
N.E., Washington D.C. 20549, at prescribed rates. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information statements, and
other information regarding issuers, such as us, that file electronically with the SEC
(http://www.sec.gov). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing
the furnishing and content of proxy statements to shareholders and our officers, directors
and principal shareholders are exempt from the &#147;short-swing profits&#148; reporting
and liability provisions contained in Section 16 of the Exchange Act and related Exchange
Act rules. </FONT></P>




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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ENFORCEABILITY OF
CIVIL LIABILITIES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have been informed by our legal counsel in Israel, Amit, Pollak, Matalon &amp; Co., that
there is doubt concerning the enforceability of civil liabilities under the Securities Act
and the Exchange Act in original actions instituted in Israel. However, subject to
specified time limitations, Israeli courts may enforce a United States final executory
judgment in a civil matter, including a monetary or compensatory judgment in a non-civil
matter, obtained after due process before a court of competent jurisdiction according to
the laws of the state in which the judgment is given and the rules of private
international law currently prevailing in Israel. The rules of private international law
currently prevailing in Israel do not prohibit the enforcement of a judgment by Israeli
courts provided that: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
judgment is enforceable in the state in which it was given;</FONT></TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>adequate
service of process has been effected and the defendant has had a reasonable opportunity
to                 present his arguments and evidence;</FONT></TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
judgment and the enforcement of the judgment are not contrary to the law, public policy,
security                 or sovereignty of the State of Israel;</FONT></TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the
judgment was not obtained by fraud and does not conflict with any other valid judgment in
the                 same matter between the same parties; and</FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>109</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT FACE="Wingdings 2" SIZE="2">&#151;</FONT>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>an
action between the same parties in the same matter is not pending in any Israeli court at
the time the lawsuit is instituted in the foreign court. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have appointed Corporation Service Company<B> </B>as our agent to receive service of
process in any action against us in any competent court of the United States arising out
of this offering or any purchase or sale of securities in connection with this offering. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a foreign judgment is enforced by an Israeli court, it generally will be payable in
Israeli currency, which can then be converted into non-Israeli currency and transferred
out of Israel. The usual practice in an action before an Israeli court to recover an
amount in a non-Israeli currency is for the Israeli court to issue a judgment for the
equivalent amount in Israeli currency at the rate of exchange in force on the date of the
judgment, but the judgment debtor may make payment in foreign currency. Pending
collection, the amount of the judgment of an Israeli court stated in Israeli currency
ordinarily will be linked to the Israeli consumer price index plus interest at an annual
statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must
bear the risk of unfavorable exchange rates. </FONT></P>

<a name=zk638></a>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>THE ISRAEL SECURITIES
AUTHORITY EXEMPTION </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
prospectus has been prepared based on the requirements of the Securities Act and in
accordance with the requirements of the Securities and Exchange Commission for
Registration Statements on Form F-1. This prospectus, as will be filed and published in
Israel, is identical to the Registration Statement on Form F-1 filed with and declared
effective by, the United States Securities and Exchange Commission (File No.333-139233).  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
35(29) of the Israeli Securities Law authorizes the Israel Securities Authority to grant
an exemption from the application of the Securities Regulations (Prospectus Details,
Format and Form), 1969, to companies whose shares are dually listed on the Tel Aviv Stock
Exchange and certain foreign stock exchanges, that offer their securities to the public
in Israel under a prospectus. Based on the aforesaid, we received such an exemption in
connection with the offering under this prospectus.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Tel Aviv Stock Exchange  and NASDAQ approved the listing of
the rights and ordinary shares issuable upon exercise of the rights for trade for only
one day on both the NASDAQ Global Market and the Tel Aviv Stock Exchange. Nothing in
these approvals should be interpreted as a verification of the information contained
herein, an approval of the accuracy or completeness of such information or an expression
of any view as to the quality of the securities we are distributing.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
obtained all the approvals and permits required under applicable law for the distribution
of the rights and for the publication of this prospectus. The rights are not being
distributed in any jurisdiction where the offer is not permitted.  </FONT></P>

<p align=center>
<font size=2>110</font></p>
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<page>

<a name=zk639></a>


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     <P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS </FONT></H1>




<TABLE CELLPADDING=3 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated Financial Statements as of December 31, 2005</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PAGE</FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=85% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk201">Report of Independent  Registered Public Accounting Firm</a></FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-2</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk207">Report of Independent Registered Public Accounting Firm with respect to Odem Electronic Technologies 1992 Ltd.</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-3</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk202">Consolidated Balance Sheets</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-4-F-5</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk203">Consolidated Statements of Operations</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-6</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk204">Statements of Changes in Shareholder' Equity</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-7-F-8</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk205">Consolidated Statements of Cash Flows</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-9-F-11</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk206">Notes to Consolidated Financial Statements</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-12-F-48</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><a href="#zk208">Unaudited Interim Consolidated Financial Statements as of June 30, 2006</a></B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-49</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk209">Consolidated Balance Sheets</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-50-F-51</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk210">Consolidated Statements of Operations</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-52</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk211">Consolidated Statements of Cash Flows</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-53-F-54</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="#zk212">Notes to Unaudited Interim Consolidated Financial Statements</a></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>F-55-F-73</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>

<BR>

<p align=center>
<font size=2>111</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>





<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>B.O.S. BETTER ONLINE
SOLUTIONS LTD. </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>AND ITS SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CONSOLIDATED FINANCIAL
STATEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>AS OF DECEMBER 31, 2005 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>U.S. DOLLARS IN
THOUSANDS </FONT></H1>


<p align=center>
<font SIZE=2></FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk201></a>

<TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="BOTTOM">
     <TH WIDTH="30%"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH WIDTH="5%"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH WIDTH="30%"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH WIDTH="5%"><FONT FACE="Times New Roman, Times, Serif" SIZE="1"></FONT></TH>
     <TH WIDTH="20%"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><IMG SRC="e_y.jpg"></FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><FONT FACE="Wingdings" SIZE="1">n</FONT></FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><B>Kost Forer Gabbay &amp; Kasierer</B><BR>3 Aminadav St.<BR>Tel-Aviv 67067, Israel</FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><FONT FACE="Wingdings" SIZE="1">n</FONT></FONT></TD>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Phone: 972-3-6232525<BR>Fax:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;972-3-5622555</FONT></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To the Shareholders of </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>B.O.S. BETTER ONLINE
SOLUTIONS LTD.</FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheets of B.O.S Better Online Solutions
Ltd. (&#147;the Company&#148;) and subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations, changes in shareholders&#146; equity and
cash flows for each of the three years in the period ended December 31, 2005. These
financial statements are the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We did not audit the December 31, 2004 financial statements of Odem Electronic
Technologies 1992 Ltd (&#147;Odem&#148;) a subsidiary, whose statements reflect total
assets constituting 30.6% as of December 31, 2004, and total revenues for the period from
November 18, 2004 (date of acquisition of Odem) to December 31, 2004 constituting 23.5% of
the related consolidated total revenues. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates to amounts
included for Odem, is based solely on the reports of the other auditors. Those auditors
expressed an unqualified opinion on those statements in their report dated March 25, 2005. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. We were not engaged to perform an audit of the Company&#146;s
internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company&#146;s internal control over financial reporting. Accordingly
we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and evaluating the
overall financial statement presentation. We believe that our audits and the report of the
other auditors provide a reasonable basis for our opinion. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, based on our audits and the report of other auditors, the consolidated
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries at December&nbsp;31,
2005 and 2004, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December&nbsp;31, 2005, in conformity with
U.S. generally accepted accounting principles. </FONT></P>


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<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=38% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tel-Aviv, Israel</FONT></TD>
     <TD WIDTH=62% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>KOST FORER GABBAY &amp; KASIERER</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 27, 2006</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A Member of Ernst &amp; Young Global</FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 2</FONT></p>
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<page>






<a name=zk207></a>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM </FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To the Shareholders of </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ODEM ELECTRONIC
TECHNOLOGIES 1992 LTD. </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have audited the consolidated balance
sheets of Odem Electronic Technologies 1992 Ltd. (the &#147;Company&#148;) and its
subsidiaries as of December&nbsp;31, 2003 and 2004 and the related consolidated statements
of operations, changes in shareholders&#146; equity and cash flows for each of the years
ended on those dates. These financial statements are the responsibility of the
Company&#146;s Board of Directors and management. Our responsibility is to express an
opinion on these financial statements based on our audits. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We conducted our audits in accordance
with auditing standards generally accepted in Israel and the standards of the Public
Company Accounting Oversight Board (United States), including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. 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 the Company&#146;s Board of Directors and management, as well as evaluating the
overall financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In our opinion, the consolidated
financial statements referred to above, present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as of
December&nbsp;31, 2003 and 2004 and the consolidated results of operations, changes in
shareholders&#146; equity and cash flows for each of the years ended on those dates, in
conformity with accounting principles generally accepted in the United States of America. </FONT></P>






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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jerusalem, Israel <BR>
&nbsp;&nbsp;&nbsp;&nbsp;March 25, 2005
</FONT></TD>
<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Kesselman &amp; Kesselman<BR>
Certified Public Accountants (Israel)<BR>
A member of PricewaterhouseCoopers International Limited
</FONT></TD>
</TR>
</TABLE>
<BR>


<p align=center>
<font SIZE=2>F - 3</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk202></a>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED BALANCE SHEETS</B></FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="78%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;ASSETS</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CURRENT ASSETS:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,346</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,578</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Marketable securities (Note 5)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,333</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,324</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Trade receivables (net of allowance for doubtful accounts of $ 3 and $ 38 at</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2005 and 2004, respectively)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,199</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,557</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Other accounts receivable and prepaid expenses (Note 3)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>592</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>722</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Inventories (Note 4)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,323</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,086</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total current assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,793</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,267</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LONG-TERM ASSETS:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Long term marketable securities (note 5)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>757</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Severance pay fund</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>937</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,143</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Investment in an affiliated company (note 6)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>722</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,472</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Investment in other companies (note 7)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,690</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total long-term assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,349</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,372</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>OTHER ASSETS</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>395</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROPERTY, PLANT AND EQUIPMENT, NET (Note 8)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>667</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,019</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>GOODWILL (Note 10)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>952</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,569</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CUSTOMER LIST AND OTHER INTANGIBLE ASSETS, NET (Note 9)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,836</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,860</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ASSETS RELATED TO DISCONTINUED OPERATIONS (Note 1c)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 22,646</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 22,485</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an
integral part of the consolidated financial statements. </FONT></P>

<p align=center>
<font SIZE=2>F - 4</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>



<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED BALANCE SHEETS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>






<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="79%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;LIABILITIES AND SHAREHOLDERS' EQUITY</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CURRENT LIABILITIES:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Short term loans from banks (Note 11)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,271</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,354</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Current maturities of long-term bank loans and convertible note</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>354</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>643</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Trade payables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,367</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,845</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Employees and payroll accruals</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>772</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>664</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Deferred revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>258</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>364</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accrued expenses and other liabilities (Note 12)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,571</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,141</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,593</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,011</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LONG-TERM LIABILITIES:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Bank loans (net of current maturities) (Note 13)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Convertible note (net of current maturities) (Note 14)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>921</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,151</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Put option issued to minority shareholders in a subsidiary</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>359</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Deferred taxes</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>422</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>348</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accrued severance pay</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,190</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,468</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total long-term liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,550</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,380</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MINORITY INTEREST IN A SUBSIDIARY</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>809</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LIABILITIES RELATED TO DISCONTINUED OPERATIONS (Note 1c)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>237</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>237</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>COMMITMENTS AND CONTINGENT LIABILITIES (Note 15)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SHAREHOLDERS' EQUITY (Note 16):</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Share capital</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Ordinary shares of NIS 4.00 par value: Authorized: 8,750,000 shares at</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December 31, 2005 and 2004; Issued and outstanding: 6,589,385 and 4,737,658</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares at December 31, 2005 and 2004, respectively;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,432</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,823</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Additional paid-in capital</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,588</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>44,426</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Deferred stock-based compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(112</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(174</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accumulated other comprehensive income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accumulated deficit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(42,663</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(39,058</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total shareholders' equity</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,266</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,048</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total liabilities and shareholder's equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  22,646</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  22,485</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an integral
part of the consolidated financial statements. </FONT></P>


<p align=center>
<font SIZE=2>F - 5</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk203></a>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except per share data</B> </FONT></TD></TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=93><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="63%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  27,053</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   8,282</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   5,728</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost of revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,109</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,608</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,794</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reversal of Royalties (Note 18a)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>84</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>339</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,028</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,674</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,273</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating costs and expenses:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Research and development</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,608</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,296</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,129</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Less - grants and participation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(296</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(492</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(283</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Sales and marketing</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,563</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,706</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,178</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;General and administrative</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,267</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,705</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,317</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Restructuring and related costs</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>678</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total operating costs and expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,142</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,215</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,019</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,114</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,541</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,746</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial income (expenses), net (Note 18b)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(448</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(158</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>109</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other income, net (Note 1c)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,134</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss before taxes on income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,428</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,699</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,592</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Taxes on income (Note 17)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(204</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss after taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,632</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,719</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,592</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
      <TD>&nbsp; </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equity in losses of an affiliated company</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,750</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(308</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(465</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minority interest in earnings of a subsidiary</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(223</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,605</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,044</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,057</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Income (loss) related to discontinued operations (Note 1c)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,036</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (3,605</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2,053</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss per share from continuing operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;(Note 18c)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.44</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.56</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net income (loss) per share from discontinued</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;operations (Note 18c)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    0.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    0.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    0.55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss per share (Note 18c)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.44</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.01</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an
integral part of the consolidated financial statements. </FONT></P>

<p align=center>
<font SIZE=2>F - 6</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk204></a>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share data</B> </FONT></TD></TR>
</TABLE>
<BR>






<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Ordinary<BR>shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Share<BR>capital</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Additional<BR>paid in<BR>capital</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Deferred<BR>stock-<BR>based<BR>compensation</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated<BR>other<BR>comprehensive<BR>income</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Treasury<BR>shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated<BR>deficit</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total<BR>comprehensive<BR>loss</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total<BR>shareholders'<BR>
equity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="25%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at January 1, 2003</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,177,264</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    3,690</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   41,319</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>            -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>            -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (150</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (36,844</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    8,015</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issuance of shares related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;share swap transaction</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>633,102</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>537</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,059</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,596</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issuance of shares related to</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;the private placement</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>357,143</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>82</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>846</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>928</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock-based compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;related to warrants issued</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;to service providers</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total other comprehensive loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total comprehensive loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2003</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,167,509</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,309</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43,247</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(150</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(36,865</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,541</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deferred employee share-based</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;compensation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>179</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(179</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amortization of deferred</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;employee stock-based</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></tr>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issuance of shares related to</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;the acquisitions of Quasar</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;and Odem, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>570,149</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>514</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>784</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(140</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,308</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock based compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;related to warrants issued</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;to service providers</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>117</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>117</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Warrants issued related to</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;convertible note</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>99</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>99</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other comprehensive loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,053</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (2,053</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,053</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Unrealized gain on available</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;for sales marketable</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Foreign currency translation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;adjustments</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total comprehensive loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (2,022</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2004</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,737,658</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,823</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>44,426</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(174</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(39,058</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,048</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an integral
part of the consolidated financial statements. </FONT></P>

<p align=center>
<font SIZE=2>F - 7</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share data</B> </FONT></TD></TR>
</TABLE>
<BR>






<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Ordinary<BR>shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Share<BR>capital</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Additional<BR>paid in<BR>capital</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Deferred<BR>stock-<BR>based<BR>compensation</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated<BR>other<BR>comprehensive<BR>income</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Treasury<BR>shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Accumulated<BR>deficit</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total<BR>comprehensive<BR>loss</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total<BR>
shareholders'<BR>
equity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="24%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at January 1, 2005</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,737,658</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    4,823</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   44,426</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (174</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       31</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (39,058</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>            -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   10,048</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amortization of deferred</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;employee stock-based</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Conversion of convertible note</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>640,293</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>570</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,046</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,616</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issuance of shares related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;acquisition of Odem, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>232,603</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>202</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>330</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>532</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issuance of shares related to</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;the private placement, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>953,743</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>815</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,225</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,040</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exercise of employee options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25,088</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock-based compensation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;related to warrants issued</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;to service providers</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>348</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>348</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Warrants issued related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;convertible note</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>185</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>185</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,605</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,605</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,605</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss on available for sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=28><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Foreign currency translation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;adjustment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total comprehensive loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (3,615</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance at December 31, 2005</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,589,385</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    6,432</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   47,588</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (112</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (42,663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   11,266</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an
integral part of the consolidated financial statements. </FONT></P>

<p align=center>
<font SIZE=2>F - 8</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk205></a>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>






<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="72%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Cash flows from operating activities</U>: </FONT> </TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (3,605</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (2,053</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Adjustments to reconcile net loss to net cash used in operating</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;activities:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Loss (income) from discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,036</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Depreciation and amortization of intangible assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>581</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>351</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>307</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Amortization of premium and accretion of accrued interest on</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;available-for-sale marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>101</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Impairment of property and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>110</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Increase (decrease) in accrued severance pay, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(72</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Equity in losses of an affiliated company</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,750</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>308</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>465</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Minority interest in earnings in a subsidiary</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>223</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Stock based compensation related to employees</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Capital gain from sale of product line</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(273</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Capital gain from sale of Communication Division</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(779</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Net loss from decrease in value of put options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Capital loss from sale of property and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Gain on sale of marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Stock based compensation related to warrants issued to service</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;providers</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>244</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>121</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Financial expenses related to warrants issued in connection with</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;long-term convertible note</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>120</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>78</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Decrease (increase) in trade receivables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(678</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(342</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>448</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Decrease in deferred taxes</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(88</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(47</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Decrease in other accounts receivable and prepaid expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>125</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>131</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Increase in inventories</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,156</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(461</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(106</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Increase (decrease) in trade payables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(308</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>961</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(580</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Decrease in employees and payroll accruals, deferred revenues,</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;accrued expenses and other liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(90</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(63</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(808</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net cash used in operating activities from continuing operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,901</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,023</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,937</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net cash used in operating activities from discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(96</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,032</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net cash used in operating activities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,904</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,119</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,969</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<U>Cash flows from investing activities</U>: </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Purchase of property and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(272</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(214</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Proceeds from sale of property and equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>38</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Proceeds from sale of product line</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>257</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Payment on account of sale of Communication division</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,060</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Investment in long-term marketable securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(607</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,247</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(971</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Proceeds from redemption of marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,316</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,001</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Investment in an affiliated company</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(155</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Acquisitions, net of cash acquired (a,b)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,124</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,443</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Realization of restricted cash</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>700</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net cash provided by (used in) investing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(477</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,866</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>519</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<U>Cash flows from financing activities</U>: </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Repayment of short term and long term bank loans</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(93</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Proceeds from short term bank loans</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>933</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Proceeds from long term convertible note and warrants, net of</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;issuance expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,246</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,787</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Payment of  long term convertible note</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(80</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Proceeds from issuance of shares and exercise of options, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,090</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>928</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Issuance expenses related to investment in an affiliated company</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(159</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net cash provided by financing activities from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,159</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,614</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>769</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net cash used in financing activities from discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(47</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Net cash provided by financing activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,159</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,614</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>722</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Decrease in cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(222</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,371</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,728</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Decrease in cash and cash equivalents from discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>66</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>354</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Effect of exchange rate changes on cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Cash and cash equivalents at the beginning of the year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,578</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,872</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,246</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Cash and cash equivalents at the end of the year</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,346</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,578</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,872</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>



<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an integral
part of the consolidated financial statements. </FONT></P>


<p align=center>
<font SIZE=2>F - 9 </FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>






<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="56%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Supplemental disclosure of cash flow activities</U>:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(i) Net cash paid during the year for:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    126</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         129</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    309</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(ii) <U>Non-cash activities</U>:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
      <TD>&nbsp; </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment in an affiliated company against issuance of shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,755</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conversion of convertible note into shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,614</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sale of Communication division in consideration for shares in</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Qualmax</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,690</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Sale of PrintBos</U></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consideration</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    275</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disposal of fixed assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(28</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disposal of liability</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Related expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(74</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Capital gain</U></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    273</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Sale of Communication division</U></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consideration, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,690</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disposal of tangible and intangible assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,425</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Related expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(486</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Capital gain</U></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    779</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) <U>Acquisition of Quasar</U>:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value of net assets acquired (excluding cash and cash</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;equivalents) and liabilities assumed at acquisition date:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         597</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less - amount acquired by issuance of shares</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(539</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          58</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



<p align=center>
<font SIZE=2>F - 10</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="55%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) <U>Acquisition of Odem</U>:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value of net tangible assets acquired (excluding cash</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and cash equivalents) and liabilities assumed at</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;acquisition date:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,020</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,366</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value of net intangible assets acquired at acquisition</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;date:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>718</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>927</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less -</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amount acquired by issuance of shares</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>532</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>769</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payables</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>219</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>139</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Add-</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cancellation of Put and Call options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>137</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,124</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,385</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE><BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an
integral part of the consolidated financial statements. </FONT></P>

<p align=center>
<font SIZE=2>F - 11</FONT></p>
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<page>

<a name=zk206></a>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>



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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
GENERAL</B> </FONT> </TD>
</TR>
</TABLE>
<BR>



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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>B.O.S.
Better Online Solutions Ltd. is an Israeli corporation (together with its
               subsidiaries &#147;the Company&#148;). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s wholly-owned subsidiary BOScom Ltd. (&#147;BOScom&#148;) develops high
technology connectivity solutions that provide PC emulation products for the IBM iSeries
(AS/400). BOScom was involved in cross platform printing solutions answering a demand for
central printing and output management solutions in organizations which was sold during
2005 (see note 1c).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
B.O.S.
                     Communication Division Segment included: BOScom&#146;s business of
                    communication solutions which provide multi-path, intelligent routing
voice over                     IP gateways and the Company&#146;s wholly-owned subsidiary
Quasar Telecom (2004)                     Ltd. (&#147;Quasar&#148;), which provide
communication solutions based on                     cellular technology. The assets and
liabilities of the Communication Segment                     have been disposed of as
part of the disposal of the Communication Division (see                     note 1c)  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
September and November 2005, the Company purchased an additional 23.9% and 12.3%,
respectively, of the outstanding shares of Odem Electronic Technologies 1992 Ltd.
(&#147;Odem&#148;). Following these purchase, the Company owns 100% of Odem. Odem is a
solutions supplier of electronic components and systems to the technologies sector (see
note 1b). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s products are sold and supported directly and through a network of
distributors and value-added resellers. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
addition, the Company holds shares in two affiliated companies:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.7%
interest in Surf Communication Solutions Ltd. (&#147;Surf&#148;), a           developer
and supplier of access and network convergence software solutions to           the wire
line and wireless telecommunications and data communications           industries.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Approximately
16% interest in Qualmax Inc. a US corporation           (&#147;Qualmax&#148;) which is a
developer and supplier of Voice over IP           technology products and services. The
Company&#146;s holdings in Qualmax were           received as the consideration for the
sale of the communication division (See           note 1c).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Business
combinations: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1)</FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Acquisition
of Quasar Communication systems Ltd. assets (&#147;QCS&#148;).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
September 2004, the Company entered into an agreement with QCS, to purchase the assets of
QCS, for an aggregate consideration of $&nbsp;539 by the issuance of 285,000 of the
Company&#146;s ordinary shares. The assets of QCS were transferred to Quasar Telecom
(2004) Ltd., a wholly owned subsidiary of the Company. The results of Quasar&#146;s
operations have been included in the consolidated financial statements since September
28, 2004 (&#147;the closing date&#148;). On December 31, 2005, the Company sold the
assets of Quasar as part of the disposal of the Communication Division.  </FONT></TD>
</TR>
</TABLE>
<BR>


<p align=center>
<font SIZE=2>F - 12</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
GENERAL (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company's  consolidated  financial statements reflect the purchase price
                             determined as follows: </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Quasar</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>September 30,<BR>
2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="78%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issuance of shares (1)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 539</FONT></TD>
        <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Transaction costs</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>58</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total purchase price</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 597</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
value of the Ordinary shares issued was determined based on the average           market
price of the Company&#146;s Ordinary shares over the period of two days           before
and after the terms of the transaction were agreed to and announced.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
acquisition has been treated using the purchase method of accounting in accordance with
SFAS141 &#147;Business Combinations&#148;. The purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated fair value at the date
of acquisition. The excess of the purchase price over the estimated fair value of the
tangible and intangible assets acquired has been recorded as goodwill.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has allocated the total cost of the acquisition in 2004 as follows.  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Allocation of purchase consideration</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Quasar</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Estimated<BR>
useful life</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN="3" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="71%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tangible assets</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   77</FONT></TD>
        <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventory purchase commitment (1)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(147</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Trade name (2)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>180</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7 years</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Core technology (3)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>125</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5 years</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Distribution networks (4)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>200</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5 years</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Goodwill</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>162</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN="2" ALIGN="CENTER"></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total purchase price</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  597</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN="2" ALIGN="CENTER"></TD><TD></TD></TR>
</TABLE>
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<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Company purchased Quasar Communication Systems Ltd inventory in the           ordinary
course of business for a cash consideration of $ 517. The fair value of           Quasar&#146;s
inventory at the purchase date amounted to $&nbsp;370. A provision           in the
amount of $ 147 has been recorded at the date of the acquisition.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Company&#146;s allocation of purchase price valuated the acquired trade           name
using the relief from royalty approach.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Company&#146;s allocation of purchase price valuated the acquired core
          technology using the discounted cash flows to be derived from the sales of
these           products to present value.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 13</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
GENERAL (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Company&#146;s allocation of purchase price valuated the acquired           distribution
networks by calculating the savings realized by the Company through           obtaining a
pre-existing distribution network.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2)</FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acquisition
of Odem:  </FONT></TD>
</TR>
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<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
November 18, 2004 the Company purchased 63.8% of the outstanding shares of Odem, from Odem&#146;s
existing shareholders. In consideration for Odem&#146;s shares the Company (i) issued
290,532 of the Company&#146;s ordinary shares subject to &#147;lock-up&#148;periods of 2
to 4 years and (ii) paid an amount of $ 1,971 in cash. In addition, Odem&#146;s selling
shareholders and the Company had certain put and call options, based on performance, with
respect to all of the remaining Odem shares held by such sellers, exercisable for a
consideration comprised of additional cash and issuance of additional ordinary shares of
the Company. The Company recorded assets and liability with respect to these options at
fair value. The put option liability will be measured periodically until it expires or is
exercised and the changes in the fair value will be charged to finance expenses.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
September 29, 2005 and November 1, 2005, the Company purchased an additional 23.9% and
12.3%of the outstanding shares of Odem respectively, from Odem&#146;s minority
shareholders. Following these purchases, the Company owns 100% of Odem. In consideration
for the 12.3% of Odem&#146;s shares purchased on November, 2005 the Company paid $ 554,
in cash and for the 23.9% of Odem&#146;s shares purchase on September, 2005 the Company
(i) issued 232,603 of the Company&#146;s ordinary shares subject to &#147;lock up&#148;periods
of 2 to 4 years and (ii) $ 716 to be paid in cash.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s consolidated financial statements reflect the purchase price determined as
follows: </FONT></TD>
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</TABLE>
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<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Odem</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>November 1,<BR>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>September 29,<BR>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>November 18,<BR>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="38%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issuance of shares (1)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    532</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    769</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,301</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash consideration</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>554</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>716</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,971</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,241</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Transaction costs</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>139</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>212</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cancellation of put and</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;call options</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(33</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(104</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(137</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR>
      <TD>&nbsp; </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD>
      <TD> </TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total purchase price</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    540</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,198</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,879</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,617</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE><BR>



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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
value of the Ordinary shares issued was determined based on the average           market
price of the Company&#146;s Ordinary shares over the period of two days           before
and after the terms of the transaction were agreed to and announced.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 14</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
GENERAL (Cont.)</B> </FONT> </TD>
</TR>
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<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
acquisitions have been treated using the purchase method of accounting in accordance with
SFAS141 &#147;Business Combinations&#148;. The purchase price has been allocated to the
assets and liabilities assumed acquired based on their estimated fair value at the date
of acquisition. The excess of the purchase price over the estimated fair value of the
tangible and intangible assets acquired has been recorded as goodwill. </FONT></TD>
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<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has allocated the total cost of Odem acquisition in 2005 as follows. </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Allocation of purchase<BR>
consideration</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>November 1,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>September 29,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Estimated<BR>
useful life</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="36%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tangible assets</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    340</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    681</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,021</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer list (1)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>85</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>509</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>594</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9 years</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deferred tax liability</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(23</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(136</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(159</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9 years</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Goodwill</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>138</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>144</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>282</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total purchase price</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    540</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,198</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,738</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Company&#146;s allocation of purchase price valuated the acquired customer           list
by calculating cash flow as a direct result of the customer relationship.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has allocated the total cost of the acquisition in 2004 as follows: </FONT></TD>
</TR>
</TABLE>
<BR>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN="3" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Allocation of purchase consideration</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Odem</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Estimated<BR>useful life</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="68%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    586</FONT></TD>
        <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="12%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tangible assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>780</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Put option to minority shareholders (2)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(359</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Call option to minority shareholders (2)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>230</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer list (1)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,406</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10 years</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deferred tax liability</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(430</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10 years</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Goodwill</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>666</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total purchase price</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,879</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
</TABLE><BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Company&#146;s allocation of purchase price valuated the acquired customer           list
by calculating cash flow benefit as a direct result of the customer
          relationship.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
put and call options were valuated by using the Black &amp; Scholes option
          pricing model.  </FONT></TD>
</TR>
</TABLE>
<BR>


<p align=center>
<font SIZE=2>F - 15</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>GENERAL (Cont.)</B> </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
following unaudited pro forma financial information presents the Company&#146;s results
of operations as if the acquisitions had occurred as of the beginning of the fiscal years
2003 and 2004, after giving effect to certain adjustments, including amortization of
intangible assets. The unaudited pro forma financial information does not necessarily
reflect the results of operations that would have occurred, and is not necessarily
indicative of results which may be obtained in the future. </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="500" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>December 31,<BR>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="84%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pro forma revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  24,154</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pro forma net loss from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2,631</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pro forma basic and diluted net loss per share from continuing</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.56</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH="10%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c.</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          1) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sale
of product line  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
July 18, 2005, BOScom signed an asset purchase agreement with Consist Technologies Ltd.
and Consist International Inc. (collectively, &#147;Consist&#148;), for the sale of its
PrintBOS product line in consideration of $&nbsp;500 and a contingent payment in each of
the next three years equal to 6-10% of future revenues exceeding $1,000 per year,
generated by Consist from the PrintBOS product line. The Company has accounted for a gain
of $ 273 in 2005. As of December 31, 2005, the Company has received $ 375 and the
remaining $ 125 has been placed in escrow, pending repayment of royalties to the Office
of the Chief Scientist (&#147;OCS&#148;) on sales of PrintBOS products. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sale
of Communication Division:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
December 31, 2005, the Company sold its Communications Division Segment (hereinafter
&#147;Communications Division&#148;), including its property and equipment, goodwill,
technology, trade name, existing distribution channels and related contingent liability
to the Office of the Chief Scientist to IP Gear Ltd. (&#147;IP Gear&#148;), a wholly
owned Israeli subsidiary of Qualmax. The consideration paid to the Company in the
transaction was approximately 3.2 million Qualmax shares of common stock constituting
approximately 16% of Qualmax&#146;s total issued and outstanding Common Stock and $800 in
royalties to be paid at a rate of 4% from future revenues IP Gear will generate from the
disposed division (&#147;Royalties&#148;) with the entire $ 800 due no later than 90 days
from the third anniversary of the closing of the transaction. Additional shares may be
issued to the Company at the end of four consecutive fiscal quarters following the
closing of the transaction, contingent upon IP Gear generating by then a certain level of
revenues from the disposed division (&#147;Earn Out Shares&#148;). The maximum number of
Earn Out Shares that may further be issued to the Company is approximately 1 million,
constituting an additional 5%, of Qualmax outstanding shares. The Company received
certain piggy-back registration rights with respect to the Qualmax shares. The Company
does not have a representative on the Board of Directors of Qualmax. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 16</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
GENERAL (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company accounted for its holdings in Qualmax shares on the cost basis since these shares
are restricted stock. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
addition, the Company and IP Gear entered into an Outsourcing Agreement, pursuant to
which the Company will provide IP Gear with certain operating services relating to the
sold Communications Division. The first three months of services will be provided for no
charge and IP Gear shall pay for these services starting from April 2006. IP Gear can
elect to pay for the services rendered in April thru June 2006 by issuance to the Company
of Qualmax shares valued at a predetermined price of $1.43 per share. The Company
undertook to provide these services at least until December 31, 2006 (12 months from
closing). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company also granted a bridge loan to IP Gear in the amount of $1,000. The term of the
loan is three years and it bears interest equal to the Prime rate plus 2.5%, up to a
maximum of 12%. In the first 18 months, IP Gear shall pay only the interest accrued on
the loan and monthly principal and interest payments shall commence thereafter. The loan
granted to IP Gear is secured by a first priority floating charge, which may be
subordinated to a charge in favor of Bank of America, NA in the event such charge is
recorded. In addition repayment is guaranteed by Qualmax Inc. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
loan agreement provides that if the disposed division would incur in the first quarter of
2006, losses that exceed $250, the principal amount to be repaid under the loan shall be
reduced by the excess losses. In such event, Qualmax shall issue to the Company
additional shares of Common Stock against such reduction, valued at a predetermined price
of $1.43 per share. In addition, the loan shall be immediately repaid in the event
Qualmax raises by way of equity financing (or a series of equity financings) an aggregate
amount equal to at least $ 4,500. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Qualmax
also issued to the Company a five-year warrant for the purchase of up to 107,143 shares,
constituting less than 1%, of its outstanding shares in Qualmax, at the exercise price of
$2.80 per share (&#147;Warrants&#148;). The Company received certain piggy-back
registration rights with respect to the shares underlying the warrant. </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="88%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consideration:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Approximately 3.2 million ordinary shares of Qualmax (1)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,586</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;107,143 warrants (2)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>104</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Loan granted to IP Gear</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total consideration</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,690</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=4><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Disposal  of  inventory,  property  and  equipment  and  intangible  assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;related to the Communication segment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,425</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Transactions related cost</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>486</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total cost</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,911</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Capital gain</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    779</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Valuated
at $ 1.43 per share  </FONT></TD>
</TR>
</TABLE>


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<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Valuated
at $ 0.97 per warrant  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 17</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
GENERAL (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has not accounted for the Communication Division as a &#147;discontinued operation&#148; due
to its continuing involvement reflected in the loan and the outsourcing agreement, in
accordance with EITF 03-13. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>d.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    Discontinued
operations: </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
June 1, 1998, the Company acquired 100% of the share capital of Pacific Information
Systems Inc. (&#147;Pacinfo&#148;), a U.S. corporation. Pacinfo was a reseller of
computer networking products. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
During
the fourth quarter of 2002, the Company initiated a plan to cease operations of Pacinfo. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
results of operations including revenues, operating expenses and other income and
expenses of Pacinfo for 2004 and 2003 have been reclassified in the accompanying
statements of operations as discontinued operations. The Company&#146;s balance sheets at
December 31, 2005 and 2004 reflect the net assets and liabilities of Pacinfo as
liabilities and assets related to discontinued operations. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
carrying amounts of the major classes of assets and liabilities included as part of the
discontinued operations are: </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="76%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cash</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Trade receivables, other receivables and prepaid expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property and equipment, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets of discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Trade payables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 194</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 194</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accrued expenses and other liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>43</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Liabilities of discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 237</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 237</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
results of operations, including revenues, cost of revenues and operating expenses of
Pacinfo&#146;s operations for 2004 and 2003 have been reclassified in the statements of
operations. Taxes were not attributed to the discontinued operations due to utilization
of losses from previous years, for which a valuation allowance was provided. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Summarized
selected financial information of the discontinued operations is as follows: </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=56% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           -</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           -</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    25</FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          (9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,036</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 18</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
SIGNIFICANT ACCOUNTING POLICIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
 consolidated  financial  statements are prepared  according to United States generally
              accepted accounting principles ("U.S. GAAP"). </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Use
of estimates: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       Financial
statements in U.S. dollars (&#147;dollar&#148;): </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
A
substantial portion of the Company&#146;s revenues is generated in U.S. dollar (&#147;dollars&#148;).
In addition, most of the Company&#146;s costs are incurred in dollars. Company&#146;s
management believes that the dollar is the primary currency of the economic environment
in which the Company operates. Thus, the functional and reporting currency of the Company
is the dollar. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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 (&#147;FASB&#148;)
&#147;Foreign Currency Translation&#148;. 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. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
functional currency of the Odem subsidiary, whose functional currency as of December&nbsp;31,
2004, was other than dollar and has been translated into U.S. dollars, has changed on
April&nbsp;1, 2005, due to significant changes in circumstances initiated by management,
which consisting of; Odem transition from New Israeli Shekels (NIS) to U.S. dollars of
Odem&#146;s majority sales, majority expenses and budget, which indicate a functional
currency change. In accordance with FAS 52, &#147;Foreign Currency Translation&#148; and
since the functional currency changed from a foreign currency to the reporting currency,
dollars, the translation adjustments as of March 30, 2005, prior to the change have not
been removed from equity and the translated amounts for nonmonetary assets as of March&nbsp;30,
2005, prior to the change became the accounting basis for those assets in the periods
starting April&nbsp;1, 2005. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Principles
of consolidation: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. Inter-company transactions and balances including profits from
inter-company sales not yet realized outside the Company have been eliminated upon
consolidation. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>d.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>        Cash
equivalents: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Cash
equivalents are short-term highly liquid investments that are readily convertible to cash
originally purchased with maturities of less than three months. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 19</FONT></p>
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<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>e.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Marketable
securities: </FONT></TD>
</TR>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company accounts for investments in debt securities in accordance with Statement of
Financial Accounting Standard No.115, &#147;Accounting for Certain Investments in Debt
and Equity Securities&#148; (&#147;FAS 115&#148;). 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. Until November 30, 2005,
debt securities have been classified as held-to-maturity since the Company had the
positive intent and ability to hold the securities to maturity and they 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. Beginning December 1, 2005, the debt securities are classified as &#147;available-for-sale&#148; since
the Company does not have the intent to hold the securities to maturity, and are stated
at fair value. Due to the change in classification of the securities to &#147;available-for-sale&#148;,
the unrealized holding gain at the date of transfer has been reported in other
comprehensive income. </FONT></TD>
</TR>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Available-for-sale
securities are carried at fair value with unrealized gains, and are reported as a
separate item under &#147;other comprehensive loss&#148;. </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>f.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       Inventories: </FONT></TD>
</TR>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Inventory
write-offs are provided to cover risks arising from slow-moving items or technological
obsolescence. As of December 31, 2005 and 2004, inventory is presented net of $&nbsp;100
and $&nbsp;300, respectively, for technological obsolescence and slow moving items (see
also Note 4). </FONT></TD>
</TR>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Inventories
are valued at the lower of cost or market value. Cost is determined as follows: </FONT></TD>
</TR>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Raw
and packaging materials &#150; moving average cost method. Products in progress and
finished products &#150; on the production costs basis. </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>g.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     Grants
and royalty-bearing grants: </FONT></TD>
</TR>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Grants
and royalty-bearing grants from the Chief Scientist of the Ministry of Industry and Trade
in Israel for funding certain approved research projects 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.  </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>h.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          Investment
in an affiliated company: </FONT></TD>
</TR>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
An
affiliated company is a company in which the Company is able to exercise significant
influence, but that is not a consolidated subsidiary and is accounted for by the equity
method, net of write-down for decrease in fair value which is not of a temporary nature.
The Company&#146;s investment in Surf has been included as an affiliated company until
September 30, 2005 (see note 6). </FONT></TD>
</TR>
</TABLE>
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<p align=center>
<font SIZE=2>F - 20</FONT></p>
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<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
investment in an affiliated company represents investments in Ordinary shares and
Preferred shares of that Company. The Company applies EITF 99-10, &#147;Percentage Used
to Determine the Amount of Equity Method Losses&#148;. Accordingly, losses of the
affiliated company are recognized based on the ownership level of the particular security
of the affiliated company held by the Company. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s investment in this company is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the investment may not be
recoverable, in accordance with Accounting Principle Board Opinion No. 18 &#147;The
Equity Method of Accounting for Investments in Common Stock&#148; (&#147;APB No. 18&#148;).
During 2005, an impairment of 1,385 has been recorded in &#147;equity in losses of an
affiliated company&#148; in the statement of operations. In 2004 and 2003, based on
management&#146;s analyses, no impairment losses were identified. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>              i </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Investment
in other companies:</FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Investment
in companies are investments through which the Company is not able to exercise
significant influence over the investee&#146;s financial policies and which do not meet
the fair value availability criteria of FAS 115 (&#147;readily determined sales price
currently available on a security exchange&#148;), consequently such investments are
accounted for by the cost method. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s investment in such companies is reviewed for impairment whenever events of
changes in circumstances indicate that the carrying amount of the investment may not be
recoverable in accordance with APB No. 18. No impairment has been identified during 2005. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>j.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          Property
plant and equipment: </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Property,
plant 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: </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1>%</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="40%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Computers and software</FONT></TD>
     <TD WIDTH="10%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20 - 33</FONT></TD>
     <TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(mainly 33%)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Office furniture and equipment</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6 - 15</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(mainly 10%)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(over the period of the lease 10 years or the</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Leasehold improvements-</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>shorter of the life of the assets)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vehicles</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Plant</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD></TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>k.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       Impairment
of long-lived assets: </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s long-lived assets are reviewed for impairment in accordance with Statement
of Financial Accounting Standard No. 144 &#147;Accounting for the Impairment or Disposal
of Long-Lived Assets&#148; (&#147;SFAS No. 144&#148;) 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. The Company has recorded impairment losses of $ 0, $ 0 and $ 110 for the
years ended December&nbsp;31, 2005, 2004 and 2003, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 21</FONT></p>
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<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>l.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Goodwill: </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Goodwill
represents excess of the costs over the net assets of businesses acquired. SFAS No.&nbsp;142
requires goodwill to be tested for impairment at least annually or between annual tests
in certain circumstances, and written-down when impaired. 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 income and market
approaches. 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. During 2005,
2004 and 2003 no impairment losses have been identified. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>m.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Research
and development costs: </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Statement
of Financial Accounting Standards No. 86 &#147;Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed,&#148; (&#147;SFAS No. 86&#148;)
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company&#146;s 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 releases are insignificant. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>n.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       Severance
pay: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s liability for severance pay for Israeli resident employees is calculated
pursuant to the 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&#146;s salary for each year of employment or a
portion thereof. The Company&#146;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&#146;s balance sheet. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Severance
expenses for 2005, 2004 and 2003 amounted to $&nbsp;256, $&nbsp;214 and $&nbsp;178,
respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 22</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Revenue
recognition: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company sells its products through direct sales, distributors and resellers channels. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company derives its revenues from the sale of products, license fees for its products,
commissions, support and services. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Revenues
from product sales are recognized in accordance with Staff Accounting Bulletin No. 104
&#147;Revenue Recognition in Financial Statements&#148; (&#147;SAB 104&#148;) when
delivery has occurred, persuasive evidence of an arrangement exists, the vendor&#146;s
fee is fixed or determinable, no further obligation exists, and collectibility is
reasonably assured. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Revenue
from license fees is recognized in accordance with Statement of Position (&#147;SOP&#148;)&nbsp;97-2
&#147;Software Revenue Recognition&#148;, 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. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Revenues
support are recognized ratably over the period of the support contract. The fair value of
the support is determined based on the price charged when it is sold separately or
renewed. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Revenues
from commissions are recognized upon their actual receipt, since under agreements with
suppliers consideration is received on the basis of collection from customers. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>p.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          Warranty: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
BOScom
provides a warranty of 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&#146;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. As of December 31, 2005 and 2004, the Company&#146;s product warranty amounted
to $&nbsp;73 and $&nbsp;132, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>q.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Income
taxes: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company accounts for income taxes in accordance with Statement of Financial Accounting
Standards No 109, &#147;Accounting for Income Taxes&#148;. 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 has provided valuation
allowances, in respect of deferred tax assets resulting from tax loss carryforward 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. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 23</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>r.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       Concentrations
of credit risk: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Cash
and cash equivalents are invested mainly in U.S. dollars in deposits with major banks in
Israel. 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. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
trade receivables of the Company are derived from sales to customers located primarily in
Israel, United States and Europe. The Company generally does not require collateral;
however, in certain circumstances, the Company may require letters of credit, other
collateral, additional guarantees or advanced payments. An allowance for doubtful
accounts is determined with respect to specific debts that are doubtful of collection. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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&#146;s investments are financially sound, the
portfolio is well diversified and accordingly, minimal credit risk exists with respect to
these investments. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
loan granted to IP Gear is secured by a first priority floating charge, which may be
subordinated to a charge in favor of Bank of America, NA in the event such charge is
recorded. In addition repayment is guaranteed by Qualmax Inc. (see note 1c(2)). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has no off-balance-sheet concentrations of credit risk such as foreign exchange
contracts, option contracts or other foreign hedging arrangements. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>s.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          Basic
and diluted net loss per share: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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&nbsp;No.
128, &#147;Earnings Per Share&#148;. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
total 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 1,506,803, 855,783 and 505,178 for the years ended December 31, 2005, 2004
and 2003, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>t.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>          Accounting
for stock-based compensation: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has elected to follow Accounting Principles Board Opinion No. 25, &#147;Accounting
for Stock Issued to Employees&#148; (&#147;APB-25&#148;), and Interpretation No. 44,
&#147;Accounting for Certain Transactions Involving Stock Compensation&#148; (&#147;FIN 44&#148;),
in accounting for its employee stock option plan. Under APB-25, when the exercise price
of the Company&#146;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. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 24</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Pro-forma
disclosure is required by SFAS No. 123, had the compensation expense for stock options
granted under the Company&#146;s plans been determined based on the fair value at the
date of grant. The Company&#146;s net loss and loss per Ordinary share in 2005, 2004 and
2003 would have changed to the pro forma amounts shown below: </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD WIDTH="54%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss from continuing operations as reported</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (3,605</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (2,044</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (2,057</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Add: stock-based compensation expense determined</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;under intrinsic value method</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deduct: stock-based compensation expense</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;determined under fair value method for all</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;awards</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>246</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>96</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>124</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pro forma net loss from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,789</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,135</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,181</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pro forma net income (loss) from discontinued</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,036</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pro forma net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,789</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,144</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(145</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted earning (loss) per share as</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;reported:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (0.64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (0.44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (0.56</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     0.55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (0.64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (0.44</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT" colspan=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pro forma earning (loss) per share:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (0.67</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (0.46</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (0.59</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       0.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     0.55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (0.67</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (0.46</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (0.04</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
fair value of each option granted is estimated on the date of grant, using the Black &amp;Scholes
option pricing model with expected volatility of approximately 120%, 68% and 64% in 2005,
2004 and 2003, respectively and using the following weighted average assumptions: (1)
Dividend yield of zero percent for each year; (2) Risk-free interest rate of 4%, 2.5% and
1.8% in 2005, 2004 and 2003, respectively and (3) Expected average lives of the options
of three years from the date of grant as of 2005, 2004 and 2003. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company applies SFAS No. 123 &#147;Accounting for stock Based Compensation&#148;(&#147;SFAS
No. 123&#148;) and EITF 96-18, &#147;Accounting for Equity Instruments that are Issued to
Other than Employees for Acquiring, or in Conjunction With, Selling, Goods or Services&#148;,
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. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 25</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
SIGNIFICANT ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>u.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>        Fair
value of financial instruments: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
following methods and assumptions were used by the Company in estimating fair value
disclosures for financial instruments: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
carrying amounts of cash and cash equivalents, 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. The fair value of investments in other companies is based on
independent third-party evaluations. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>v.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       Reclassification: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Certain
amounts from prior years have been reclassified to conform to the current year
presentation. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>w.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           Impact
of recently issued accounting pronouncements: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
November 2004, the FASB issued Statement of Financial Accounting Standard No. 150, &#147;Inventory
Costs, an Amendment of ARB No. 43, Chapter 4.&#148; (&#147;SAFS No. 151&#148;). SFAS No.
151 amends Accounting Research Bulletin (&#147;ARB&#148;) No. 43, Chapter 4, to clarify
that abnormal amounts of idle facility expense, freight handling costs and wasted
materials (spoilage) should be recognized as current-period charges. In addition, SFAS
No.151 requires that the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SAFS No. 151 is
effective for inventory costs incurred during fiscal years beginning after September 15,
2005. As of December 31, 2005, the Company does not expect that the adoption of SFAS No.
151 will have a material effect on its financial position or results of operations. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement No.
123 (revised 2004), &#147;Share-Based Payment&#148; (&#147;Statement 123R&#148;), which
is a revision of FASB Statement No. 123, &#147;Accounting for Stock-Based Compensation&#148;(&#147;Statement
123&#148;). Generally, the approach in Statement 123R is similar to the approach
described in Statement 123. However, Statements 123 permitted, but did not require,
share-based payments to employees to be recognized based on their fair values while
Statement 123R requires all share-based payments to employees to be recognized based on
their fair values. Statement 123R also revises, clarifies and expands guidance in several
areas, including measuring fair value, classifying an award as equity or as a liability
and attributing compensation cost to reporting periods. The new Standard will be
effective for the Company in the first fiscal year beginning after December 15, 2005. On
March 29, 2005, the SEC published Staff Accounting Bulletin (&#147;SAB&#148;) No. 107,
which provides the staff&#146;s views on a variety of matters relating to stock-based
payments. SAB 107 requires stock-based compensation to be classified in the same expense
line items as cash compensation. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company will adopt Statement 123R and SAB 107 as of the financial statements of the first
quarter of 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 26</FONT></p>
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<page>






<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>



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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SIGNIFICANT
ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
May 2005, the FASB issued Statement of Financial Accounting Standard No. 154 (&#147;FAS
154&#148;), &#147;Accounting Changes and Error Corrections&#148; &#150; a replacement of
APB No. 20, Accounting Changes&#148; and FAS NO. 3, &#147;Reporting Accounting Changes in
Interim Financial Statement&#148;. FAS 154 provides guidance on accounting for and
reporting of accounting changes and error corrections. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
APB
Option 20 previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative effect
of changing to the new accounting principle. FAS 154 requires retrospective application
to prior periods&#146; financial statements of a voluntary change in accounting principle
unless it is impracticable. FAS 154 is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005. The Company is
currently assessing the impact of FAS 154 on its results of operations, financial
condition and liquidity. </FONT></TD>
</TR>
</TABLE>
<BR>



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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
June 29, 2005, the FASB issued FSP FAS 115-1 and FAS 124-1. The guidance in FSP FAS 115-1
and FAS 124-1 addresses the determination of when an investment is considered impaired,
whether that impairment is other than temporary, and the measurement of an impairment
loss. The FSP also includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about unrealized losses
that have not been recognized as other-than-temporary impairments. The guidance in this
FSP amends FASB Statement No. 115, &#147;Accounting for Certain Investments in Debt and
Equity Securities,&#148; and FASB Statement No. 124, &#147;Accounting for Certain
Investments Held by Not-for-Profit Organizations,&#148; and adds a footnote to APB
Opinion No. 18, &#147;The Equity Method of Accounting for Investments in Common Stock.&#148; The
guidance in this FSP nullifies certain requirements of EITF Issue No. 03-1 and supersedes
EITF. Abstracts, Topic D-44, &#147;Recognition of Other-Than-Temporary Impairment upon
the Planned Sale of a Security Whose Cost Exceeds Fair Value.&#148; The guidance in this
FSP is required to be applied to reporting periods beginning after December 15, 2005.
Because the impact of adopting the provisions of FSP FAS 115-1 will be dependent on
future events and circumstances, management cannot predict such impact. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 3:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>OTHER
ACCOUNTS RECEIVABLE AND PREPAID EXPENSES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="72%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Government authorities - Income tax advances and V.A.T</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 315</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 287</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Grants receivables</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>103</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accrued interest on marketable securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>106</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>96</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Prepaid expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>124</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>231</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 592</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 722</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 27</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 4:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INVENTORIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="72%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Raw materials (including packaging materials)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   107</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   809</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Products in progress</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>56</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>367</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Finished products</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,160</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,910</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,323</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,086</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
inventories are presented net of provision for technological obsolescence and slow-moving
items of $&nbsp;100 and $&nbsp;300 as of December 31, 2005 and 2004, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 5:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>MARKETABLE
SECURITIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
following is a summary of securities:  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=24><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Amortized<BR>
cost</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Gross<BR>
unrealized<BR>
gains</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Gross<BR>
unrealized<BR>
losses</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Estimated<BR>
fair<BR>
market<BR>
value</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Amortized<BR>
cost</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Gross<BR>
unrealized<BR>
gains</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Gross<BR>
unrealized<BR>
losses</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Estimated<BR>
fair<BR>
market<BR>
value</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="17%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Available-for-sale:</U> </FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Corporate</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;debentures</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,332</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       1</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,333</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   802</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   807</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=25><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Held-to-maturity:</U> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Corporate</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;debentures</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,279</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,293</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Aggregate
maturities of available-for-sale securities for years subsequent to December 31, 2005 are: </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Amortized cost</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Estimated fair<BR>
market value</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="50%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Available for sale:</U> </FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="15%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="8%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="15%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2006</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   286</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   286</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>790</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>791</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2008</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>256</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>256</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,332</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,333</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 6:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INVESTMENT
IN AN AFFILIATED COMPANY</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Investment
in Surf: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
November 2001, the Company invested $ 1,000 as part of a private placement in Surf
Communication System Ltd. (&#147;Surf&#148;). At the same time, the Company converted its
convertible loan in the amount of $&nbsp;1,042 (principal and accrued interest) into
Preferred shares in Surf at an exercise price equal to Surf&#146;s fair value as
determined in the investment agreement. As a result of this private placement, the Company&#146;s
holding in Surf was diluted to 17%. Accordingly, the investment was accounted based on
the cost accounting method. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 28</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 6:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INVESTMENT
IN AN AFFILIATED COMPANY (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
March 2003, the Company engaged with Catalyst Investors L.P. (&#147;Catalyst&#148;), in
order to purchase additional 191,548 series C Preferred shares of Surf. In consideration,
the Company issued to Catalyst 633,102 Ordinary shares, at a purchase price of $ 2.77,
aggregating to $ 1,755 and incurred transaction cost of $ 155. The value of the Ordinary
shares issued was determined based on the average market price of the Company&#146;s
ordinary shares over the period including two days before and after the terms of the
transaction were agreed to and announced. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Catalyst
also granted the Company, at no additional consideration, an option to purchase on or
prior to January&nbsp;31, 2006, any shares of Surf then held by Catalyst at an exercise
price of $ 9.1632 plus interest of 4.75% and until such purchase shall be granted voting
rights in Surf shares. In the event that Catalyst will sell its remaining shares in Surf
in or prior to January 31, 2006 (or by July 31, 2007, provided that the negotiations with
respect to the sale commenced before January 31, 2006), the Company will be entitled to
the gain that will be realized in such sale. To the best of the Company&#146;s knowledge,
Catalyst has not sold its Surf securities as of January 31, 2006, nor entered into
negotiations for their sale. The Company has not exercised the option and it expired on
January 31, 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
a result of this investment, the Company had the ability to exercise significant
influence over Surf. As a result the investment in Surf had become qualified to be
accounted for under the equity method. According to APB 18 when an investment qualifies
for use of the equity method, the investor should adopt the equity method of accounting
by adjusting retroactively the investment, results of operations (current and prior
periods presented), and retained earnings, in a manner consistent with the accounting for
a step-by-step acquisition of a subsidiary. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
September 2005, Surf completed a private placement that is considered an event of change
in circumstances that has a significant adverse effect on the fair value of the
investment. Therefore, the Company has evaluated its investment in Surf and determined
that it amounts to $ 722 as of December 31, 2005 based on management&#146;s analysis
(supported by an independent third-party valuation). As a result, the Company has
recorded an impairment of $ 1,385, which has been included in the equity in losses of an
affiliated company in the statement of operations for the year December 31, 2005. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Moreover,
following the private placement in Surf, the Company&#146;s voting rights have been
diluted to 8.7% of the total voting rights in Surf. As a result, the Company ceased to
have the ability to exercise significant influence over Surf and, accordingly, the
adjusted carrying amount of the investment of $ 722 is accounted for based on the cost
accounting method. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 29</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 6:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INVESTMENT
IN AN AFFILIATED COMPANY (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Summarized
combined financial information of surf for the year in which the investment was accounted
using the equity method was as follows: </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="73%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance sheet items:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="16%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Current assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,764</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Non-current assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>879</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Current liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,431</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Non-current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   525</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Shareholders' equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,687</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="62%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Statement of operations items:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,055</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,762</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,403</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Cost of sales</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   660</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   700</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   563</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Operating expenses from continuing operation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,694</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,037</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,332</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Net loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,334</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,971</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,427</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 7:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INVESTMENT
IN OTHER COMPANIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s investments in companies comprise of:  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="600" ALIGN="CENTER">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="86%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Qualmax (see Note 1(b) - disposal of Communication Division)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,690</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>

<p align=center>
<font SIZE=2>F - 30</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 8:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>PROPERTY
AND EQUIPMENT</B> </FONT> </TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="66%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Computers and software</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,683</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,108</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Office furniture and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>448</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>560</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Leasehold improvements and plant</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,116</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,137</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Vehicles</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>89</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>112</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,336</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,917</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accumulated depreciation:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Computers and software</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,511</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,812</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Office furniture and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>288</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>291</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Leasehold improvements and plant</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>816</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>749</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Vehicles</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>46</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,669</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,898</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Depreciated cost</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   667</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,019</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Depreciation
expenses amounted to $&nbsp;345, $&nbsp;300 and $ 307 for the years ended December 31,
2005, 2004 and 2003, respectively.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 9:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INTANGIBLE
ASSETS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="60%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Trade name</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   180</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Core technology</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>125</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Distribution network</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>200</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Customer list</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,010</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,406</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,010</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,911</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accumulated amortization:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Trade name</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Core technology</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Distribution network</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Customer list</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>174</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>174</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amortized cost</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,836</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,860</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Amortization
expenses amounted to $&nbsp;236 and $&nbsp;50 for the years ended December 31, 2005 and
2004, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 31</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 9:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INTANGIBLE
ASSETS (Cont.)</B> </FONT> </TD>
</TR>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Estimated
amortization expenses for the years ended:  </FONT></TD>
</TR>
</TABLE>
<BR>



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     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="58%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2006</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="16%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="22%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 207</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2007</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>207</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2008</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>207</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2009</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>207</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2010</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>207</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2011-2014</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>801</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 10:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>GOODWILL</B> </FONT> </TD>
</TR>
</TABLE>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Goodwill
attributed to operating segments for the years ended December 31, 2005 and 2004 is as
follows:  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Electronic<BR>
component</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="58%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance as of January 1, 2004</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    741</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    741</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acquisition of Odem</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>666</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>666</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acquisition of Quasar</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>162</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>162</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance as of December 31, 2004</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>903</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>666</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,569</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Foreign currency translation adjustment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Exercise of options in Odem</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>282</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>282</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Disposal of Communication Division</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(903</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(903</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Balance as of December 31, 2005</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    952</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    952</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>



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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 11:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SHORT
TERM BANK LOANS</B> </FONT> </TD>
</TR>
</TABLE>
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<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
interest<BR>
rate</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>%</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="20%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NIS</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="13%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.62</FONT></TD>
        <TD WIDTH="10%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="20%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,271</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="20%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,354</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Regarding
collateral given to insure short-term credit and loans see note 13c.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 32</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 12:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>ACCRUED
EXPENSES AND OTHER LIABILITIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="74%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Government of Israel - royalties and V.A.T</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   306</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   349</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Provision for warranty</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>132</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Issuance cost related to accrued convertible note</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>160</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Inventory purchase commitment liability</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>147</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>147</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accrued expenses on account of business combinations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>738</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>307</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>353</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,571</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,141</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 13:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>LONG-TERM
BANK LOANS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Classified
by linkage terms and interest rates, the total amount of the loans           is as
follows: </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
interest<BR>
rate</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>%</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="56%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NIS linked to the Israeli CPI</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="10%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7.95</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   33</FONT></TD>
        <TD WIDTH="7%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   51</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NIS</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.95</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>102</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Less - current maturities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(28</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(48</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   54</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
loans mature in the following years after the balance sheet dates: </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="70%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>First year (current maturities)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  28</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  48</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Second year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Third year</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fourth year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  45</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 102</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Odem
has registered fixed pledges on its real estate, plant and equipment and
          vehicles. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 33</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 14:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>LONG-TERM
CONVERTIBLE NOTE</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
June 10, 2004, the Company entered into a Securities Purchase Agreement (&#147;the
Purchase Agreement&#148;), with Laurus Master Fund Ltd. (&#147;the Investor&#148;), 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 (&#147;the Note&#148;); and
(ii) a warrant to purchase 130,000 ordinary shares at an exercise price of $ 4.04 per
share (&#147;the Warrant&#148;). According to the agreement, several fees in the amount
of $ 115 were paid to the Investor. These fees are presented as discount of the principal
convertible loan. The Note is convertible into Ordinary shares at a price of $ 3.08 per
share. The principal amount of the Note is repayable in monthly installments, commencing
September, 2004, in the initial amount of $ 20 eventually increasing to $ 74. The Note
bears prime interest rate plus 3% which subject to reduction in certain conditions. The
Warrant is exercisable, in whole or in part, until June 10, 2011.Pursuant to its
undertaking in the Registration Rights Agreement with the Investor the Company filed with
the Securities and Exchange Commission a registration statement on Form F-3 covering the
resale of Ordinary Shares that are issuable upon conversion of the Note and/or exercise
of the Warrants, and/or issuable in payment of principal and interest on the Note. The
Registration Rights Agreement provided that any delay in registration and/or
effectiveness of the underlying shares of the transaction, or failure to maintain their
effectiveness, will result in penalties to be paid in cash, as liquidated damages. The
registration statement became effective on March 11, 2005. Due to the delay in the
effectiveness of the registration of the shares, the Company paid the Investor liquidated
damages of $92. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Note conversion price is subject to proportional adjustment in the event of stock splits,
combinations, subdivisions of the Ordinary shares or if dividend is paid on the Ordinary
shares in ordinary shares. In addition, if the Company issues stock in certain types of
transactions at a price lower than the initial conversion price, then the conversion
price will be adjusted to a lower price based on a weighted average formula. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
fair value of the warrants was calculated using the Black and Scholes Option Pricing
Model with the following assumptions: a risk-free interest rate of 3.34%, a dividend
yield of 0%, a volatility of the expected market price of the Company&#146;s Ordinary
shares of 100% and a weighted-average contractual life of 7 year. The fair value of the
warrants in the amount of $ 99 is presented as a component in shareholders&#146; equity.
Since the effective conversion price was grater than the share price at the commitment
date, no beneficial conversion feature exists. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
March 2005, the Investor elected to convert $ 308 of the Convertible note principal into
100,000 Ordinary shares of the Company. Due to the private placement agreement secured by
the Company in June 2005, the conversion price was adjusted to $2.94 per share, and in
July 2005, the Investor completed the conversion of the balance of the Convertible Note
principal, which had not been previously converted or repaid, and the accrued interest
into an additional 540,293 Ordinary shares for approximately $ 1,580. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 34</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 14:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>LONG-TERM
CONVERTIBLE NOTE (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
September 2005, the Company entered into a Second Securities Purchase Agreement (&#147;the
Purchase Agreement&#148;) with the Investor, under which the Company issued to the
Investor in a private placement (i) a Secured Convertible Term Note of a $ 1,500
principal amount, due September 2008 (&#147;the Note&#148;), and (ii) a warrant to
purchase 73,052 ordinary shares at an exercise price of $ 4.04 per share (&#147;the
Warrant&#148;). According to the agreement, several fees in the total amount of $&nbsp;116
were paid to the Investor. These fees are presented as a discount of the principal
convertible loan. The Note is convertible into Ordinary shares at a price of $ 3.08 per
share. The principal amount of the Note is repayable in monthly installments, commencing
as of January 2006, in the initial amount of $ 15 eventually increasing to $ 55. The Note
bears prime interest rate plus 1.5% which is subject to reduction under certain
conditions. The Warrant is exercisable, in whole or in part, until September 29, 2012.
Pursuant to its undertaking in the Registration Rights agreement with the Investor the
Company filed with the Securities and Exchange Commission a registration statement on
Form F-3 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. The Registration Rights agreement provided that any delay in
registration and/or effectiveness of the underlying shares of the transaction, or failure
to maintain their effectiveness, will result in penalties to be paid in cash, as
liquidated damages. The registration statement became effective on February 8, 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
note conversion price is subject to proportional adjustment in the event of stock splits,
combinations, subdivisions of the Ordinary shares or if dividend is paid on the Ordinary
shares in Ordinary shares. In addition, if BOS issues stock in certain types of
transactions at a price lower than the initial conversion price, then the conversion
price will be adjusted to a lower price based on a weighted average formula. </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
fair value of the warrants was calculated using the Black- Scholes Option Pricing Model
with the following assumptions: a risk-free interest rate of 4.08%, a dividend yield of
0%, a volatility of the expected market price of the Company&#146;s Ordinary shares of
100% and a weighted-average contractual life of seven years. The fair value of the
warrants in the amount of $&nbsp;144 is offset against the note, amortized over the
period of the note and presented as a component in shareholders&#146; equity. </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The maturity of the loan is as
follows:  </FONT></P>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="66%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>First year (current maturities)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   326</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="11%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   595</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Second year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>663</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>883</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Third year</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>496</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>442</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,485</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,920</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Less - discount</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>238</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>174</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,247</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,746</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 35</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 15:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>COMMITMENTS
AND CONTINGENT LIABILITIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commitments: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1. </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Royalty
commitments:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Under
the Company&#146;s research and development agreements with the Office of           the
Chief Scientist (&#147;OCS&#148;) 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.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=20%>&nbsp;</TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
of December 31, 2005, the Company has an outstanding contingent obligation to pay
royalties in the amount of approximately $&nbsp;3,500, in respect of these grants.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b) </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=20%>&nbsp;</TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
of December 31, 2005, the Company has an outstanding contingent obligation to pay
royalties of $&nbsp;110 with respect to these grants.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2. </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other
commitments:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
facilities of the Company are rented under operating lease agreements that expire on
various dates ending in 2009. Minimum future rental payments for 2006 are $&nbsp;51, for
2007 $10, for 2008 $10 and for 2009 $6. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s motor vehicles are rented under various cancelable operating lease
agreements. The lease agreements for the motor vehicles expire on various dates ending in
2008. The maximum breach of contract fees can amounted to $ 74. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=15%>&nbsp;</TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Lease
payments for the facilities occupied by the Company and the Company&#146;s motor vehicles
in 2005, 2004 and 2003 amounted to $ 408, $&nbsp;385 and $ 426, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 36</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 15:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b.</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In July 2002, the Company received a claim letter from a car leasing           vendor,
under which it claims that the Company&#146;s termination notice of the           leasing
agreement in March 2002 constitutes a breach of the agreement and the           vendor is
demanding compensation in which the nominal claim amount is of           $&nbsp;292. No
legal proceeding has yet been filed. At this stage, according to           the Company&#146;s
counsel assessment, the prospects of vendor to prevail and           recover a
significant amount, seem remote. The financial statements do not           include any
provision in that regard.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
September 2003, a supplier filed a legal claim in the amount of $107 against
          the Company&#146;s subsidiary. The claim alleges the breach of an agreement for
          the purchase of products. The Company&#146;s legal counsel is unable to
          reasonably estimate the outcome of this claim. In addition, the Company&#146;s
          management believes that the chances of the claim are remote. Accordingly, no
          provision has been included in the financial statements in respect of this
          claim.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
1998, as part of Pacinfo Share Purchase Agreement between the Company and           Mr.
Lee and Ms. Lee (&#147;the Seller&#148;), the Company may be obligated to           grant
the Sellers a loan on a full recourse basis for certain tax payments the
          Sellers may be liable for and reimburse the Sellers for certain interest on
          taxes that they may owe, currently estimated at approximately $&nbsp;2
millions.           The Company will receive a security interest in shares of the Company
that the           Sellers 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. It is possible that the windup of PacInfo during
2002 and           2003 may have triggered such a tax event for the Sellers, which would
result in           an obligation by the Company to lend the Sellers such amount and to
reimburse           them for interest expenses incidental to the tax event. Based on the
          Company&#146;s legal consul opinion and management estimation, no provision was
          recorded.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
March 2006, BOS&acirc;NOVA EURL, a French company and former distributor of           the
Company, field against the Company and others a claim with the French           Tribunal.
The claim is on amount of 1.4 million Euros and it alleges breach of           exclusive
distributor rights in France. An initial hearing is scheduled to take           place in
France on June 29, 2006. This claim follows a previous motion for           temporary
injunctive relief that was field against the Company&#146;s new French
          distributor, said motion ultimately denied by French Trade Tribunal. The
Company           assesses the prospects of claim to prevail and recover a significant
amount, are           remote. The financial statements do not include any provision in
that regard.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 16:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SHAREHOLDERS&#146; EQUITY</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Private
placement: &nbsp;</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
June 2005, the Company completed a private placement for the Company&#146;s Ordinary
shares. The Company issued to the investors 953,698 Ordinary Shares at a purchase price
of $&nbsp;2.30 per share, for a consideration of approximately $&nbsp;2,040 (net of $&nbsp;154
in issuance expenses). </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 37</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 16:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SHAREHOLDERS&#146; EQUITY
(Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
private placement included warrants of 572,219 for ordinary shares. The exercise price of
the warrants is $2.50 per ordinary share during the first year from their issue date, and
increasing to $2.75 per ordinary share and $3.03 per ordinary share, on the first and
second anniversaries of the issue date, respectively. The warrant is exercisable, in
whole or in part during a period of three years from issuance, of the warrants. Pursuant
to its undertaking in the Registration Rights Agreement, the Company filed with the
Securities and Exchange Commission a registration statement on Form F-3 covering the
Ordinary Shares (including those underlying the warrants). The registration statement
became effective with no delay on February 8, 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s outstanding warrants to shareholders as of December 31, 2005 are as
follows: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Issuance date</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Warrants for<BR>
Ordinary<BR>
shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise<BR>
price per<BR>
share</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Warrants<BR>
exercisable</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercisable<BR>
through</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
</TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="18%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2005</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="13%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>441,785</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (*)</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="13%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>441,785</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="17%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2008</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>July 2005</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,434</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (*)</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,434</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2008</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>572,219</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>572,219</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=3></TD></TR>
</TABLE>
<BR>



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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(*) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
exercise price of the warrants is $2.50 per ordinary share during the first
          year from their issue date, and increasing to $2.75 per ordinary share and
$3.03           per ordinary share, on the first and second anniversaries of the issue
date.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>              b </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock
option plans: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
During
1994, 1995, 1999, 2000, 2001, the Board of Directors of the Company adopted stock option
plans (&#147;the Plans&#148;) pursuant to which 656,250 options for the purchase of the
Company&#146;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 above mentioned plans. In May 2003, the Company&#146;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, 2005 an aggregate 27,410 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
of up to four years. Options, that are cancelled or forfeited, become available for
future grants. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
June 2005 the Company&#146;s shareholders approved an increase of the number of Ordinary
shares reserved for issuance under the 2003 Israeli Stock Option Plan, to 1,000,000. The
additional shares shall be reserved after the registered share capital of the Company is
increased. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
November 18, 2004, upon acquisition of Odem, the Company granted 73,000 options to one of
Odem&#146;s key employee. Each option can be exercised to purchase one ordinary share of
the Company without consideration. The options vest at the end of three years from the
grant date and expire ten years from the date of the grant. The market price of the
Company&#146;s shares on the date of grant was $ 2.5. Accordingly, the Company recorded
in the year ended December 31, 2005, a compensation expense of $&nbsp;62. This expense
was included as part of general and administrative expenses. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 38</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 16:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SHAREHOLDERS&#146; EQUITY
(Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Except
for these options, all other options granted to employees in 2005, 2004 and 2003, have an
exercise price equal to or higher than the market value of the Ordinary shares at the
date of grant. The weighted average fair values of the options granted during 2005, 2004
and 2003 were $&nbsp;2.13, $&nbsp;2.58 and $&nbsp;3.91, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
following is a summary of the Company&#146;s stock options granted to officers,
directors, and employees among the various plans: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=18><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Number<BR>
of options</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
exercise<BR>
price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Number<BR>
of options</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
exercise<BR>
price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Number<BR>
of options</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
exercise<BR>
price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="29%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Options outstanding</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=19><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;at beginning of</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;year</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>430,576</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  9.47</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>426,252</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 11.93</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>211,929</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 16.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes during the</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;year:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Granted</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>107,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.91</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>92,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  0.54</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>278,076</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  8.97</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Exercise</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(25,088</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=19><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Forfeited or</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;cancelled</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(112,238</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 21.66</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(88,176</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 11.97</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(63,753</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 12.53</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Options outstanding</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;at end of year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>400,250</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4.77</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>430,576</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  9.47</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>426,252</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 11.93</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=19><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Options exercisable</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=19><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;at the end of the</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;year</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>217,750</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7.40</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>248,790</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  5.49</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>194,926</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 20.36</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
options outstanding as of December 31, 2005, have been separated into ranges of exercise
price as follows: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Range of<BR>
exercise<BR>
price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options<BR>
outstanding<BR>
as of<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
exercise<BR>
price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
remaining<BR>
contractual<BR>
life (years)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options<BR>
exercisable<BR>
as of<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
exercise<BR>
price of<BR>
options<BR>
exercisable</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="22%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$            0</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,000</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  0.00</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7.39</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  0.00</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 1.84-2.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>140,221</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1.94</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.89</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>122,721</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1.95</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 2.28-3</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>113,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.92</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.58</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$          6.8</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31,241</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  6.80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31,241</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  6.80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 17.00-18.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,463</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 17.24</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,463</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 17.24</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$        28.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33,325</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 28.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.10</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33,325</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 28.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>400,250</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4.77</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.23</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>217,750</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7.40</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Options
issued to service providers: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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
Black-Scholes option pricing model with the following assumptions: risk-free interest
rate of 1.5%, dividend yields of 0% volatility of 70%, and an expected life of 2.5 years. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 39</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 16:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SHAREHOLDERS&#146; EQUITY
(Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
compensation expenses that have been recorded in the consolidated financial statements
regarding these warrants for the years 2005, 2004 and 2003 were $&nbsp;348, $&nbsp;117
and $&nbsp;23, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s outstanding warrants to service providers as of December 31, 2005 are as
follows: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Issuance date</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Warrants for<BR>
Ordinary<BR>
shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise<BR>
price per<BR>
share</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Warrants<BR>
exercisable</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercisable<BR>
through</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="25%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>October 2002</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>75,000</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.00</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>75,000</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="23%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2011</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>January 2004</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>216,282</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>144,188</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>May 2013</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2004</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.04</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2011</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2005</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.08</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2007</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2005</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.08</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2010</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2005</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.08</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2010</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>September 2005</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,052</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.04</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,052</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>September 2012</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>534,334</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>437,240</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 17:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>TAXES
ON INCOME</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reduction
in corporate tax rate: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
June 2004, the Israeli Parliament approved an amendment to the Income Tax Ordinance (No.
140 and Temporary Provision) (the &#147;Amendment&#148;), which progressively reduces the
regular corporate tax rate from 36% to 35% in 2004, 34% in 2005, 32% in 2006 and to a
rate of 30% in 2007. The amendment was signed and published in July 2004 and is,
therefore, considered enacted in July 2004. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
July 25, 2005, the Knesset (Israeli Parliament) passed the Law for the Amendment of the
Income Tax Ordinance (No. 147), 2005, which prescribes, among others, a gradual decrease
in the corporate tax rate in Israel to the following tax rates: in 2006 &#150; 31%, in
2007 &#150; 29%, in 2008 &#150; 27%, in 2009 &#150; 26% and in 2010 and thereafter &#150;25%. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Odem
and Quasar operations are subject to regular income tax rate while the Company and BOScom
enjoy the status of an &#147;Approved Enterprise&#148;, as described below. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax
benefits under the Law for the Encouragement of Capital Investments, 1959           (&#147;the
Investment Law&#148;): </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s production facilities have been granted an &#147;Approved Enterprise&#148;status
under the Investment Law, with respect to four separate investment programs. According to
the Investments Law, the Company has elected to receive for the first program
state-guaranteed loans and grants and 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 &#147;alternative benefits&#148; and has waived Government grants in
return for a tax exemption. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 40</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 17:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>TAXES
ON INCOME (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company is also a &#147;Foreign Investors&#146; Company&#148;, 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). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Income
from the second, third and 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&#146;s investments are not subject to the 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 corporate tax rate as described in article a
above. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
BOScom
also has a production facility, which was granted an &#147;Approved Enterprise&#148;status
and had a separate investment program. BOScom elected to receive the &#147;alternative
benefits&#148;. Income derived from BOScom&#146;s investment programs, which commenced
operations in 1997 and 2002, is exempt from income tax for a period of ten years
commencing with the first year in which taxable income is generated. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
entitlement to the above benefits is conditional upon the Company&#146;s and BOScom&#146;s
fulfilling the conditions stipulated by the above law, regulations published thereunder
and the instruments of approval for the specific investments in &#147;Approved Enterprises&#148;.
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. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
tax-exempt income attributable to the &#147;Approved Enterprise&#148; 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. Since there was no distribution of dividends with respect to the period ended on
December 31, 2005, the Company did not record a deferred tax liability. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
If
the Company and BOScom derive income from sources other than an &#147;Approved Enterprise&#148;,
such income will be taxable at the regular corporate tax rate as described in article (a)
above. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 41</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 17:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>TAXES
ON INCOME (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
April 1, 2005, an amendment to the Investment Law came into effect (&#147;the Amendment&#148;)
and has significantly changed the provisions of the Investment Law. The Amendment limits
the scope of enterprises which may be approved by the Investment Center by setting
criteria for the approval of a facility as an Approved Enterprise, such as provisions
generally requiring that at least 25% of the Approved Enterprise&#146;s income will be
derived from export. Additionally, the Amendment enacted major changes in the manner in
which tax benefits are awarded under the Investment Law so that companies no longer
require Investment Center approval in order to qualify for tax benefits. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
However,
the Investment Law provides that terms and benefits included in any certificate of
approval already granted will remain subject to the provisions of the law as they were on
the date of such approval. Therefore the Israeli subsidiary&#146;s existing Approved
Enterprise will generally not be subject to the provisions of the Amendment. As a result
of the amendment, tax-exempt income generated under the provision of the new law will
subject the Company to taxes upon distribution or liquidation and the Company may be
required to record deferred tax liability with respect to such tax-exempt income. As of
December 31, 2005, the Company did not generate income subject to the provision of the
new law. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss
carryforward: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Domestic
(Israel):  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company and its Israeli subsidiary have accumulated losses for Israel income tax purposes
as of December 31, 2005, in the amount of approximately $&nbsp;21,600. These losses may
be carryforward (linked to the Israeli Consumer Price Index (&#147;CPI&#148;)) and offset
against taxable income in the future for an indefinite period. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Foreign: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
of December 31, 2005, the U.S. subsidiaries which were classified as discontinued
operations had U.S. Federal and State net operating loss carryforward of approximately $&nbsp;10,264,
that can be carried forward and offset against taxable income and expire through 2022.
Utilization of U.S. net operating losses may be subject to substantial annual limitations
due to the &#147;change in ownership&#148; 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. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
of December 31, 2005, B.O.S. U.K. had net operating loss carryforward of approximately $&nbsp;3,500.
In February, 2006 B.O.S. U.K. the Company filed with the UK Companies House an
application to dissolve BOS U.K. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>d. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deferred
income taxes: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Deferred
income taxes reflect the net tax effect 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&#146;s deferred tax
liabilities and assets are as follows: </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 42</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 17:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>TAXES
ON INCOME (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="70%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets  in respect of:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Property, plant and equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Allowances and provisions</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>865</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>239</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net operating loss carry forward</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,350</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,851</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,218</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,111</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Liabilities in respect of intangible assets and goodwill</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(511</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(424</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net deferred tax assets before valuation allowance</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,707</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13,687</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Valuation allowance (1)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(10,162</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(14,039</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net deferred tax liability</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (455</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (352</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Presented in balance sheet:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-term assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (4</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-term liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(422</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(348</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net deferred tax liability</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (455</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (352</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net deferred tax - domestic</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (455</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (352</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Company has provided valuation allowances, for BOS, BOScom and Quasar in
          respect of deferred tax assets resulting from tax loss carryforward 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.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>e. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Income
(loss) before taxes on income: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="48%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Domestic</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (3,195</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,883</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="12%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    320</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Foreign</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,767</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>184</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,912</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,428</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,699</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,592</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 43</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>



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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 17:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>TAXES
ON INCOME (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>              f. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Effective
tax</FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="59%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss before taxes on income, as reported in the</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;consolidated statements of operation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,428</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,699</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,592</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Statutory tax rate</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>36</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Provision at statutory tax rate</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(485</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(595</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(573</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Non deductible expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>219</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Valuation allowance</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>470</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>599</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>560</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total tax expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    204</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     20</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>g. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tax
assessments: </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
BOS,
BOScom and Odem have final assessments through the 2000 tax year.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 18:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SUPPLEMENTARY
INFORMATION TO STATEMENTS OF OPERATIONS</B> </FONT> </TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Royalty
reversal: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Certain
research and development activities of the Company are supported by the OCS. In return
for the OCS&#146;s participation, the Company was committed to pay royalties as described
in Note 14 a.1. During the third quarter of 2003, the OCS completed its examination of
the Company&#146;s technology and use of grant funding for the years 1991 through 1999,
which reduced the royalties&#146; expenses provision. Accordingly, the Company reversed $
339 of accrued royalties as a reduction in cost of sales during the third quarter of
2003. During the fourth quarter of 2005, the Company reversed an additional amount of $84
related to a balance report received from the OCS in the fourth quarter of 2005. </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD WIDTH="5%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b.</FONT> </TD>
     <TD WIDTH="53%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial income (expenses), net:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="6%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial income:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Interest on bank deposits and marketable</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   57</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   98</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  158</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other (mainly foreign currency translation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;income)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>48</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>57</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>198</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>206</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial expenses:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In respect of long-term bank loans and</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;convertible note</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(427</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(324</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other (mainly foreign currency translation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;losses)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(78</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(32</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(97</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(505</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(356</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(97</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (448</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (158</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  109</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>

<p align=center>
<font SIZE=2>F - 44</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 18:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SUPPLEMENTARY
INFORMATION TO STATEMENTS OF OPERATIONS (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loss
per share: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1. </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Numerator:  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH><TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD WIDTH="5%"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Numerator for basic and diluted net loss</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;per share -</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss from continuing operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (3,605</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (2,044</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (2,057</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss) from discontinued</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;operation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (9</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,036</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss available to Ordinary</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;shareholders</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (3,605</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (2,053</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.</FONT> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Denominator (in thousands):</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Denominator for basic and diluted net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;loss per share -</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Weighted average number of shares</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,616</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,631</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,683</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD><TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 19:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SEGMENTS
AND GEOGRAPHICAL INFORMATION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Commencing
in 2004 and subsequent to the acquisition of Odem and Quasar, the Company managed its
business on three reportable segments, which consisted of Connectivity solutions,
Communication solution and supply of Electronic Components. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s management makes financial decisions and allocates resources, based on the
information it receives from its internal management system. The Company allocates
resources and assesses performance for each operating segment using information about
revenues, gross profit and operating income (loss) before interest and taxes. </FONT></TD>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Segment
information for prior years was not presented on the new basis of segmentation since it
is impracticable to do so. </FONT></TD>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues,
gross profit and operating profit (loss) for operating segments for           the year
ended 2005 and 2004 were as follow: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31, 2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Connectivity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication *</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Electronics<BR>
components</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Not allocated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="26%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,926</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,954</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  20,253</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (80</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  27,053</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,425</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     783</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,820</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   7,028</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating profit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;(loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     235</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2,374</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     727</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (702</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2,114</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;segment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     391</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     439</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  11,535</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  10,281</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  22,646</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 45</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 19:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SEGMENTS
AND GEOGRAPHICAL INFORMATION (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31, 2004</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Connectivity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication *</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Electronics<BR>
components</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Not allocated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="26%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   5,011</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,363</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,908</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   8,282</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,933</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     414</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     327</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,674</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating profit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;(loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,009</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (1,846</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      66</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (770</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (1,541</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;segment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     616</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,397</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   8,880</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  10,592</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  22,485</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>



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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>* </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
December 2005 the Company has disposed of the Communication Division (see note 1(c)).  </FONT></TD>
</TR>
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<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
following presents total revenues and long-lived assets for the years ended
          December 31, 2005, 2004 and 2003 based on the customers&#146; location: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=18><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total<BR>
Revenues</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Long-lived<BR>
assets *)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total<BR>
revenues**)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Long-lived<BR>
assets *)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Total<BR>
revenues</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Long-lived<BR>
assets *)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="26%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>United States</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,615</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,252</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,974</FONT></TD>
        <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      5</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Far East</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,083</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>701</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Europe</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,887</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,066</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,198</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Israel and others</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,468</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,455</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,263</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,448</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,556</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,334</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 27,053</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,455</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  8,282</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,448</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  5,728</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,339</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Total
revenues are attributed to geographic areas based on the location of customers in
accordance with Statement of Financial Accounting No. 131, &#147;Disclosures about
Segments of an Enterprise and Related Information&#148; (&#147;SFAS 131&#148;). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-lived
assets comprise goodwill intangible assets, property and equipment.  </FONT></TD>
</TR>
</TABLE>



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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>**) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reclassified.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Major
customer&#146;s data as a percentage of total revenues: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2003</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer A</FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9</FONT></TD>
        <TD WIDTH=14% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>39</FONT></TD>
        <TD WIDTH=11% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>52</FONT></TD>
        <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer B</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Major
customer&#146;s debt balances as of December 31, 2005 and 2004 are $&nbsp;1,433 and $&nbsp;603,
respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 46</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 20:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>RELATED
PARTIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>M&amp;A
Addendum to the Services Agreement of Cukierman &amp; Co. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
2003, the Company&#146;s audit committee and Board of Directors approved the engagement
of Cukierman &amp; Co. Investment House Ltd., to provide non-exclusive investment-banking
services and business development services to the Company, effective April 15, 2003.
Cukierman &amp; Co. is a company indirectly controlled by Mr. Edouard Cukierman. Since
June 26, 2003, serves as Chairman of the Company&#146;s Board of Directors, and he is
also a co-manager of the Catalyst Fund, the Company&#146;s largest shareholder. For its
services, Cukierman &amp; 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. The agreement provided that the success fees for securing M&amp;A transactions
shall be discussed and drafted as an Addendum to the Services Agreement. Such an Addendum
was approved on August 22, 2004, and it provides for a success fee of 3.5% of the
proceeds exchanged in such a transaction. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
payments the Company paid according to the Service Agreement are:  </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2004</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="80%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Business development</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 109</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 120</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Success fee in respect of issuance of convertible loan,</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;investment in Odem and private placements</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>397</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 506</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 135</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Current
liabilities in respect of related parties as of December 31, 2005 and 2004 were $&nbsp;23
and $&nbsp;234, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assignment
of Voting Rights to Mr. Yair Shamir </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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 was at the time 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 (see Note 6), 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&#146;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. In January 2006, the option to purchase from Catalyst shares in
Surf has expired. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 47</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands (except for share and share data)</B> </FONT></TD></TR>
</TABLE>

<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 21:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SUBSEQUENT
EVENT (UNAUDITED)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
May 10, 2006 the Company received a written demand from IDEAL Software GmbH (&#147;IDEAL&#148;),
a German corporation, in which it claims that the Company owes IDEAL 1.13 million EUR for
license fees including interest. In 1999, the Company and IDEAL entered into a license
agreement according to which the Company was granted the right to distribute IDEAL&#146;s
print engine embedded into the Company&#146;s PrintBOS product, and was to buy IDEAL&#146;s
license for each installation for an agreed upon price. IDEAL claims that the number of
installations performed by the Company in its PrintBOS product during the period of 1999
thru 2005, exceeded the licenses bought by the Company. The parties agreed that Company
will cooperate with an Auditor appointed by IDEAL to check the number of licenses
distributed by the Company. Based upon the Auditor&#146;s report rendered on May 1, 2006,
IDEAL sent the above-mentioned demand letter. The Company rejects IDEAL&#146;s demand,
inter alia due to the fact that it is based on erroneous findings contained in the Auditor&#146;s
report. On June 11, 2006 the Company filed with the Haifa District Court in Israel a
claim seeking, among other remedies, a declaratory judgment stating that the Auditor&#146;s
report is materially flawed and should be disregarded. The Company&#146;s German counsel
is of the opinion that a German court, if and when IDEAL files a claim against the
Company in Germany pursuant to its demand, might very well summarily bar such a claim and
transfer the matter to the jurisdiction of an Israeli court or stay such a claim until a
verdict is handed down in the claim filed&nbsp;by the Company with the Haifa District
Court. However, if such a claim is ultimately tried in Germany, then German counsel is of
the opinion that there is a fair probability that the Company will be able to
successfully defend a portion of the claim, the size of which cannot yet be determined.
At this early stage the Company is not yet able to assess the final outcome of this
demand. The financial statements do not include any provision in respect of this claim.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 48</FONT></p>
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<page>

<a name=zk208></a>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S.
BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INTERIM CONSOLIDATED
FINANCIAL STATEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>AS OF JUNE 30, 2006 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>U.S. DOLLARS IN
THOUSANDS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UNAUDITED </FONT></H1>





<p align=center>
<font SIZE=2>F - 49</FONT></p>
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<page>


<a name=zk209></a>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>BALANCE SHEETS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>















<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="70%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;ASSETS</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CURRENT ASSETS:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Cash and cash equivalents</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,470</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,346</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,333</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Trade receivables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,465</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,199</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Other accounts receivable and prepaid expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>635</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>592</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Inventories</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,253</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,323</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total current assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,823</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12,793</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LONG-TERM ASSETS:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Severance pay fund</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>708</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>937</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Investment in companies</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,631</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,412</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;Other</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total long-term assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,398</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,398</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PROPERTY, PLANT AND EQUIPMENT, NET</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>598</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>667</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>GOODWILL</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>952</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>952</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CUSTOMER LIST, NET</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,733</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,836</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 21,504</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 22,646</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>





<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an
integral part of the interim consolidated financial statements. </FONT></P>



<p align=center>
<font SIZE=2>F - 50</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>BALANCE SHEETS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>









<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="76%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;LIABILITIES AND SHAREHOLDERS' EQUITY</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CURRENT LIABILITIES:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Short term bank credit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,155</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,271</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Current maturities of long-term bank loans and convertible note</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>642</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>354</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Trade payables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,122</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,367</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Employees and payroll accruals</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>420</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>772</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Deferred revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>228</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>258</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accrued expenses and other liabilities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>901</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,571</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total current liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,468</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,593</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LONG-TERM LIABILITIES:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Bank loans (net of current maturities)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Convertible note (net of current maturities)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>579</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>921</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Deferred taxes</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>392</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>422</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accrued severance pay</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>871</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,190</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total long-term liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,852</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,550</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LIABILITIES RELATED TO DISCONTINUED OPERATIONS</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>237</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>237</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SHAREHOLDERS' EQUITY:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Share capital -</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Ordinary shares of NIS 4.00 par value- Authorized: 35,000,000 and 8,750,000</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares at June 30, 2006 and December 31, 2005, respectively; Issued:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,702,534 and 6,589,385 shares at June 30, 2006 and December 31, 2005,</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=7><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;respectively; Outstanding: 6,702,534 and 6,589,385 shares at June 30, 2006</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and December 31, 2005, respectively</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,532</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,432</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Additional paid-in capital</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,883</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,588</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Deferred stock-based compensation</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(112</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accumulated other comprehensive income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Accumulated deficit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(42,487</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(42,663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total shareholders' equity</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,947</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11,266</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total liabilities and shareholders' equity</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  21,504</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  22,646</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>





<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an integral
part of the interim consolidated financial statements. </FONT></P>

<p align=center>
<font SIZE=2>F - 51</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<a name=zk210></a>



<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except per share data</B> </FONT></TD></TR>
</TABLE>
<BR>







<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN="3" ROWSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="42%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   9,559</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  14,593</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   4,457</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   7,321</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  27,053</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost of revenues</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,240</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,598</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,342</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,284</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,025</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,319</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,995</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,115</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,037</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,028</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating costs and expenses:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Research and development</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>289</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,457</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>141</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>721</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,608</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Less - grants and participation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(133</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(133</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(296</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Sales and marketing</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>996</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,918</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>472</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>999</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,563</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;General and administrative</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,534</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,717</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>959</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>881</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,267</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total operating costs and expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,819</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,959</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,572</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,468</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9,142</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(500</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(964</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(457</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(431</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,114</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial expenses, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(206</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(322</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(128</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(161</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(448</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other income, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>867</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>609</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,134</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Income (loss) before taxes on income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>161</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,259</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(565</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,428</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Taxes on income</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>234</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>175</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>204</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Income (loss) after taxes on income</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>174</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,493</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>37</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(740</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,632</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equity in losses of affiliate</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(240</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(95</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,750</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minority interest in earnings of<BR>
&nbsp;&nbsp;subsidiary</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(150</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(105</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(223</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     174</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (1,883</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      37</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (940</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (3,605</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic net earnings (loss) per share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    0.03</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.39</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    0.01</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.19</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Diluted net earnings (loss) per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    0.03</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.39</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    0.01</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.19</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (0.64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>




<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an
integral part of the interim consolidated financial statements. </FONT></P>

<p align=center>
<font SIZE=2>F - 52</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<a name=zk211></a>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>




<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN="3" ROWSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="43%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Cash flows from operating activities:</U> </FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    174</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,883</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     37</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (940</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (3,605</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Adjustments to reconcile net income (loss) to</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"  COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;net cash used in operating activities:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Depreciation and amortization</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>200</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>294</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>104</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>581</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Amortization of marketable securities premium</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>35</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Increase (decrease) in accrued severance pay,</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(90</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(103</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(107</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(72</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Equity in losses of affiliate</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>240</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>95</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,750</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Impairment of investment in company</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>39</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Minority interest in earnings of subsidiary</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>105</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>223</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Stock-based compensation to employees and</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;directors</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>143</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>113</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Stock-based compensation related to warrants</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;issued to service providers</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>262</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>191</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>220</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>133</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>244</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Capital loss from sale of property, plant and</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Capital gain from sale of product line (c)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(273</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Capital gain from sale of the communication</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;segment (c)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(909</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(608</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(779</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Net loss from decrease in value of put options</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Amortization of issuance expenses in</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;connection with long-term convertible note</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>120</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Decrease (increase) in trade receivables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>734</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(756</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>137</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>299</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(678</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Decrease (increase) in other accounts</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;receivable and prepaid expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(43</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(154</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>68</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>125</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Decrease (increase) in inventories</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(446</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>207</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(557</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,156</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Decrease in trade payables</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,229</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(118</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(572</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(207</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(308</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Increase (decrease) in employees and payroll</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;accruals, deferred revenues, accrued</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;expenses and other liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(771</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>320</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(334</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>300</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(90</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Increase (decrease) in deferred taxes</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(33</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(19</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(17</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(88</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash used in operating activities from</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;continuing operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,402</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,171</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(612</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,901</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash used in operating activities from</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;discontinued operations</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash used in operating activities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,402</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,171</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(612</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(663</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,904</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Cash flows from investing activities:</U> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Purchase of property, plant and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(28</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(150</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(17</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(96</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(272</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Proceeds from sale of property, plant and</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Proceeds from sale of product line</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>257</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Loan granted to the buyer of the communication</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;segment and related sales expenses (c)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(221</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,060</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Investment in long-term marketable securities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(607</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Proceeds from sale of marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,331</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>930</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>198</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>199</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,316</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Acquisitions, net of cash acquired (d)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(376</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(117</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,124</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net cash provided by (used in) investing</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;activities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>706</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>663</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>181</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>103</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(477</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an integral
part of the interim consolidated financial statements. </FONT></P>

<p align=center>
<font SIZE=2>F - 53</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD.<BR>
AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>













<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN="3" ROWSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="43%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>&nbsp;&nbsp;Cash flows from financing activities:</U> </FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Repayment of long-term bank loans</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(15</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(27</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(9</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Proceeds from short-term bank loans</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>884</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,824</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>492</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,180</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>933</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Proceeds from issuance of shares and exercise</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;of options, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>54</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,452</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,452</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,090</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Proceeds from long-term convertible note, net</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;of issuance expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(20</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,246</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Payment of long-term convertible note</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(90</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(40</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(42</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(55</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Net cash provided by financing activities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>820</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,189</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>445</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,618</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4,159</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Increase (decrease) in cash and cash</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>124</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,681</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,058</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(222</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Increase in cash and cash equivalents of</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;discontinued operations</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Effect of exchange rate changes on cash and</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;cash equivalents</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(13</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Cash and cash equivalents at the beginning of</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;the period</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,346</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,578</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,456</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,188</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,578</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Cash and cash equivalents at the end of the</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;period</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,470</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,246</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,470</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,246</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,346</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Supplemental disclosure of cash flow</U> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;<U>activities:</U> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) <U>Non-cash activities:</U> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Conversion of convertible note into</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    258</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    258</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,614</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment in company (paid after</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;balance sheet date)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    300</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    300</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) <U>Net cash paid during the period for:</U> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    173</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    163</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     87</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     74</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    126</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     59</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    123</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     30</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     87</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    309</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) <U>Capital gains from sale of product line</U> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>and segment:</U> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<U>Sale of PrintBOS product line:</U> </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Consideration</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    275</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Disposal of property, plant  and equipment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(28</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Disposal of liability</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Related expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(74</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Capital gain</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    273</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;<U>Sale of the communication segment </U>(see </FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Note 1c):</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Consideration, net of loan granted to the</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;buyer</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    958</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    608</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,690</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Disposal of tangible and intangible assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,425</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Related expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(49</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(486</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    909</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    608</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    779</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;(d) <U>Acquisition of an additional 36.2% of</U> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Odem:</U> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value of net tangible assets</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;acquired (excluding cash and cash</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;equivalents) and liabilities</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;assumed at acquisition date:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,020</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value of net intangible assets net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;assets acquired at acquisition date:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>718</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT" COLSPAN=16><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amount acquired by issuance of shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>532</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payables</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(376</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(117</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(117</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>358</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payables regarding acquisition of 63.8%</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of  Odem in 2004</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(139</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Add: cancellation of Put and Call options</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>137</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (376</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (117</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   (117</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,124</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>





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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying notes are an integral
part of the interim consolidated financial statements. </FONT></P>


<p align=center>
<font SIZE=2>F - 54</FONT></p>
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<page>

<a name=zk212></a>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>


<BR>




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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>GENERAL</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>B.O.S.
Better Online Solutions Ltd. (&#147;the Company&#148;) is an Israeli
          corporation (together with its subsidiaries &#147;the Group&#148;). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s wholly-owned subsidiary, BOScom Ltd. (&#147;BOScom&#148;) develops high
technology connectivity solutions that provide PC emulation products for the IBM iSeries
(AS/400). BOScom was involved in cross platform printing solutions answering a demand for
central printing and output management solutions in organizations which were sold during
2005 (see c below). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
B.O.S. communication segment (&#147;the communication segment&#148;) included BOScom&#146;s
business of communication solutions which provide multi-path, intelligent routing voice
over IP gateways and the Company&#146;s wholly-owned subsidiary, Quasar Telecom (2004)
Ltd. (&#147;Quasar&#148;), which provides communication solutions based on cellular
technology. The assets and liabilities of the communication segment have been disposed of
as part of the disposal of the communication segment (see c below). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
September and November 2005, the Company purchased an additional 23.9% and 12.3%,
respectively, of the outstanding shares of Odem Electronic Technologies 1992 Ltd. (&#147;Odem&#148;).
Following these purchases, the Company owns 100% of Odem. Odem is a solutions supplier of
electronic components and systems to the technologies. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s products are sold and supported directly and through a network of
distributors and value-added resellers. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
addition, the Company holds shares in two affiliated companies:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7.8%
interest in Surf Communication Solutions Ltd. (&#147;Surf&#148;), a           developer
and supplier of access and network convergence software solutions to           the wire
line and wireless telecommunications and data communications industries           (see b
below).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Approximately
18.5% interest in Qualmax Inc. (&#147;Qualmax&#148;), a U.S.           public corporation
listed on the Pink Sheets (QMXI.PK), which is a developer and           supplier of Voice
over IP technology products and services. The Company&#146;s           holdings in
Qualmax were received as the consideration for the sale of the           communication
segment (see c below).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Additional
investment in Surf: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
June 2006, the Company invested $ 300 in Surf, following which it currently holds 7.8% of
Surf&#146;s issued and outstanding share capital. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 55</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>



<BR>






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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>GENERAL
(Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sale
of the communication segment: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
December 31, 2005, the Company sold its communications segment, including its property
and equipment, goodwill, technology, trade name, existing distribution channels and
related contingent liability to the Office of the Chief Scientist to IP Gear Ltd. (&#147;IP
Gear&#148;), a wholly owned Israeli subsidiary of Qualmax. The consideration paid to the
Company in the transaction was approximately 3.2 million Qualmax shares of common stock
constituting approximately 16% of Qualmax&#146;s total issued and outstanding Common
stock and $ 800 in royalties to be paid at a rate of 4% from future revenues IP Gear will
generate from the disposed segment (&#147;Royalties&#148;) with the entire $ 800 due no
later than 90 days from the third anniversary of the closing of the transaction.
Additional shares may be issued to the Company at the end of four consecutive fiscal
quarters following the closing of the transaction, contingent upon IP Gear generating by
then a certain level of revenues from the disposed segment (&#147;Earn Out Shares&#148;).
The maximum number of Earn Out Shares that may further be issued to the Company is
approximately 1 million, constituting an additional 5% as of June 30, 2006, of Qualmax
outstanding shares. During the first six months of 2006, the Company received 250,000 of
Qualmax shares as part of the Earn Out shares consideration. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company received certain piggy-back registration rights with respect to the Qualmax
shares. The Company does not have a representative on the Board of Directors of Qualmax. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company accounted for its holdings in Qualmax shares on the cost basis of accounting,
rather than as marketable securities, since these shares are restricted stocks which the
Company is currently unable to sell. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
addition, the Company and IP Gear entered into an outsourcing agreement, pursuant to
which the Company provided IP Gear with certain operating services relating to the sold
communications segment. The first three months of services, from January 1, 2006 to March&nbsp;31,
2006, were provided for no charge and starting from April 2006, IP Gear pays for these
services. IP Gear can elect to pay for the services rendered in April through June 2006
by issuance to the Company of Qualmax shares valued at a predetermined price of $ 1.43
per share. The Company undertook to provide these services at least until December 31,
2006 (12 months from closing). The outsourcing costs for the months April through June
2006 amounted to $&nbsp;99 and for the expected cost for the months July through December
2006 are $&nbsp;145. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company also granted a bridge loan to IP Gear in the amount of $ 1,000. The term of the
loan is three years and it bears interest equal to the Prime rate plus 2.5%, up to a
maximum of 12%. In the first 18 months, IP Gear shall pay only the interest accrued on
the loan and monthly principal and interest payments shall commence thereafter. The loan
granted to IP Gear is secured by a first priority floating charge, which may be
subordinated to a charge in favor of the Bank of America, NA in the event such charge is
recorded. In addition, repayment is guaranteed by Qualmax Inc.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 56</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 1:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>GENERAL
(Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
loan agreement provides that if the disposed segment incurs in the first quarter of 2006
losses that exceed $ 250, the principal amount to be repaid under the loan shall be
reduced by the excess losses. In such event, Qualmax shall issue to the Company
additional shares of Common stock against such reduction, valued at a predetermined price
of $ 1.43 per share. Pursuant to this provision, in May 2006, Qualmax issued to the
Company 244,755 shares, at a price of $ 1.43 per share which equals an amount of $ 350.
In consideration, the principal amount of the loan was reduced to $ 650. In addition, the
loan shall be immediately repaid in the event Qualmax raises by way of equity financing
(or a series of equity financings) an aggregate amount equal to at least $ 4,500. On June
30, 2006, Qualmax and the Company agreed to reduce the loan by an additional $ 250 for
consideration of 174,825 of Qualmax shares. Following this conversion, the principal of
the loan was reduced to $ 400 as of June 30, 2006. As a result of the repayment of
portions of the loan by receiving additional shares in Qualmax, the Company recorded
other income of $ 600 during the first six months of 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Qualmax
also issued to the Company a five-year warrant for the purchase of up to 107,143 shares,
constituting less than 1% of its outstanding shares in Qualmax, at the exercise price of
$ 2.80 per share (&#147;Warrants&#148;). The Company received certain piggy-back
registration rights with respect to the shares underlying the warrant. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company also extended the options contractual life of employees who became IP Gear
employees. As a result, the Company recorded expenses of $ 49 during the first quarter of
2006 which were offset from other income recorded during that period. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s consolidated financial statements reflect a capital gain from the sale of
the communication segment that was determined as follows: </FONT></TD>
</TR>
</TABLE>
<BR>






<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="77%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consideration:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Approximately 3.2 million Ordinary shares of Qualmax</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,586</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;107,143 warrants</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>104</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Loan granted to IP Gear</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total consideration</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,690</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Disposal of inventory, property and equipment and intangible assets <BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;related to the communication segment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,425</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;Transaction - related cost</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>486</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total cost</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,911</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Capital gain</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    779</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


<p align=center>
<font SIZE=2>F - 57</FONT></p>
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<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>

<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SIGNIFICANT
ACCOUNTING POLICIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
significant accounting policies followed in the preparation of these           financial
statements are identical to those applied in the preparation of the           latest
annual financial statements except as detailed in b below. </FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On
January&nbsp;1, 2006, the Company adopted Statement of Financial Accounting
          Standards No.&nbsp;123 (revised 2004), &#147;Share-Based Payment&#148;          (&#147;SFAS
123(R)&#148;) which requires the measurement and recognition of           compensation
expense based on estimated fair values for all share-based payment           awards made
to employees and directors. SFAS 123(R) supersedes Accounting           Principles Board
Opinion No.&nbsp;25, &#147;Accounting for Stock Issued to           Employees&#148; (&#147;APB
25&#148;), for periods beginning in fiscal 2006. In           March 2005, the Securities
and Exchange Commission issued Staff Accounting           Bulletin No.&nbsp;107 (&#147;SAB
107&#148;) relating to SFAS 123(R). The Company           has applied the provisions of
SAB 107 in its adoption of SFAS 123(R). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
SFAS
123(R) requires companies to estimate the fair value of equity-based payment awards on
the date of grant using an option-pricing model. The value of the portion of the award
that is ultimately expected to vest is recognized as an expense over the requisite
service periods in the Company&#146;s consolidated income statement. Prior to the
adoption of SFAS 123(R), the Company accounted for equity-based awards to employees and
directors using the intrinsic value method in accordance with APB 25 as allowed under
Statement of Financial Accounting Standards No.&nbsp;123, &#147;Accounting for
Stock-Based Compensation&#148;(&#147;SFAS 123&#148;). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the Accounting Standard starting from January&nbsp;1, 2006,
the first day of the Company&#146;s fiscal year 2006. Under that transition method,
compensation cost recognized in the six months ended June 30, 2006 includes: (a)
compensation cost for all share-based payments granted prior to, but not yet vested as of
January 1, 2006, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS 123, and (b) compensation cost for all share-based payments
granted subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123(R). Results for prior periods have not been
restated. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has authorized, through its 2003 option plans, the grant of options to officers,
management, employees and directors of the Company or any subsidiary of up to 1,500,000
of the Company&#146;s Ordinary shares. Any option, which is canceled or forfeited before
expiration, will become available for future grants.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
During
1994, 1995, 1999, 2000, 2001, the Board of Directors of the Company adopted stock option
plans (&#147;the Plans&#148;) pursuant to which 656,250 options for the purchase of the
Company&#146;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 Plans. In May 2003, the Company&#146;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.<B></B>In June 2005, the Company&#146;s shareholders approved an increase of the
number of Ordinary shares reserved for issuance under the 2003 Israeli Stock Option Plan,
to 1,000,000<B>.</B> </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 58</FONT></p>
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<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SIGNIFICANT
ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
May 2006, the Company&#146;s shareholders approved an increase of the number of Ordinary
shares reserved for issuance under the 2003 Israeli Stock Option Plan, to 1,500,000. As
of June 30, 2006, an aggregate 254,834 of these options are still available for future
grants. Each option granted under the Plans expires between 5-10 years from the date of
the grant. The options vest gradually over a period of up to four years. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Prior
to January 1, 2006, the Company applied the intrinsic value method of accounting for
stock options as prescribed by APB 25, whereby compensation expense is equal to the
excess, if any, of the quoted market price of the stock over the exercise price at the
grant date of the award. On November 18, 2004, upon acquisition of Odem, the Company
granted 73,000 options to one of Odem&#146;s key employees. Each option can be exercised
to purchase one Ordinary share of the Company without consideration. The options vest at
the end of three years from the grant date and expire ten years from the date of the
grant. The market price of the Company&#146;s shares on the date of grant was $ 2.5.
Accordingly, the Company recorded in the period ended June 30, 2005 a compensation
expense of $ 29. This expense was included as part of general and administrative expenses. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
part of the communication segment and PrintBOS product lines sales, the Company extended
the options contractual life of employees who became the buyers&#146; employees. As a
result, the Company recorded expenses of $ 104 in 2005 which were offset from the capital
gain from the sale of this segment and product line in 2005 and additional expenses of $
49 recorded during the first quarter of 2006 which were offset from other income recorded
during that period. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Except
for these options, all other options granted to employees in the period ended June 30,
2006 and in the year ended December 31, 2005, have an exercise price equal to or higher
than the market value of the Ordinary shares at the date of grant. The weighted average
fair values, using the Black-Scholes option-pricing model, of the options granted during
six months ended June 30, 2006 and for year ended December 31, 2005 were $ 1.38 and $&nbsp;2.13,
respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
a result of adopting SFAS 123(R) on January 1, 2006, the Company&#146;s income before
income taxes and net income for the six months ended June 30, 2006, is $ 53 lower than if
it had continued to account for stock-based compensation under APB 25. Basic and diluted
net earnings per share for the six months ended June 30, 2006, are $ 0.01 lower than if
the Company had continued to account for share-based compensation under APB 25. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company estimates the fair value of stock options granted using the Black-Scholes
option-pricing model. The option-pricing model requires a number of assumptions, of which
the most significant are expected stock price volatility and the expected option term.
Expected volatility was calculated based upon actual historical stock price movements
over the most recent periods ending at the grant date, equal to the expected option term.
The expected option term represents the average of the options contractual life and the
vesting period. The risk-free interest rate is based on the yield from U.S. Treasury
zero-coupon bonds with an equivalent term. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 59</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SIGNIFICANT
ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
fair value of the Company&#146;s stock options granted to employees and directors for the
six and three months ended June 30, 2006 and 2005 was estimated using the following
weighted average assumptions: </FONT></TD>
</TR>
</TABLE>
<BR>





<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN="3" ROWSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="34%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Risk free interest</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.8</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.8</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.8</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.6</FONT></TD>
        <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2%</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="4%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.9</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dividend yields</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Volatility</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>76</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>120</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>76</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>120</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>120</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>%</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Expected term (in years)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.6</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Forfeiture rate</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>



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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
A
summary of employee option activity under the Company&#146;s stock option plans as of
June 30, 2006 and changes during the six months ended June 30, 2006 are as follows: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Number<BR>
of options</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
exercise<BR>
price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted-<BR>
average<BR>
remaining<BR>
contractual<BR>
term (in<BR>
years)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Aggregate<BR>
intrinsic<BR>
value</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="43%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Options outstanding at beginning of</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;period</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>400,250</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4.77</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT" COLSPAN=13><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes during the period:</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Granted</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>460,476</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.68</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Exercised</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(26,483</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.00</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;Forfeited or cancelled</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,047</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 18.46</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT" COLSPAN=13><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Options outstanding at the end of the</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;period</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>829,196</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3.62</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.90</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      327</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Options exercisable at the end of the</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;period</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>204,720</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7.42</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.43</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       74</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vested and expected to vest</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>829,196</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3.62</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.90</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      327</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>


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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
weighted-average grant-date fair value of options granted during the six months ended
June 30, 2006 and the year ended December 31, 2005 was $ 1.38 and $ 2.13, respectively.
The aggregate intrinsic value represents the total intrinsic value (the difference
between the Company&#146;s closing stock price on the last trading day of the second
quarter of fiscal 2006 and the exercise price, multiplied by the number of in-the-money
options) that would have been received by the option holders had all option holders
exercised their options on June 30, 2006 was $ 327. This amount changes based on the fair
market value of the Company&#146;s stock. As of June 30, 2006, there was $&nbsp;753 of
total unrecognized compensation cost related to non-vested share-based compensation
arrangements granted to employees and directors under the Company&#146;s stock option
plans. That cost is expected to be recognized over a weighted-average period of 1.5 years. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 60</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SIGNIFICANT
ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
options granted to employees outstanding as of June 30, 2006 have been separated into
ranges of exercise prices, as follows: </FONT></TD>
</TR>
</TABLE>
<BR>








<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Range of<BR>
exercise<BR>
price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options<BR>
outstanding<BR>
as of<BR>
June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
exercise<BR>
price</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
remaining<BR>
contractual<BR>
life (years)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options<BR>
exercisable<BR>
as of<BR>
June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted<BR>
average<BR>
exercise<BR>
price of<BR>
options<BR>
exercisable</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="15%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$            0</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,000</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  0.00</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.39</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="10%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  0.00</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 1.84-2.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>113,738</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1.93</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.68</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>96,238</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1.94</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 2.28-3</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>573,476</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.73</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.23</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>39,500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2.95</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$          6.8</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29,269</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  6.80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.02</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29,269</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  6.80</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 17.00-18.00</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,888</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 17.25</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.62</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8,888</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 17.25</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$        28.00</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>30,825</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 28.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.77</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>30,825</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 28.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>829,196</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3.62</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.90</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>204,720</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7.42</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
</TABLE>
<BR>




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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Options
issued to service providers:  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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
Black-Scholes option pricing model with the following assumptions for the 6 months ended
June 30, 2006 and 2005 and the year ended December 31, 2005: risk-free interest rate of
4.79%, 3.87% and 3.87%, respectively, dividend yields of 0%, 0% and 0%, respectively,
volatility of 76%, 104% and 101%, respectively, and an expected life of 2.6 years, 4.2
years and 6 years, respectively </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
compensation expenses that have been recorded in the consolidated financial statements
regarding these warrants for the six months ended June 30, 2006 and for the year ended
December 31, 2005 were $ 107 and $&nbsp;316, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s outstanding options to service providers as of June 30, 2006 are as
follows: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Issuance date</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options for<BR>
Ordinary<BR>
shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise<BR>
price per<BR>
share</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Options<BR>
exercisable</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercisable<BR>
through</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="21%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>October 2002</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>75,000</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="5%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.00</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>75,000</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="27%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2011</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>January 2004</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>216,282</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.00</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>180,236</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>May 2013</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2004</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.04</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2011</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2005</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.08</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2007</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2005</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.08</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,334</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2010</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2005</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.08</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2010</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>September 2005</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,052</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.04</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>73,052</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>September 2012</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 2006</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.30</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10,000</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 2010</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>May 2006</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>187,100</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.68</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>May 2010 - through May 2012</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>731,434</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>491,622</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 61</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SIGNIFICANT
ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
pro-forma table below reflects the Company&#146;s stock based compensation expense, net
income (loss) and basic and diluted net earnings (loss) per share for the six and three
months ended June 30, 2005 and for the year ended December 31, 2005, had the Company
applied the fair value recognition provisions of SFAS 123, as follows: </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months<BR>
ended June 30,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three<BR>
months<BR>
ended June<BR>
30, 2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="55%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss), as reported for prior periods</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>        (1,883</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>        (940</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           (3,605</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Add: stock-based compensation expenses related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;employee stock options determined under</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;intrinsic value method</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Deduct: Stock-based compensation expense related</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;to employee stock options determined under fair</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;value method</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(114</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(75</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(246</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss), including the effect of</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;stock-based compensation expense</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>        (1,968</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      (1,001</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           (3,792</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic net earnings (loss) per share, as reported</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;for prior periods</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         (0.39</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       (0.19</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>            (0.64</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Diluted net earnings (loss) per share, as</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;reported for prior periods</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         (0.39</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       (0.19</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>            (0.64</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT" COLSPAN=10><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic net earnings (loss) per share, including</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;the effect of stock-based compensation expense</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         (0.41</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       (0.21</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>            (0.67</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Diluted net earnings (loss) per share, including</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;the effect of stock-based compensation expense</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         (0.41</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>       (0.21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>            (0.67</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



<p align=center>
<font SIZE=2>F - 62</FONT></p>
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<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
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<BR>








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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 2:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SIGNIFICANT
ACCOUNTING POLICIES (Cont.)</B> </FONT> </TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Recently
issued accounting pronouncements: </FONT></TD>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
July 2006, the FASB issued FASB Interpretation No. 48, &#147;Accounting for Uncertainty
in Income Taxes, an Interpretation of FASB Statement No. 109&#148; (&#147;FIN 48&#148;).
FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the financial
statements. FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition
(step one) occurs when an enterprise concludes that a tax position, based solely on its
technical merits, is more-likely-than-not to be sustained upon examination. Measurement
(step two) is only addressed if step one has been satisfied (i.e., the position is
more-likely-than-not to be sustained). Under step two, the tax benefit is measured as the
largest amount of benefit, determined on a cumulative probability basis that is
more-likely-than-not to be realized upon ultimate settlement. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
FIN
48 applies to all tax positions related to income taxes subject to the Financial
Accounting Standard Board Statement No. 109, &#147;Accounting for Income Taxes&#148;(&#147;SFAS
109&#148;). This includes tax positions considered to be &#147;routine&#148;as well as
those with a high degree of uncertainty. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
FIN
48 has expanded disclosure requirements, which include a tabular roll forward of the
beginning and ending aggregate unrecognized tax benefits as well as specific detail
related to tax uncertainties for which it is reasonably possible the amount of
unrecognized tax benefit will significantly increase or decrease within twelve months.
These disclosures are required at each annual reporting period unless a significant
change occurs in an interim period. </FONT></TD>
</TR>
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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
FIN
48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect
of applying FIN 48 will be reported as an adjustment to the opening balance of retained
earnings. Because the guidance was recently issued, the Company has not yet determined
the impact, if any, of adopting the provisions of FIN 48 on its financial position and
results of operations. </FONT></TD>
</TR>
</TABLE>
<BR>



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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 3:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
accompanying unaudited interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States for interim
financial information. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating results for
the six and three months ended June 30, 2006 are not necessarily indicative of the
results that may be expected for the year ended December&nbsp;31, 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 63</FONT></p>
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<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 4:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INVENTORIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>





<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="69%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Raw materials (including packaging materials)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   193</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   107</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Products in progress</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>56</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Finished products</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,039</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,160</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,253</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3,323</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
inventories are presented net of provision for technological obsolescence and slow-moving
items of $ 98 and $&nbsp;100 as of June 30, 2006 and December 31, 2005, respectively.  </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 5:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>CUSTOMER
LIST, NET</B> </FONT> </TD>
</TR>
</TABLE>
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     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="66%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cost</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="6%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,010</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,010</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accumulated amortization</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>277</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>174</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amortized cost</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,733</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,836</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>


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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Amortization
expenses with respect to the customer list amounted to $ 103 and $&nbsp;157 for the six
months ended June 30, 2006 and for year ended December 31, 2005, respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Estimated
amortization expenses for the years ended:  </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="51%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>December 31,</U> </FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="14%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="20%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2006</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 207</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2007</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 207</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2008</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 207</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2009</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 207</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2010</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 207</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 64</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 6:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>INVESTMENT
IN COMPANIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s investments in companies comprise of:  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="69%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Qualmax (see Note 1c - sale of the communication segment)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5,648</FONT></TD>
        <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="7%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,690</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Surf (see Note 1b - investment in Surf)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>983</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>722</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 6,631</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5,412</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Investment
in Surf: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
September 2005, Surf executed a private placement that was considered an event of change
in circumstances that has a significant adverse effect on the fair value of the
investment. Therefore, the Company has evaluated its investment in Surf and determined
that it amounted to $ 722 as of December 31, 2005 based on management&#146;s analysis
(supported by an independent third-party valuation). As a result, the Company has
recorded an impairment of $ 1,385, which has been included in the equity in losses of
affiliate in the statement of operations for the year ended December 31, 2005. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Moreover,
following a private placement in Surf, the Company&#146;s voting rights have been diluted
to 8.7% of the total voting rights in Surf. As a result, the Company ceased to have the
ability to exercise significant influence over Surf and, accordingly, the adjusted
carrying amount of the investment as of June 30, 2006 and December 31, 2005 of $ 983 and
$ 722, respectively, is accounted for according to the cost accounting method. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
June 2006, the Company participated in a financing round in Surf, and invested an amount
of $&nbsp;300. Following the investment, the Company&#146;s voting rights have been
further diluted to 7.8% of Surf&#146;s issued and outstanding share capital. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 65</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>




<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 7:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>LONG-TERM
CONVERTIBLE NOTE</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
September 2005, the Company entered into a Securities Purchase Agreement (&#147;the
Purchase Agreement&#148;) with an investor under which the Company issued to the investor
in a private placement (i) a Secured Convertible Term Note of a $ 1,500 principal amount,
due September 2008 (&#147;the Note&#148;), and (ii) a warrant to purchase 73,052 Ordinary
shares at an exercise price of $ 4.04 per share (&#147;the Warrant&#148;). According to
the agreement, several fees in the total amount of $&nbsp;116 were paid to the investor.
These fees are presented as a discount of the principal convertible loan. The Note is
convertible into Ordinary shares at a price of $ 3.08 per share. The principal amount of
the Note is repayable in monthly installments, commencing as of January 2006, in the
initial amount of $ 15 eventually increasing to $ 55. The Note bears Prime interest rate
plus 1.5% which is subject to reduction under certain conditions. The Warrant is
exercisable, in whole or in part, until September 29, 2012. Pursuant to its undertaking
in the registration rights agreement with the investor, the Company filed with the
Securities and Exchange Commission a registration statement on Form F-3 covering the
resale of Ordinary shares that are issuable upon conversion of the Note and/or exercise
of the Warrants, and/or issuable in payment of principal and interest on the Note. The
registration rights agreement provided that any delay in registration and/or
effectiveness of the underlying shares of the transaction, or failure to maintain their
effectiveness, will result in penalties to be paid in cash, as liquidated damages. The
registration statement became effective on February 8, 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Note conversion price is subject to proportional adjustment in the event of stock splits,
combinations, subdivisions of the Ordinary shares or if dividend is paid on the Ordinary
shares in Ordinary shares. In addition, if the Company issues stock in certain types of
transactions at a price lower than the initial conversion price, then the conversion
price will be adjusted to a lower price based on a weighted average formula. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
fair value of the Warrants was calculated using the Black-Scholes option pricing model
with the following assumptions: a risk-free interest rate of 4.08%, a dividend yield of
0%, a volatility of the expected market price of the Company&#146;s Ordinary shares of
100% and a weighted-average contractual life of seven years. The fair value of the
Warrants in the amount of $&nbsp;144 is offset against the Note, amortized over the
period of the Note and presented as a component in shareholders&#146; equity. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
maturity of the loan is as follows:  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>June 30,<BR>
2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="67%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>First year (current maturities)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   622</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   326</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Second year</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>662</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>663</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Third year</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>110</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>496</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,394</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,485</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Less - discount</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>193</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>238</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,201</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,247</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 66</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>





<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 8:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>COMMITMENTS
AND CONTINGENT LIABILITIES</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Legal
proceedings: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1. </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
July 2002, the Company received a claim letter from a car leasing vendor,           under
which it claims that the Company&#146;s termination notice of the leasing
          agreement in March 2002 constitutes a breach of the agreement and the vendor is
          demanding compensation in which the nominal claim amount is of $&nbsp;292. No
          legal proceeding has yet been filed. At this stage, according to the
          Company&#146;s legal counsel assessment, the prospects of the vendor to prevail
          and recover a significant amount seem remote. The financial statements do not
          include any provision in that regard.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2. </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
September 2003, a supplier filed a legal claim in the amount of $ 107           against
the Company&#146;s subsidiary, Odem. The claim alleges the breach of an
          agreement for the purchase of products. Odem has filed a counterclaim alleging
          that the supplier&#146;s products were incompatible with the required
          specifications and asking for damages. In August 2006, the court ruled that the
          supplier is to pay Odem approximately $ 54 (which amount includes value added
          tax and litigation costs).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3. </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
1998, as part of the Pacinfo Share Purchase Agreement signed between the
          Company and Mr. Lee and Ms. Lee (&#147;the Sellers&#148;), the Company may be
          obligated to grant the Sellers a loan on a full recourse basis for certain tax
          payments the Sellers may be liable for and reimburse the Sellers for certain
          interest on taxes that they may owe, currently estimated at approximately
          $&nbsp;2,000. The Company will receive a security interest in shares of the
          Company that the Sellers hold 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. It is possible that the windup of
          PacInfo during 2002 and 2003 may have triggered such a tax event for the
          Sellers, which would result in an obligation by the Company to lend the Sellers
          such amount and to reimburse them for interest expenses incidental to the tax
          event. Based on the Company&#146;s legal consul opinion and management
          estimation, no provision was recorded.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4. </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
March 2006, BOS&acirc;NOVA EURL, a French company and former distributor of           the
Company, filed a claim with the French Tribunal against the Company and           others.
The claim is in the amount of &#128; 1.4 million and it alleges breach           of
exclusive distributor rights in France. A hearing is scheduled to take place           in
France in October 2006. This claim follows a previous motion for temporary
          injunctive relief that was filed against the Company&#146;s new French
          distributor, said motion ultimately denied by French Trade Tribunal. The
Company           intends to petition the French Trade Tribunal to transfer the claim to
an           Israeli court in accordance with the choice of jurisdiction clause of the
          original distribution agreement and in that case the assessments of the
          Company&#146;s management is that the prospects of the plaintiff to prevail and
          recover a significant amount are remote. The Company&#146;s management is not
          yet able to assess the probability of successfully defending the existing claim
          if it is ultimately tried before the French Tribunal. The financial statements
          do not include any provision in respect of this claim.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 67</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 8:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5. </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On
May 10, 2006, the Company received a written demand from IDEAL Software GmbH           (&#147;IDEAL&#148;),
a German corporation, in which it claims that the Company           owes IDEAL &#128; 1.13
million for license fees including interest. In 1999, the           Company and IDEAL
entered into a license agreement according to which the           Company was granted the
right to distribute IDEAL&#146;s print engine embedded           into the Company&#146;s
PrintBOS product, and was to buy IDEAL&#146;s license           for each installation for
an agreed upon price. IDEAL claims that the number of           installations performed
by the Company in its PrintBOS product during the period           from 1999 to 2005,
exceeded the licenses bought by the Company. The parties           agreed that the
Company will cooperate with an auditor appointed by IDEAL to           check the number
of licenses distributed by the Company. Based upon the           auditor&#146;s report
rendered on May 1, 2006, IDEAL sent the above-mentioned           demand letter. The
Company rejects IDEAL&#146;s demand, inter alia due to the           fact that it is
based on erroneous findings contained in the auditor&#146;s           report. On June 11,
2006, the Company filed with the Haifa District Court in           Israel a claim
seeking, among other remedies, a declaratory judgment stating           that the auditor&#146;s
report is materially flawed and should be disregarded.           The Company&#146;s
German counsel is of the opinion that a German court, if and           when IDEAL files a
claim against the Company in Germany pursuant to its demand,           might very well
summarily bar such a claim and transfer the matter to the           jurisdiction of an
Israeli court or stay such a claim until a verdict is handed           down in the claim
filed&nbsp;by the Company with the Haifa District Court.           However, if such a
claim is ultimately tried in Germany, the German counsel is           of the opinion that
there is a fair probability that the Company will be able to           successfully
defend a portion of the claim, the size of which cannot yet be           determined. At
this early stage the Company is not yet able to assess the final           outcome of
this demand. The financial statements do not include any provision in           respect
of this claim.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other
commitments: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
facilities of the Company are rented under operating lease agreements that expire on
various dates ending in 2009. Minimum future rental payments are $&nbsp;51 for 2006, $ 10
for 2007, $ 10 for 2008 and $ 6 for 2009. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s motor vehicles are rented under various cancelable operating lease
agreements. The lease agreements for the motor vehicles expire on various dates ending in
2009. The maximum breach of contract fees can amount to $ 44. </FONT></TD>
</TR>
</TABLE>
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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Lease
payments for the facilities occupied by the Company and the Company&#146;s motor vehicles
in the first six months of 2006 and 2005 amounted to $ 408. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
of June 30, 2006, Odem has bank guarantees in the amount of $ 378 in favor of certain
third parties. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 68</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>





<BR>


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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 9:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>





<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN="3" ROWSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="5%"> </TD>
     <TD WIDTH="59%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net income (loss)</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    174</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,883</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (3,605</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Unrealized gain (loss) on available-for-sale</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;marketable securities</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Foreign currency translation adjustment</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total comprehensive income (loss)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    172</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (1,884</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (3,615</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>

<BR>



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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 10:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SHAREHOLDERS&#146; EQUITY</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
An
annual general meeting of shareholders was held on May 18, 2006, following which it was
resolved to: </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Increase
the authorized share capital of the Company to NIS 140,000,000 divided           into
35,000,000 Ordinary shares of NIS 4 nominal value each. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Grant
to the President and Chief Executive Officer of the Company 65,000           Ordinary
shares (for no consideration). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Grant
the Chairman of the Board of Directors of the Company 21,666 Ordinary           shares
(for no consideration) </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s outstanding warrants to shareholders as of June 30, 2006 are as follows:  </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Issuance date</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Warrants for<BR>
Ordinary<BR>
shares</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercise<BR>
price per<BR>
share</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Warrants<BR>
exercisable</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Exercisable<BR>
through</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="42%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2005</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="4%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>441,785</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  *)&nbsp;&nbsp;2.5</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>441,785</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="8%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2008</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>July 2005</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,434</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  *)&nbsp;&nbsp;2.5</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,434</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>June 2008</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>572,219</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>572,219</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT></TD><TD></TD></TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(*) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
exercise price of the warrants increases to $ 2.75 per Ordinary share and $
          3.03 per Ordinary share, on the first and second anniversaries of the issue
          date.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 69</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 11:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SEGMENTS
AND GEOGRAPHICAL INFORMATION</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Commencing
in 2004 and subsequent to the acquisition of Odem and Quasar, the Company managed its
business on three reportable segments, which consisted of connectivity solutions,
communication solutions and supply of electronic components. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company&#146;s management makes financial decisions and allocates resources, based on the
information it receives from its internal management system. The Company allocates
resources and assesses performance for each operating segment using information about
revenues, gross profit and operating income (loss) before interest and taxes. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues,
gross profit and operating income (loss) for operating segments for                the
six and three months ended June 30, 2006 and 2005 and for the year ended
               December 31, 2005 were as follows: </FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended June 30, 2006</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Connectivity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication<BR>
*)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Electronics<BR>
Components</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="32%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,018</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   8,541</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   9,559</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     665</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,654</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,319</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating income (loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (71</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     102</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (531</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (500</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;segment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,786</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  11,780</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   7,938</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  21,504</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended June 30, 2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Connectivity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication<BR>
*)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Electronics<BR>
Components</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,561</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,789</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  10,298</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (55</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  14,593</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,455</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     531</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,009</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,995</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating income (loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      73</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (1,147</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     704</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (594</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (964</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;segment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     206</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,875</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  11,278</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  10,412</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  24,771</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended June 30, 2006</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Connectivity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication<BR>
*)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Electronics<BR>
Components</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     451</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   4,006</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   4,457</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     247</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     868</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,115</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating income (loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (118</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>      71</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (410</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (457</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;segment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,786</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  11,780</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   7,938</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  21,504</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>







<p align=center>
<font SIZE=2>F - 70</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Exhibit Index Hang" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 11:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SEGMENTS
AND GEOGRAPHICAL INFORMATION (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended June 30, 2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Connectivity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication<BR>
*)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Electronics<BR>
Components</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="32%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,055</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     872</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   5,450</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (56</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   7,321</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     600</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     267</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   1,170</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,037</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating income (loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (66</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (549</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     507</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (323</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (431</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;segment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     206</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,875</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  11,278</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  10,412</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  24,771</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Hang Lv 2-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
December 2005, the Company disposed of the communication segment (see Note           1c).  </FONT></TD>
</TR>
</TABLE>
<BR>




<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=15><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31, 2005</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Connectivity</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Communication<BR>
*)</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Electronics<BR>
Components</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Corporate</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Consolidated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="32%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,926</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,954</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  20,253</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     (80</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  27,053</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gross profit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   2,425</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     783</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   3,820</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  -</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   7,028</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Operating income (loss)</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     235</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2,374</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     727</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    (702</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  (2,114</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assets related to</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;segment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     933</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>     590</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  11,517</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>   9,606</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  22,646</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Hang Lv 2-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In
December 2005, the Company disposed of the communication segment (see Note           1c).  </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 1-TNR" FSL="Workstation" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
following presents total revenues and long-lived assets for the six and           three
months ended June 30, 2006 and 2005 and for the year ended December 31,           2005 in
accordance with Statement of Financial Accounting No. 131,           &#147;Disclosures
about Segments of an Enterprise and Related Information&#148;          (&#147;SFAS 131&#148;): </FONT></TD>
</TR>
</TABLE>
<BR>







<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Three months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN="3" ROWSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=12><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="31%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Revenues:</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>United States</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  1,087</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  2,255</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    550</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>    809</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  3,615</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Far-East</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,253</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,556</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>454</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,988</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,083</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Europe</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>447</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,752</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>134</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,041</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,887</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Israel and other</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6,772</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7,030</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,319</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,483</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14,468</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=1></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  9,559</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 14,593</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  4,457</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  7,321</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 27,053</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>



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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
All
the long-lived assets are attributed to Israel&#146;s geographic area, and are comprised
of goodwill, intangible assets, property, plant and equipment. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 71</FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>



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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 11:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SEGMENTS
AND GEOGRAPHICAL INFORMATION (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Major
customers data as a percentage of total revenues: </FONT></TD>
</TR>
</TABLE>
<BR>







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<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Six months ended<BR>
June 30,</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN="3" ROWSPAN="2"><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended<BR>
December 31,<BR>
2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2006</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>2005</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=6><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Unaudited</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="47%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer A</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="9%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7%</FONT></TD>
        <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11%</FONT></TD>
        <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9%</FONT></TD>
        <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Customer B</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14%</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR>
     <TD> </TD>
     <TD COLSPAN=3></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD>
     <TD COLSPAN=2 ALIGN=RIGHT><HR NOSHADE COLOR=#808080 SIZE=3></TD><TD></TD></TR>
</TABLE>
<BR>


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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Major
customers debt balances as of June 30, 2006 and December 31, 2005 are $&nbsp;1,477 and $&nbsp;1,433,
respectively. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 12:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SUBSEQUENT
EVENTS (UNAUDITED)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On
August 17, 2006, the Company entered into and closed an additional financing
          transaction with Laurus Master Fund (&#147;Laurus&#148;), a U.S. based fund
          making investments in public companies. Laurus had previously granted the
          Company a $ 2 million convertible loan in June 2004 and a $ 1.5 million
          convertible loan in September 2005. The third financing consisted of a $ 1.5
          million Secured Convertible Term Note with a term of three years. In addition,
          the Company granted to Laurus a warrant to purchase up to 73,052 Ordinary
          shares, which is exercisable, in whole or in part, until August 16, 2013 at an
          exercise price of $ 4.04 per share for the first 24,351 Ordinary shares
          acquirable hereunder and of $ 5.30 per share for the additional 48,701 shares
          acquirable thereunder. The fair value of the warrants was calculated using the
          Black-Scholes option pricing model with the following assumptions: a risk-free
          interest rate of 4.83%, a dividend yield of 0%, a volatility of the expected
          market price of the Company&#146;s Ordinary shares of 81% and a
weighted-average           contractual life of seven years. The fair value of the
warrants in the amount of           $&nbsp;131 is offset against the Note, amortized over
the period of the Note and           presented as a component in shareholders&#146; equity.
The Note bears interest           which begins at the Prime rate plus 1.5%. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
conversion rate under the Note is $ 3.08 per share for the first $ 500 of the principal
amount payable thereunder and $ 4.08 for any additional amount payable thereunder
(subject to adjustment). The principal amount of the Note is repayable in monthly
installments commencing as of December 1, 2006, 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.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company also entered into a registration rights agreement with Laurus pursuant to which
the Company agreed to prepare and file with the Securities and Exchange Commission a
registration statement covering the resale of Ordinary shares that are issuable upon
conversion of the Note and/or exercise of the Warrants, and/or issuable in payment of
principal and interest on the Note. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 72</FONT></p>
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<page>

<TABLE BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>B.O.S. BETTER ONLINE SOLUTIONS LTD. AND ITS SUBSIDIARIES</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS</B> </FONT></TD></TR>
<TR VALIGN="TOP">
     <TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT></TD></TR>
<TR VALIGN="TOP">
     <TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>U.S. dollars in thousands, except share and per share data</B> </FONT></TD></TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTE 12:</B> </FONT> </TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&#150;</B> </FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>SUBSEQUENT
EVENTS (UNAUDITED) (Cont.)</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On
September 27, 2006, Mr. Adiv Baruch, President and CEO of the Company,           notified
the Board that he shall be leaving the Company at the end of 2006. The           new CEO
will be Mr. Shmuel Koren, who will assume his position in November 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On
October 29, 2006, the Company&#146;s Board of Directors approved the raise by
               the Company of equity of at least $3 million by way of a Rights Offering,
the                terms and conditions of which shall be negotiated by management and
subject to                further Board approval. In a special general shareholders
meeting, held on                October 19, 2006, the Company&#146;s shareholders
resolved, that if the Company                shall not be able to raise at least $3
million via the Rights Offering, then the                raise of equity by way of a
public offering in Israel, or alternatively, at                management&#146;s
discretion, by way of a private placement, is approved. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2>F - 73</FONT></p>
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<page>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>B.O.S BETTER ONLINE
SOLUTIONS LTD.</B> <BR>
DISTRIBUTION OF RIGHTS
TO PURCHASE ORDINARY SHARES </FONT></P>

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<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>
PROSPECTUS</B> </FONT> </TD>
</TR>
</TABLE>



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<TD><HR SIZE=1 NOSHADE WIDTH=100% ALIGN=LEFT> </TD>
</TR>
</TABLE>
<BR>


<p align=center>
<font size=2>112</font></p>
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<page>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II <BR>
INFORMATION NOT
REQUIRED IN PROSPECTUS </FONT></H1>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 6.
INDEMNIFICATION OF DIRECTORS AND OFFICERS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consistent
with the provisions of the Israeli Companies Law, 1999 (the &#147;Companies Law&#148;),
the amended Articles of the Registrant include provisions permitting the Registrant to
procure insurance coverage for its &#147;office holders&#148;, exempt them from certain
liabilities and indemnify them, to the maximum extent permitted by law. An &#147;office
holder&#148; is defined in the Companies Law and the Articles as a director, managing
director, chief business manager, executive vice president, vice president, other manager
reporting directly to the managing director and any other person assuming the
responsibilities of any of the foregoing positions without regard to such person&#146;s
title. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INSURANCE </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Companies Law, a company may obtain insurance for any of its office holders for: (i) a
breach of his duty of care to the company or to another person; (ii) a breach of his duty
of loyalty to the company provided that the office holder acted in good faith and had
reasonable cause to assume that his act would not prejudice the company&#146;s interests;
or (iii) a financial liability imposed upon him in favor of another person concerning an
act preformed by him in his capacity as an office holder. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Registrant has obtained directors&#146; and officers&#146; liability insurance covering
its officers and directors and those of its subsidiaries. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INDEMNIFICATION </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Companies Law provides that a company may indemnify an office holder against: (i) a
financial liability imposed on him in favor of another person by any judgment concerning
an act preformed in his capacity as an office holder; (ii) reasonable litigation expenses,
including attorneys&#146; fees, expended by the office holder or charged to him by a court
relating to an act preformed in his capacity as an office holder in connection with: (a)
proceedings the company institutes against him or instituted on its behalf or by another
person; (b) a criminal charge from which he was acquitted; (c) a criminal charge in which
he was convicted for a criminal offence that does not require proof of criminal intent;
and (d) an investigation or a proceeding instituted against him by an authority competent
to administrate such an investigation or proceeding that ended without the filing of an
indictment against the office holder, either without any financial obligation imposed on
the office holder in lieu of criminal proceedings; or with financial obligation imposed on
him in lieu of criminal proceedings, in a crime which does not require proof of criminal
intent. The Articles of the Registrant authorize the Registrant to indemnify its office
holders to the fullest extent permitted under the law. The Companies Law also authorizes a
company to undertake in advance to indemnify an office holder with respect to the events
specified above, provided that, with respect to indemnification under sub-section (i)
above, the undertaking: (a) is limited to events which the board of directors determines
can be anticipated, based on the activity of the Company at the time the undertaking is
given; (b) is limited in amount or criteria determined by the board of directors to be
reasonable for the circumstances; and (c) specifies the abovementioned events, amounts or
criteria. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have entered into indemnification agreements with our directors and some officers
providing for indemnification under certain circumstances for acts and omissions which may
not be covered (or not be covered in full) by any directors&#146; and officers&#146;
liability insurance. Such indemnification agreement is attached as exhibit 4.1 to our
Annual Report on Form 20-F filed with the Securities and Exchange Commission on June 28,
2006. </FONT></P>

<p align=center>
<font size=2>113</font></p>
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<page>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EXEMPTION </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Companies Law, an Israeli company may not exempt an office holder from liability for a
breach of his duty of loyalty, but may exempt in advance an office holder from his
liability to the company, in whole or in part, for a breach of his duty of care, provided
that in no event shall the office holder be exempt from any liability for damages caused
as a result of a breach of his duty of care to the company in the event of a
&#147;distribution&#148; (as defined in the Companies Law). The Articles authorize the
Registrant to exempt any office holder from liability to the Registrant to the extent
permitted by law. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both
the Companies Law and the Articles provide that the Registrant may not exempt or indemnify
an office holder nor enter into an insurance contract which would provide coverage for
liability incurred as a result of any of the following: (a) a breach by the office holder
of his duty of loyalty (however, the Registrant may insure and indemnify against such
breach if the office holder acted in good faith and had a reasonable basis to assume that
the act would not harm the Registrant); (b) a breach by the office holder of his duty of
care if the breach was done intentionally or recklessly, unless made in negligence only;
(c) any act done with the intent to derive an illegal personal benefit; or (d) any fine or
monetary penalty levied against the office holder. </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 7. RECENT SALES
OF UNREGISTERED SECURITIES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following is a summary of
transactions during the proceeding three years involving the sales of our securities that
were not registered under the Securities Act. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In March 2003, we purchased from
Catalyst most of the Surf shares and warrants held by Catalyst, in consideration of
$1,755,000 paid by the issuance of 632,275 ordinary shares of the Company (2,529,100
ordinary shares of the Company, prior to the 1:4 reverse split effected in May 2003). The
shares issued to Catalyst represented 19.9% of the Company&#146;s then outstanding share
capital, and following the issuance Catalyst held 16.6% of the outstanding Company shares. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In December 2003, we completed a
private placement agreement with two European private investors for the issuance of
357,143 Ordinary Shares at a price per share of $2.80. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In September 2004, we purchased the
assets of Quasar Communication Systems Ltd., by the issuance of 285,000 of the
Company&#146;s ordinary shares. On December 31, 2005, the Company sold the assets of
Quasar as part of the sale of our Communication Division. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On November 18, 2004, we purchased
63.8% of Odem&#146;s issued and outstanding shares from Odem&#146;s existing shareholders,
for $1,971,000 in cash and by the issuance of 290,532 of the Company&#146;s ordinary
shares (subject to &#147;lock-up&#148; periods of 2 to 4 years). We purchased an
additional 23.9% and 12.3% from the minority shareholders on September 29, 2005 and
November 1, 2005, respectively, and thus Odem became our wholly-owned subsidiary. In
consideration for the 12.3% of Odem&#146;s shares purchased in November 2005 the Company
paid $554,000 in cash and for the 23.9% of Odem&#146;s shares purchased in September 2005
the Company (i) issued 232,603 of the Company&#146;s ordinary shares (subject to
&#147;lock up&#148; periods of 2 to 4 years) and paid $716,000 in cash. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In June 2005, we completed a private
placement for the Company&#146;s Ordinary shares. The Company issued to the investors
953,698 Ordinary Shares at a purchase price of $ 2.30 per share, for a consideration of
approximately $ 2 million, net of expenses. The private placement included warrants for
572,219 ordinary shares. The exercise price of the warrants is $2.50 per ordinary share
during the first year from their issue date, and increasing to $2.75 per ordinary share
and $3.03 per ordinary share, on the first and second anniversaries of the issue date,
respectively. The warrants are exercisable, in whole or in part during a period of three
years from issuance. </FONT></P>

<p align=center>
<font size=2>114</font></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In June 2004, Laurus and the Company
entered into a Securities Purchase Agreement, pursuant to which the Company issued to
Laurus a Secured Convertible Term Note of $2M principal amount, repayable by June 2007 and
a Warrant to purchase 130,000 ordianry shares at an exercise price of $4.04 per ordinary
share. The warrant is The Warrant is exercisable, in whole or in part, until June 10,
2011. In March 2005, Laurus elected to convert $308,000 of the principal amount of the
Note and was issued 100,000 Ordinary Shares. In July 2005, Laurus converted $1.58M, which
was the remainder of the principal amount and interest accrued under the Note, into
540,293 Ordinary Shares of the Company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On September 29, 2005, the Company
entered into a Second Securities Purchase Agreement with Laurus, under which the Company
issued to Laurus a Secured Convertible Term Note of a $1.5 million principal amount, due
September 2008, and a Warrant to purchase 73,052 ordinary shares at an exercise price of
$4.04 per share. The Warrant is exercisable, in whole or in part, until September 29,
2012. The Note is convertible into ordinary shares at a price of $3.08 per share. The
principal amount of the Note is repayable in monthly installments, commencing as of
January 2006, in the initial amount of $15,000 eventually increasing to $55,200. The Note
bears interest at a fluctuating interest rate equal at all times to the WSJ prime rate
plus 1.5% which is subject to reduction under certain conditions. <BR><BR>On August 17, 2006 the
Company entered into and closed an additional financing transaction with Laurus. The
financing consisted of a $1.5 million Secured Convertible Term Note due Auguts 16, 2009
and a Warrant to purchase up to 73,052 Ordinary Shares, which is exercisable, in whole or
in part, until August 16, 2013 at an exercise price of $4.04 per share for the first
24,351 Ordinary Shares acquirable thereunder, and of $5.30 per share for the additional
48,701 acquirable thereunder. The Note bears interest at a fluctuating interest rate,
which begins at the Prime rate plus 1.5%. The conversion rate under the Note is $3.08 per
share for the first $500,000 of principal amount payable thereunder and $4.08 for any
additional amount payable thereunder (subject to adjustment). The principal amount of the
Note is repayable in monthly installments commencing as of December 1, 2006, in the
initial amount of $15,000 eventually increasing to $55,200. The Note bears interest at a
fluctuating interest rate equal at all times to the WSJ prime rate plus 1.5% which is
subject to reduction under certain conditions. For additional information on the Laurus
financings see:

Results of Operations

 &#150; Liquidity and Capital Resources. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The offer and sale of our securities
summarized above were made pursuant to the exemption provided under Section 4(2) and/or
Regulation S of the Securities Act. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On May 18, 2006, we granted to (i)
Mr. Adiv Baruch 65,000 ordinary shares (for no consideration), (ii) Mr. Edouard Cukierman,
the Chairman of the Board of Directors 21,666 ordinary shares (for no consideration), and
(iii) Signum Ltd. and Edouard Cukierman 187,100 options and 233,876 options, respectively,
to purchase ordinary shares of the Company, pursuant to the Company&#146;s 2003 Israeli
Share Option Plan, at an exercise price of $2.68. The options&#146; exercise price was
equal to the average closing price of the Company&#146;s shares on the Nasdaq Global
Market on the 20 trading days preceding the shareholders&#146; meeting date at which the
grant was approved (the &#147;Grant Date&#148;). The options vested in three equal parts
on the first, second and third anniversary of the Grant Date, and expire from May 2010
through May 2012. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>No underwriter or underwriting
discount or commission was involved in any of the transactions set forth in this Item 7. </FONT></P>

<p align=center>
<font size=2>115</font></p>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 8. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES </FONT></H1>




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<TD WIDTH="12%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Exhibit No.</B> </FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TD>
<TD WIDTH="88%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Description</B> </FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.1  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Memorandum
of Association, as amended (Incorporated by reference to Exhibit 1.1 of the Company&#146;s
Annual Report on Form 20-F filed with the SEC on June 28, 2006).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.2  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Articles
of Association (incorporated by reference to Exhibit 1.2 of the
Company&#146;s Annual Report on Form 20-F filed with the SEC on June 28, 2006).
  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.1*  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Form
of Rights Agent Agreement with Form of Rights Certificate and related Form of Instruction Letter. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.2  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form
of Share Certificate (incorporated by reference to Exhibit 4.1 to the
Company&#146;s Registration Statement on Form S-8, SEC File Number 333-110696, filed with the SEC on November
24, 2003).
 </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.1**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Opinion
of Amit,  Pollak,  Matalon &amp; Co.,  Israeli  counsel for B.O.S Better Online  Solutions
                        Ltd., as to the validity of the ordinary shares. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.1**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Opinion
of US Counsel  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.1  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Distribution
Agreement, dated as of January 15, 2003, by and between BOScom Ltd. and BOSaNOVA
                        Inc. (incorporated by reference to the Company's Annual Report on
Form 20-F/A filed on                         January 6, 2005). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.2  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=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 (incorporated by reference to the Company&#146;s Annual Report on Form
20-F filed on June 17, 2004).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.3  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Services
Agreement, dated as of April 15, 2003, between Cukierman &amp; Co. Investment House
                        Ltd., BOScom Ltd. and the Registrant (incorporated by reference
to the Company's Annual                         Report on Form 20-F filed on June 17,
2004). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.4  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Registrant's Israeli 2003 Share Option Plan (incorporated by reference to the Company's
                        Registration Statement on Form S-8 No. 333-11650). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.5  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management
Agreement between Signum Ltd., Adiv Baruch and the Registrant, dated as of January 1,
2004 (incorporated by reference to the Company&#146;s Annual Report on Form 20-F filed on
June 17, 2004).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.6  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Securities
Purchase Agreement and Master Security Agreement and Registration Rights
                        Agreement, dated as of June 10, 2004, by and between Laurus
Master Fund Ltd. and the                         Registrant (incorporated by reference to
the Company's Annual Report on Form 20-F filed on                         June 17, 2004),
and Amendment no. 1 to the Securities Purchase Agreement dated as of November
                        16, 2004 (incorporated by reference to the Company's Registration
Statement on Form F-3 no.                         333-117529). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.7  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>M&amp;A Addendum
to the Service Agreement, as of August 22, 2004, between Cukierman &amp;Co.                        Investment
House Ltd., BOScom Ltd. and the Registrant (incorporated by reference to the
                        Company's Annual Report on Form 20-F filed on June 27, 2005). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.8  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Asset
Purchase Agreement, dated as of September 29, 2004, by and between Quasar Communication
                        Systems Ltd. and the Registrant (incorporated by reference to the
Company's Registration                         Statement on Form F-3 no. 333-117529). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.9  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Share
Purchase Agreement, dated as of November 2, 2004, by and between Jacob and Sara Neuhof,
                        Odem Electronic Technologies 1992 Ltd. and the Registrant
(incorporated by reference to the                         Company's Registration
Statement on Form F-3 no. 333-117529). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.10  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Share
Purchase Agreement, dated as of November 2, 2004, by and between Telsys Ltd., Odem
                        Electronic Technologies 1992 Ltd. and the Registrant
(incorporated by reference to the                         Company's Registration
Statement on Form F-3 no. 333-117529). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.11  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Share
Purchase Agreement, dated as of May 24, 2005, by and between certain investors and the
Registrant (incorporated by reference to the Company&#146;s Annual Report on Form 20-F
filed on June 27, 2005).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.12  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Securities
Purchase Agreement and Master Security Agreement, dated as of September 29, 2005, by and
between Laurus Master Fund Ltd. and the Registrant (the Secured Convertible Term Note,
Ordinary Shares Purchase Warrant and Registration Rights Agreement are incorporated by
reference to the Company&#146;s Registration Statement on Form F-3 no. 333-130048).  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>116</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.13  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Share
Purchase Agreement, dated as of October 31, 2005, by and between Telsys Ltd. and the
Registrant (Incorporated by reference to Exhibit 4.13 of the Company&#146;s Annual Report
on Form 20-F filed with the SEC on June 28, 2006).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.14  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Asset
Purchase Agreement and Amendments no. 1 and 2 to Agreement, dated as of July 18, 2005,
August 31, 2005 and September 25, 2005, respectively, by and between BOSCom, Consist
Technologies Ltd. and Consist International Inc., and Escrow Agreement and Amendment no.
1 to Escrow Agreement between the parties, dated as of July 18, 2005 and August 31, 2005,
respectively (Incorporated by reference to Exhibit 4.15 of the Company&#146;s Annual
Report on Form 20-F filed with the SEC on June 28, 2006).  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.15  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Asset
Purchase Agreement, Amendment no. 1 to the Agreement and Amendment no. 2 to the
Agreement, dated as of October 26, 2005, November 2, 2005, and December 31, 2005,
respectively, by and between Qualmax, Inc., BOScom Ltd. and the Registrant; Loan
Agreement dated as of December 31, 2005, by and between Qualmax Ltd. and the Registrant;
Registration Rights Agreement, dated as of December 31, 2005, by and between Qualmax Inc.
and the Registrant; and Form of warrant dated as of December 31, 2005, issued by Qualmax
Inc. to the Registrant (Incorporated by reference to Exhibit 4.16 of the Company&#146;s
Annual Report on Form 20-F filed with the SEC on June 28, 2006).</FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.16  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form
of Indemnification Agreement between the Company and its officers and directors, as
amended. (Incorporated by reference to Exhibit 4.1 of the Company&#146;s Annual Report on
Form 20-F filed with the SEC on June 28, 2006). </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.17**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Letter
agreement among New World Brands, Inc., Qualmax, Inc., IP Gear, Ltd., P&amp;S Spirit, LLC
                        and B.O.S Better Online Solutions Ltd., dated December 31, 2006. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Statement of Computation of Earnings Per Share.    </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>List
of Subsidiaries.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 23.1**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Amit, Pollak, Matalon &amp; Co. (included in Exhibit 5.1). </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.2**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Kost Forer Gabbay &amp; Kasierer, a Member Firm of Ernst &amp; Young Global. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.3**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Kesselman &amp; Kesselman, a member of PricewaterhouseCoopers International Limited. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.4**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Variance Economic Consulting Ltd. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.5**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of Melnik Oded Business Advisory Ltd. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 23.6**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent
of US Counsel (included in Exhibit 8.1). </FONT></TD>
</TR>
</TABLE>
<BR>




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<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 24.1**  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=88%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Power
of Attorney (included on signature page). </FONT></TD>
</TR>
</TABLE>
<BR>

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<HR SIZE=1 NOSHADE WIDTH=15% ALIGN=LEFT>





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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> *  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Filed herewith </FONT></TD>
</TR>
</TABLE>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> **  </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Previously
filed  </FONT></TD>
</TR>
</TABLE>
<BR>




<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 9. UNDERTAKINGS </FONT></H1>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
undersigned registrant hereby undertakes: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To
file, during any period in which offers or sales are being made, a
          post-effective amendment to this registration statement: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD ALIGN=RIGHT WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  </FONT></TD>
<TD ALIGN=LEFT WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To
include any prospectus required by Section 10(a)(3) of the Securities Act of
          1933;  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>117</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<TR VALIGN=TOP>
<TD ALIGN=RIGHT WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  </FONT></TD>
<TD ALIGN=LEFT WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To
reflect in the prospectus any facts or events arising after the effective           date
of the registration statement (or the most recent post- effective amendment
          thereof) which, individually or in the aggregate, represent a fundamental
change           in the information set forth in the registration statement.
Notwithstanding the           foregoing, any increase or decrease in volume of securities
offered (if the           total dollar value of securities offered would not exceed that
which was           registered) and any deviation from the low or high end of the
estimated maximum           offering range may be reflected in the form of prospectus
filed with the           Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume           and price represent no more than a 20% change in the maximum
aggregate offering           price set forth in the &#147;Calculation of Registration Fee&#148; table
in the           effective registration statement;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD ALIGN=RIGHT WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>  </FONT></TD>
<TD ALIGN=LEFT WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To
include any material information with respect to the plan of distribution           not
previously disclosed in the registration statement or any material change to
          such information in the registration statement;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<I>provided,
however,</I> that Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not
apply if the registration statement is on Form S-3 or Form F-3 and the information
required to be included in a post-effective amendment by those paragraphs is contained in
reports filed with or furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement, or is contained in a form of prospectus filed
pursuant to Rule 424(b) that is part of the registration statement. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>That,
for the purpose of determining any liability under the Securities Act of           1933,
each such post-effective amendment shall be deemed to be a new           registration
statement relating to the securities offered therein, and the           offering of such
securities at that time shall be deemed to be the initial bona           fide offering
thereof. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To
remove from registration by means of a post-effective amendment any of the
          securities being registered which remain unsold at the termination of the
          offering. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(4) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To
file a post-effective amendment to the registration statement to include any
          financial statements required by Item 8.A of Form 20-F at the start of any
          delayed offering or throughout a continuous offering. Financial statements and
          information otherwise required by Section 10(a)(3) of the Act need not be
          furnished, provided that the registrant includes in the prospectus, by means of
          a post-effective amendment, financial statements required pursuant to this
          paragraph (a)(4) and other information necessary to ensure that all other
          information in the prospectus is at least as current as the date of those
          financial statements. Notwithstanding the foregoing, with respect to
          registration statements on Form F-3, a post-effective amendment need not be
          filed to include financial statements and information required by Section
          10(a)(3) of the Act Item 8.A of Form 20-F if such financial statements and
          information are contained in periodic reports filed with or furnished to the
          Commission by the registrant pursuant to Section 13 or Section l5(d) of the
          Securities Exchange Act of 1934 that are incorporated by reference in the Form
          F-3. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>That,
for the purpose of determining liability under the Securities Act of 1933           to
any purchaser: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(i) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If
the registrant is relying on Rule 430B (Sec 230.430B of this chapter):  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A. </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be           deemed
to be part of the registration statement as of the date the filed           prospectus
was deemed part of and included in the registration statement; and  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>118</font></p>
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<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>B. </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or           (b)(7)
as part of a registration statement in reliance on Rule 430B relating to           an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
          providing the information required by section 10(a) of the Securities Act of
          1933 shall be deemed to be part of and included in the registration statement
as           of the earlier of the date such form of prospectus is first used after
          effectiveness or the date of the first contract of sale of securities in the
          offering described in the prospectus. As provided in Rule 430B, for liability
          purposes of the issuer and any person that is at that date an underwriter, such
          date shall be deemed to be a new effective date of the registration statement
          relating to the securities in the registration statement to which that
          prospectus relates, and the offering of such securities at that time shall be
          deemed to be the initial bona fide offering thereof. Provided, however, that no
          statement made in a registration statement or prospectus that is part of the
          registration statement or made in a document incorporated or deemed
incorporated           by reference into the registration statement or prospectus that is
part of the           registration statement will, as to a purchaser with a time of
contract of sale           prior to such effective date, supersede or modify any
statement that was made in           the registration statement or prospectus that was
part of the registration           statement or made in any such document immediately
prior to such effective date;           or  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(ii) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If
the registrant is subject to Rule 430C, each prospectus filed pursuant to           Rule
424(b) as part of a registration statement relating to an offering, other           than
registration statements relying on Rule 430B or other than prospectuses           filed
in reliance on Rule 430A, shall be deemed to be part of and included in           the
registration statement as of the date it is first used after effectiveness.
          Provided, however, that no statement made in a registration statement or
          prospectus that is part of the registration statement or made in a document
          incorporated or deemed incorporated by reference into the registration
statement           or prospectus that is part of the registration statement will, as to
a purchaser           with a time of contract of sale prior to such first use, supersede
or modify any           statement that was made in the registration statement or
prospectus that was           part of the registration statement or made in any such
document immediately           prior to such date of first use.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>That,
for the purpose of determining liability of the registrant under the           Securities
Act of 1933 to any purchaser in the initial distribution of the           securities: The
undersigned registrant undertakes that in a primary offering of           securities of
the undersigned registrant pursuant to this registration           statement, regardless
of the underwriting method used to sell the securities to           the purchaser, if the
securities are offered or sold to such purchaser by means           of any of the
following communications, the undersigned registrant will be a           seller to the
purchaser and will be considered to offer or sell such securities           to such
purchaser: </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>119</font></p>
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<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(i) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Any
preliminary prospectus or prospectus of the undersigned registrant relating           to
the offering required to be filed pursuant to Rule 424;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(ii) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Any
free writing prospectus relating to the offering prepared by or on behalf           of
the undersigned registrant or used or referred to by the undersigned
          registrant;  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(iii) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
portion of any other free writing prospectus relating to the offering
          containing material information about the undersigned registrant or its
          securities provided by or on behalf of the undersigned registrant; and  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(iv) </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Any
other communication that is an offer in the offering made by the           undersigned
registrant to the purchaser.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
undersigned registrant hereby undertakes that, for purposes of determining           any
liability under the Securities Act of 1933, each filing of the           registrant&#146;s
annual report pursuant to Section 13(a) or Section 15(d) of           the Securities
Exchange Act of 1934 (and, where applicable, each filing of an           employee benefit
plan&#146;s annual report pursuant to Section l5(d) of the           Securities Exchange
Act of 1934) that is incorporated by reference in the           registration statement
shall be deemed to be a new registration statement           relating to the securities
offered therein, and the offering of such securities           at that time shall be
deemed to be the initial bona fide offering thereof. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c)  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Insofar
as indemnification for liabilities arising under the Securities Act of           1933 may
be permitted to the directors, officers and controlling persons of the
          registrant pursuant to the provisions described under &#147;Item 8.
          Indemnification of Directors and Officers&#148; above, or otherwise, the
          registrant has been advised that in the opinion of the Securities and Exchange
          Commission such indemnification is against public policy as expressed in the
Act           and is, therefore, unenforceable. In the event that a claim for
indemnification           against such liabilities (other than the payment by the
registrant of expenses           incurred or paid by a director, officer or controlling
person of the registrant           in the successful defense of any action, suit or
proceeding) is asserted by such           director, officer or controlling person in
connection with the securities being           registered, the registrant will, unless in
the opinion of our counsel the matter           has been settled by controlling
precedent, submit to a court of appropriate           jurisdiction the question whether
such indemnification by it is against public           policy as expressed in the Act and
will be governed by the final adjudication of           such issue. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>120</font></p>
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<page>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SIGNATURES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing this
Amendment no. 2 on Form F-1 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Misgav, in the State of
Israel, on March 6, 2007. </FONT></P>




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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD COLSPAN="2" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><B>B.O.S Better Online Solutions Ltd.</B></U> </FONT></TD>
</TR>
<TR VALIGN=TOP>
<TD WIDTH=33%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=34%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>By:  /s/ Shmuel Koren<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Shmuel Koren<BR>President and Chief<BR>
Executive Officer</FONT></TD>
<TD WIDTH=33%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>/s/ Eyal Cohen<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Eyal Cohen<BR>Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
<BR>





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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to the requirements of the
Securities Act of 1933, as amended, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated: </FONT></P>




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<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>Signature</U></B> </FONT> </TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>Title</U></B> </FONT> </TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B><U>Date</U></B> </FONT> </TD>
</TR>
</TABLE>



<BR>

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<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Edouard Cukierman</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chairman of the Board of Directors</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
</TABLE>
<BR>







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<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Shmuel Koren<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Shmuel Koren</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President and Chief Executive Officer<BR>
    (Principal Executive Officer)
</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
</TABLE>
<BR>






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<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Eyal Cohen<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Eyal Cohen</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>           Chief Financial Officer<BR>
(Principal Financial and Accounting Officer)
</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
</TABLE>
<BR>





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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Adiv Baruch</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
</TR>
</TABLE>
<BR>




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<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Joel Adler</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
</TR>
</TABLE>
<BR>





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<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Ronen Zavlik</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
</TABLE>
<BR>




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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Jean-Marc Bally</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
</TABLE>
<BR>



<p align=center>
<font size=2>121</font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>



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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Andrea Mandel-Mantello</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
</TABLE>
<BR>




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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Avishai Gluck</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
</TABLE>
<BR>





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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Dr. Yael Ilan</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
</TABLE>
<BR>





<!-- MARKER FORMAT-SHEET="Signature (Single)" FSL="Workstation" -->
<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Prof. Adi Raveh</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> March 6, 2007 </FONT></TD>
</TR>
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<BR>






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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR><BR><BR><BR><BR><B>By:<BR><BR>
Name:<BR>
Title:<BR>
Date:</B> </FONT>
</TD>
<TD WIDTH="40%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Authorized Representative in the U.S.:</B><BR>
<BR>
Corporation Service Company<BR><BR>
<BR>*<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
John H. Pelletier<BR>
Assistant Secretary<BR>
March 6, 2007 </FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
</TR>
</TABLE>
<BR>








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<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>*By  /s/ Shmuel Koren <BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Mr. Shmuel Koren<BR>(Attorney-in-Fact)</FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
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<TYPE>EX-4.1
<SEQUENCE>4
<FILENAME>exhibit_4-1.htm
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     <!-- Created by EDGAR Ease Plus (EDGAR Ease+) -->
     <!-- Project:        \\Backup\office\EDGAR Filing\BOS better online solutions Ltd\73470\a73470.eep -->
     <!-- Control Number: 73470                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    BOS better online solutions Ltd                                  -->
     <!-- Project Name:   F-1/A                                                            -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>F-1/A</TITLE>
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<P ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B>Exhibit 4.1</B></U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> RIGHTS AGENT AGREEMENT </FONT></H1>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Rights Agent Agreement, made and entered into this _____ day of _______, 2007, by and
between B.O.S Better Online Solutions Ltd., a company organized under the laws of Israel
(the &#147;Company&#148;), and American Stock Transfer &amp; Trust Company, a New York
trust company with offices at 59 Maiden Lane, New York, New York 10038 (&#147;AST&#148;). </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> RECITALS </FONT></H1>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS</B>
the Company has filed with the U.S. Securities and Exchange Commission a Registration
Statement on Form F-3 (the &#147;Registration Statement&#148;), which Registration
Statement has been declared effective and which includes a final prospectus (the
&#147;Prospectus&#148;) setting forth the terms of the proposed offering by the Company
(the &#147;Rights Offering&#148;) of rights (the &#147;Rights&#148;) to purchase its
ordinary shares nominal value NIS 4.00 per share (the &#147;Ordinary Shares&#148;). The
Rights will be evidenced by transferable certificates (the &#147;Rights
Certificates&#148;) in the form attached hereto as Exhibit A; &nbsp; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS,
</B>the Company has filed with the Israel Securities Authority, and such Authority has
approved, a prospectus which is substantially the same as the Prospectus (the
&#147;Israeli Prospectus&#148;); </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS,</B>
the Rights will be transferable and an application has been made for the Rights to be
listed for trading on the NASDAQ Stock Market and the Tel Aviv Stock Exchange (the
&#147;TASE&#148;); </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS,</B>
the Company will issue under the terms of the Rights Offering, one Ordinary Share for each
Right held by those persons that, as of 5:00 p.m., New York City time (midnight, Israel
time) on the date set forth in the Prospectus as the record date (the &#147;Record
Date&#148;) were shareholders of the Company; </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS</B>,
the Company desires to engage AST to issue and deliver the Rights Certificates and to act
as transfer agent and registrar for the Rights, and AST is willing to act in such
capacities. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOW,
THEREFORE, </B>in consideration of the foregoing and of the mutual agreements set forth
herein, the parties agree as follows: </FONT></P>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 1 <BR>
APPOINTMENT OF AGENT </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> AST is hereby appointed as transfer
agent and registrar for the Rights and to generally effect the Rights Offering in
accordance with the terms of the Rights, this Agreement and the Prospectus, and the Rights
Agent hereby accepts such appointment. Each reference to the &#147;Rights Agent&#148; in
this Agreement is to AST acting in its capacities as transfer agent and registrar for the
Rights. </FONT></P>


<p align=center>
<font SIZE=2></FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 2 <BR>
DELIVERY OF DOCUMENTS
BY COMPANY TO RIGHTS AGENT </FONT></H1>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;2.1.</B>
The Company will cause to be timely delivered to the Rights Agent sufficient copies of the
following documents for delivery to the holders of record of the Ordinary Shares at the
close of business on the Record Date (the &#147;Rights Holders&#148;): </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)
                     the Prospectus, which includes instructions for exercise of the
Rights (the                     &#147;Instructions&#148;); </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)
blank transferable Rights Certificates, which                     include on the reverse
thereof forms to be completed in connection with the exercise or transfer of the Rights; </FONT></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)
Form W-9 and Form W-8; </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)
Form of Notice of Guaranteed Delivery.  </FONT></P>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 3 <BR>
DETERMINATION OF
RIGHTS HOLDERS AND RIGHTS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> On or about the Record Date, the
Rights Agent shall create and maintain from the stock ledger and register maintained by
AST as transfer agent and registrar of the Ordinary Shares, a record of the names,
addresses and, where available, U.S. taxpayer identification numbers, of the Rights
Holders, and the number of Rights each Rights Holder is entitled to receive in the Rights
Offering (the &#147;Rights Record&#148;). The Rights Agent shall promptly send a copy of
the Rights Record to the Company by telecopy as soon as it is available. The number of
Rights to be issued to each Rights Holder shall be determined by dividing the number of
Ordinary Shares that such Rights Holder held of record as of the Record Date by 3.36, but
in lieu of issuing fractional Rights, the Rights Agent shall round each such fraction to
the next lower whole number of Rights. The Rights Record shall also include the number of
the Rights Certificate issued to each Rights Holder, the number of Rights evidenced on its
face by each of the Rights Certificates and the date of each of the Rights Certificates. </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 4 <BR>
ISSUANCE OF THE RIGHTS
CERTIFICATES AND MAILING OF DOCUMENTS BY <BR>RIGHTS AGENT&nbsp; </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;4.1.</B> As
soon as practicable after delivery of the documents described in subparagraph 2.1 hereof
and receipt of written instructions from the Company, the Rights Agent will cause to be
issued Rights Certificates in the names of the Rights Holders and for the number of Rights
to which they are each entitled, as determined in accordance with Paragraph 3 above. The
Rights Agent shall either manually sign or affix a duly authorized facsimile signature on
all Rights Certificates. As soon as practicable after issuance of the Rights Certificates,
the Rights Agent shall mail or cause to be mailed, via first class mail, to each Rights
Holder the following: </FONT></P>


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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)
                     a Rights Certificate, registered in the name of the Rights Holder
and dated the                     date of issuance thereof by the Rights Agent,
evidencing the Rights to which                     such Rights Holder is entitled;                       </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)
a Prospectus, including the Instructions; </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)
a Form W-9 or Form W-8 (as applicable); and  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)
an envelope addressed to                     the Rights Agent.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to mailing, the Rights Agent shall make reasonable efforts to identify which of the Rights
Holders are likely to be nominee holders and to include the Instructions with the mailing
to such Rights Holders. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;4.2.</B> The
Company and the Rights Agent may mutually agree that the Rights Agent shall use methods
other than first class mail, including personal delivery, delivery by International
Express Mail, or delivery by recognized expedited courier service such as Federal Express,
UPS, DHL or Courier Network. In addition, unless otherwise instructed by the Company in
writing, the Rights Agent shall deliver to the Company by expedited courier or by such
other means as the Company shall instruct the Rights Agent, all Rights Certificates and
other documents to be delivered to Rights Holders reflected on the Rights Record as having
a record address in the State of Israel (the &#147;Israeli Rights Holders&#148;),
including any Rights Certificates to be issued to Hevra Lerishumim of Bank Leumi which
acts as the nominee for the Ordinary Shares held through the facilities of the Clearing
House of the Tel Aviv Stock Exchange (the &#147;TASE Nominee&#148;). The Company
undertakes to make and shall be responsible for the further delivery of the rights
certificates and other documents to the Israeli Rights Holders. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;4.3.</B> Promptly
after the Rights Certificates and other documents are mailed, the Rights Agent shall
execute and deliver to the Company a certificate or certificates substantially in the form
of Exhibit B hereto. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
4.4.</B> Subsequent to their original issuance, no Rights Certificates shall be issued by
the Rights Agent except Rights Certificates issued upon any transfer, combination, split
up or exchange of Rights or issued in replacement of mutilated, destroyed, lost or stolen
Rights Certificates pursuant to Paragraph 6 hereof. </FONT></P>


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<page>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 5 <BR>
SUBSCRIPTION PROCEDURE </FONT></H1>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;5.1.</B> Except
as provided in subparagraph 5.3 hereof, for a valid exercise of Rights to occur, the
Rights Agent must receive, by mail, hand delivery, or otherwise, prior to 5:00 P.M., New
York City time, on _________, 2007 (or on a later trading date if the Rights Agent
receives a written notice thereof from the Company on or prior to the original expiration
date) (the &#147;Expiration Date&#148;), (i) the Rights Certificate pertaining to the
Rights being exercised, which has been properly completed and endorsed for exercise as
provided in the instructions accompanying the Rights Certificate, or a Notice of
Guaranteed Delivery and (ii) payment in full of $2.50 per Ordinary Share (the
&#147;Subscription Price&#148;) for each Right being exercised in U.S. Dollars by wire
transfer or by check drawn on a bank located in the United States payable to the order of
&#147;American Stock Transfer &amp; Trust Company, as Rights Agent.&#148; </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;5.2.</B> Upon
the proper exercise of Rights by a holder thereof made in accordance with subparagraphs
5.1 or 5.3 hereof, the Rights Agent shall, promptly after such exercise, send to the
Company written notice of such exercise, which shall set forth (i) the number of Rights
exercised by such holder; and (ii) the aggregate subscription payment and the amount of
Ordinary Shares subscribed for. The Rights Agent shall as soon as practicable after the
Expiration Date provide to the Company a summary of all the Rights exercises made in
accordance with subparagraph 5.1 hereof, which summary shall set forth (i) the name and
address of the Rights Holder that exercised the Rights, (ii) the number of Rights
exercised by each such Rights Holder, (iii) the total Subscription Price paid by such
Rights Holder, and (iv) the number of Ordinary Shares issued to such Rights Holder. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;5.3.</B> The
TASE Nominee and other Israeli Rights Holders may elect to exercise their Rights by paying
the subscription payment in New Israeli Shekels as set forth in the Prospectus under the
caption &#147;The Rights Offering&#150;Method of Exercise of Rights for Record
Holders.&#148; The TASE Nominee and/or these Israeli Rights Holders (as the case may be)
shall exercise their Rights by delivery directly to the Company on or prior to midnight
Israel time on the Expiration Date of payment in full of the Subscription Price for each
Right being exercised in New Israeli Shekels by check or wire transfer payable to the
Company, accompanied by such other notices and instructions which shall be certified or
confirmed as the Company may prescribe all in accordance with the procedures described in
the Prospectus. The Company will promptly notify the Rights Agent in writing of the
identity of the Israeli Rights Holders who exercised their Rights directly through the
Company and the number of Rights so exercised. Rights Holders, such as banks, securities
dealers and brokers, who receive Rights through the Depository Trust Company as nominees
for one or more beneficial owners shall be entitled to exercise their Rights Certificates
on behalf of the beneficial owners. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
5.4.</B> To the extent that any Rights Certificates remain unexercised or outstanding at
5:01 P.M., New York City time, on the Expiration Date such outstanding Rights Certificates
shall be automatically deemed cancelled and of no further force and effect. </FONT></P>


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<page>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 6 <BR>
DEFECTIVE
EXERCISE OF RIGHTS; TRANSFER, ETC. OF RIGHTS <BR>
CERTIFICATES; LOST RIGHTS CERTIFICATES.
</FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;6.1.</B> Upon
receipt by the Company from the Rights Agent of evidence of a defective exercise of
Rights, the Company shall have the right to reject any such defective exercise or to waive
the defect in exercise. If the Company delivers to the Rights Agent a notice that the
Company rejects any defective exercise of Rights, the Rights Agent shall as soon as
practicable (i) if the defect and the necessary correction can be adequately explained by
telephone and the holder can correct the defect without possession of the Rights
Certificate(s), attempt to contact the holder of such Rights by telephone to explain the
nature of the defect or (ii) mail the Rights Certificate, together with a letter
explaining the nature of the defect in exercise and how to correct the defect. If an
exercise is not defective except that there is a partial payment of the Subscription
Price, the Rights Agent shall so notify the Company in writing as to the number Ordinary
Shares for which payment has been made and the Company shall thereafter effectuate the
issuance of such Ordinary Shares. Any Rights Certificate with respect to which defects in
exercise are not corrected prior to 5:00 P.M., New York City time, on the Expiration Date,
or which are received after such time, shall be returned to the holder of such Rights
Certificate. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
6.2.</B> Upon the receipt by the Rights Agent and the Company of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Rights
Certificate, and upon receipt of indemnity or security reasonably satisfactory to them and
reimbursement of all expenses incidental thereto, and upon surrender and cancellation of
the Rights Certificate if mutilated, the Company will make and deliver a new Rights
Certificate of like tenor to the Rights Agent for delivery to the registered owner in lieu
of the Rights Certificate so lost, stolen, destroyed or mutilated. The Rights Agent may,
at the direction of the Company and with the consent of the registered holder of the lost,
stolen or destroyed Rights Certificate, permit the exercise of the Rights evidenced by
such certificate without a replacement of such certificate. </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 7 <BR>
SUBDIVISION, SALE OR
TRANSFER OF RIGHTS </FONT></H1>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;7.1.</B> The
Rights Certificate may be transferred, split up, combined or exchanged for another Rights
Certificate or Rights Certificates. Any Rights Holder desiring to transfer, split up,
combine or exchange any Rights Certificate or Rights Certificates shall make such request
in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or
Rights Certificates to be transferred, split up, combined or exchanged at the office of
the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the transfer of any such
surrendered Rights Certificate until the Rights Holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of the Rights
Certificate. </FONT></P>


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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;7.2.
</B> The Rights Agent shall facilitate subdivisions of the Rights by issuing new
          Rights Certificates in accordance with the instructions set forth on the
reverse           side of the Rights Certificates at any time on or prior to the
Expiration Date.           Until 5:00 p.m., New York City time, on the third business day
prior to the           Expiration Date (the &#147;Cut-Off Date&#148;), the Rights Agent
shall           facilitate subdivision or transfers of Rights Certificates by issuing new
Rights           Certificates in accordance with the instructions set forth on the
reverse side           of the Rights Certificates. After the Cut Off Date, the Rights
Agent may           facilitate subdivision or transfers of the Rights Certificate up
until 5:00           p.m., New York City time, on the Expiration Date if the Rights
Holder has           delivered to the Rights Agent a properly executed Notice of
Guaranteed Delivery.  </FONT></P>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 8 <BR>
CANCELLATION AND
DESTRUCTION OF RIGHTS CERTIFICATES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> All Rights Certificates surrendered
for the purpose of exercise shall, if surrendered to the Company or to any of its agents,
be delivered to the Rights Agent for cancellation or in cancelled form, or if surrendered
to the Rights Agent shall be cancelled by it, and no Rights Certificates shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this Agreement.
The Rights Agent may deliver all cancelled Rights Certificates to the Company, and if
delivered to the Company, it shall make available to the Rights Agent the cancelled Rights
Certificates for its inspection. </FONT></P>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 9 <BR>
TAXES </FONT></H1>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The Company covenants and agrees that
it will pay when due and payable any taxes and charges (including those in the United
States and Israel) which may be payable in respect of the issuance or delivery of the
Rights Certificates. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer or other assignment of Rights Certificates or the
issuance of any Ordinary Shares in a name other than that of the registered holder of the
Rights Certificate evidencing Rights surrendered for exercise or to issue or deliver any
Ordinary Shares upon the exercise of any Right until any such tax shall have been paid
(any such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company&#146;s satisfaction that no
such tax is due. </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 10 <BR>
DISBURSEMENT OF FUNDS </FONT></H1>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Any funds received by the Rights
Agent as payments in connection with the subscriptions for Ordinary Shares pursuant to the
Rights Offering shall be held in a segregated interest bearing money market account by the
Rights Agent pending receipt of written disbursement instructions from the Company, from
time to time, after which the funds and any interest earned thereon shall be promptly
disbursed in accordance with each such written instructions from the Company. The Rights
Agent is hereby authorized and directed to endorse, negotiate and deposit all subscription
payments into an interest bearing money market account to be maintained with the Rights
Agent. The Rights Agent shall provide an accounting to the Company from time to time, as
the Company may reasonably request, regarding the subscription payments deposited into
such account &nbsp; </FONT></P>


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<page>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 11 <BR>
DUTIES OF RIGHTS AGENT. </FONT></H1>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Rights Certificates, by their acceptance
thereof, shall be bound: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the
Rights Agent may consult with legal counsel (who may be legal counsel for           the
Company) and the opinion of such counsel shall be full and complete
          authorization to the Rights Agent.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
          Whenever in the performance of its duties under this Agreement the Rights Agent
          shall deem it necessary or desirable that any fact or matter be proved or
          established by the Company prior to taking or suffering any action hereunder,
          such fact or matter (unless other evidence in respect thereof be herein
          specifically prescribed) may be deemed to be conclusively proved and
established           by a certificate signed by the Chief Executive Officer or Chief
Financial           Officer of the Company and delivered to the Rights Agent; and such
certificate           shall be full authorization to the Rights Agent for any action
taken or suffered           in good faith by it under the provisions of this Agreement in
reliance upon such           certificate.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)
          The Rights Agent shall be liable hereunder only for its own gross negligence or
          willful misconduct.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)
          The Rights Agent shall not be liable for or by reason of any of the statements
          of fact or recitals contained in this Agreement by the Company, in the Rights
          Certificates or in the Prospectus, or be required to verify the same, but all
          such statements and recitals are and shall be deemed to have been made by the
          Company only.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)
          Nothing herein contained shall preclude the Rights Agent from acting in another
          capacity for the Company or for any other person or entity.  </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)
          The Rights Agent shall not be under any responsibility in respect of the
          validity of this Agreement or the execution and delivery hereof (except the due
          authorization and execution hereof by such Rights Agent) or in respect of the
          validity or execution of any Rights Certificate; nor shall it be responsible
for           any breach by the Company of any covenant or condition contained in this
          Agreement or in any Rights Certificate; nor shall it by any act hereunder be
          deemed to make any representation or warranty as to the authorization of any
          Rights Certificate.  </FONT></P>

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<page>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)
          With respect to each Rights Certificate that the Rights Agent is required to
          mail hereunder, the Rights Agent shall maintain a blanket surety bond
protecting           the Company and the Rights Agent from loss or liability arising out
of           non-receipt or non-delivery of such certificates. (h) Promptly after the
          Expiration Date, the Rights Agent shall execute and deliver to the Company a
          certificate or certificates substantially in the form of Exhibit C hereto.  </FONT></P>



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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 12 <BR>
PAYMENT OF EXPENSES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The Company will pay the Rights Agent
compensation for its services under this Agreement in accordance with Schedule 1 hereto,
and will reimburse the Rights Agent for all reasonable and necessary expenses incurred by
it in so acting. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 13 <BR>
INDEMNIFICATION&nbsp; </FONT></H1>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B>Section&nbsp;13.1.
          </B> The Company covenants and agrees to indemnify and hold the Rights Agent
          harmless against any costs, expenses (including reasonable fees for legal
          counsel), losses or damages, which may be paid, incurred or suffered by or to
          which the Rights Agent may become subject, arising from or out of, directly or
          indirectly, any claim or liability resulting from its actions pursuant to this
          Agreement other than costs, expenses, losses and damages incurred or suffered by
          the Rights Agent as a result of, or arising out of, its gross negligence or
          willful misconduct in connection with performance of its duties hereunder. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B>Section 13.2.</B> If the
indemnification provided for in this Paragraph 13 is applicable, but for any reason is
held to be unavailable, the Company shall contribute such amount as is just and equitable
to pay, or to reimburse the Rights Agent for, the aggregate of any and all losses,
liabilities, costs, damages and expenses, including reasonable counsel fees, actually
incurred by the Rights Agent as a result of or in connection with, and any amount paid in
settlement of, any action, claim or proceeding arising out of or relating in any way to
any actions or omissions of the Company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <B>Section 13.3.</B> If any action is
brought against the Rights Agent in respect of which indemnity may be sought against the
Company pursuant to this Paragraph 13, the Rights Agent shall promptly notify the Company
in writing of the institution of such action and the Company may, at its option, assume
the defense of such action, including the employment and fees of counsel (which counsel
shall be reasonably satisfactory to the Rights Agent) and payment of expenses. The Rights
Agent shall have the right to employ its own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Rights Agent unless the employment
of such counsel shall have been authorized in writing by the Company in connection with
the defense of such action or the Company shall not have employed counsel to have charge
of the defense of the action or the Rights Agent shall have reasonably concluded that
there may be defenses available to it which are different from or additional to those
available to the Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the Rights Agent), in any of which events the fees and
expenses of not more than one additional firm of attorneys for the Rights Agent shall be
borne by the Company. </FONT></P>


<p align=center>
<font SIZE=2></FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 14 <BR>
FURTHER ASSURANCES </FONT></H1>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The Company agrees to do such further
acts and things and to execute and deliver such statements, assignments, agreements,
instruments and other documents as the Rights Agent from time to time reasonably may
request in connection with the administration, maintenance, enforcement or adjudication of
this Agreement in order (a) to give the Rights Agent confirmation and assurance of the
Rights Agent&#146;s rights, powers, privileges remedies and interests under this Agreement
and applicable law, (b) to better enable the Rights Agent to exercise any such right,
power, privilege or remedy, or (c) to otherwise effectuate the purpose and the terms and
provisions of this Agreement, each in such form and substance as may be acceptable to the
Rights Agent. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 15 <BR>
ASSIGNMENT AND
DELEGATION </FONT></H1>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;15.1. No
Assignment; Delegation.</B> Neither this Agreement nor any rights
or obligations hereunder may be assigned or delegated by either party without the prior
written consent of the other party.  </FONT></P>



<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section&nbsp;15.2. Binding
Nature.</B> This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns. Nothing in
this Agreement is intended or shall be construed to confer upon any other person any
right, remedy or claim or to impose upon any other person any duty, liability or
obligation. </FONT></P>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 16 <BR>
PROOF OF AUTHORITY TO
SIGN </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The Rights Agent need not procure
supporting legal papers, and is authorized to dispense with proof of authority to sign
(including all proof of appointment or authority to sign of any fiduciary, custodian for a
minor, or other person acting in a representative capacity), and to dispense with the
signatures of co-fiduciaries, in connection with exercise of Rights in the following
cases: </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (a) where the Rights Certificate is
registered in the name of an executor, administrator, trustee, custodian for a minor or
other fiduciary, and the subscription form thereof is executed by such executor,
administrator, trustee, custodian for a minor or other fiduciary, then the Rights Agent
shall advise the Company in writing that the Ordinary Shares are to be issued in the name
of the registered holder of the Rights Certificate, as appropriate; and  </FONT></P>


<p align=center>
<font SIZE=2> </FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (b) where the Rights Certificate is
in the name of a corporation and the subscription form thereof is executed by an officer
of such corporation, then the Rights Agent shall advise the Company in writing that the
Ordinary Shares are to be issued in the name of such corporation. </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> In all of the cases set forth in
this Paragraph 16 and notwithstanding anything contained in this Agreement to the
contrary, the check tendered in payment of the Subscription Price must be drawn for the
amount of the Subscription Price for the number of Rights being exercised, to the order
of the Rights Agent and otherwise be in proper form (subject to the provisions of Section
6.1 hereof regarding partial payment of the Subscription Price), and there must be no
evidence indicating that the subscriber is not the duly authorized representative he
purports to be.  </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Workstation" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 17 <BR>
REPORTS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The Rights Agent shall make available
to the Company, upon the Company&#146;s request, the following information: (i) the number
of Ordinary Shares validly subscribed for, and (ii) the number Ordinary Shares for which
defective subscriptions have been received. As soon as practicable after the Expiration
Date, or upon the request from the Company from time to time thereafter, the Rights Agent
shall certify in writing to the Company the cumulative totals through the Expiration Date
of all the information set forth in clauses (i) and (ii) above. The Rights Agent shall
also maintain and update a record of holders who have fully or partially exercised their
Rights and holders who have not exercised their Rights. The Rights Agent shall provide the
Company or its designees with such information compiled by the Rights Agent pursuant to
this Paragraph 17 as the Company shall request from time to time. </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> ARTICLE 18 <BR>
NOTICES TO THE
COMPANY, HOLDERS, INFORMATION AGENT AND AGENT </FONT></H1>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> All notices and other communications
provided for or permitted hereunder shall be made by hand delivery, prepaid certified
first-class mail (return receipt requested), or telecopier or facsimile machines (with
written confirmation of receipt): </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
If
to the Company, to: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=6%>&nbsp;</TD>
<TD WIDTH=94%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 B.O.S Better Online Solutions Ltd.
<BR>20 Freiman St. POB 198
<BR>Rishon Lezion, 75101
<BR>Israel
<BR>Tel.:&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;(+972) 4-990-7555
<BR>Fax:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (+972) 4-999-0334
<BR>Attn.:&nbsp;&nbsp;&nbsp;&nbsp; Eyal Cohen, CFO
</FONT></TD>
</TR>
</TABLE>
<BR>


<p align=center>
<font SIZE=2></FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
with
copy to: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 Brian Brodrick, Esq.
<BR>Phillips Nizer LLP
<BR>666 Fifth Avenue
<BR>New York, New York 10103
<BR>Fax: 212-262-5152
</FONT></TD>
</TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=6%>&nbsp;</TD>
<TD WIDTH=94%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
and
to: </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Shlomo Landress, Adv.
<BR>Amit, Pollak, Matalon &amp; Co.
<BR>NYP Tower, 17 Yitzhak Sadeh Street
<BR>Tel Aviv 67775, Israel
<BR>Fax: 972-3-561-3620
 </FONT></TD>
</TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
if
to the Agent, to: </FONT></TD>
</TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
American Stock Transfer &amp; Trust Company
<BR>59 Maiden Lane
<BR>New York, NY 10038
<BR>Attention: Exchange Department
<BR>Fax: 718-234-5001
 </FONT></TD>
</TR>
</TABLE>
<BR>



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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
with
a copy to: </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
___________________
<BR>American Stock Transfer &amp; Trust Company
<BR>59 Maiden Lane
<BR>New York, NY 10038
<BR>Fax: 718-331-1852
 </FONT></TD>
</TR>
</TABLE>
<BR>




<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
such notices and communications shall be deemed to have been duly given: when delivered
by hand, if personally delivered; when by certified mail, two business days after being
deposited in the mail, postage prepaid, if mailed as aforesaid; and when receipt is
acknowledged, if faxed. </FONT></P>



<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>ARTICLE 19
<BR>MISCELLANEOUS PROVISIONS</B> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.1. Governing Law.</B> Except as hereinafter provided, this Agreement shall be
construed, interpreted and enforced in accordance with and shall be governed by the laws
of the State of Israel without regard to the principles of conflicts of laws.
Notwithstanding the foregoing, Paragraph 13 of this Agreement shall be construed,
interpreted and enforced with and shall be governed by the laws of the State of New York. </FONT> </P>

<p align=center>
<font SIZE=2></FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.2. Severability. </B>The parties hereto agree that if any of the provisions
contained in the Agreement shall be determined invalid, unlawful or unenforceable to any
extent, such provisions shall be deemed modified to the extent necessary to render such
provisions enforceable. The parties hereto further agree that this Agreement shall be
deemed severable, and the invalidity, unlawfulness or unenforceability of this Agreement
or of any term or provision hereof. </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.3. Counterparts. </B>This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall be considered
one and the same agreement. </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.4. Captions. </B>The captions and descriptive heading herein are for the convenience
of the parties only. They do not in any way modify, amplify, alter or give full notice of
the provisions hereof. </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.5. Facsimile Signatures. </B>Any facsimile signature of any party hereto shall
constitute a legal, valid and binding execution hereof by such party. </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.6. Further Actions. </B>Each party agrees to perform such further acts and execute
such further documents as are necessary to effect the purposes of this Agreement. </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.7. Delays or Omissions. </B>No delay or omission to exercise any right, power, or
remedy accruing to any party to this Agreement, upon any breach or default of any other
party under this Agreement, shall impair any such right, power, or remedy; nor shall it
be construed to be a waiver of, or an acquiescence in any such breach or default or any
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, of any breach or default under the Agreement, or any waiver, on the part of
any party, of any provisions or conditions of the Agreement, must be made in writing and
shall be effective only to the extent specifically set forth in such writing. All
remedies, either under the Agreement or by law and otherwise afforded to any party, shall
be cumulative and not alternative. </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.8. Section Headings. </B>Section headings are for the convenience of the parties and
do not form a part of this Agreement. </FONT> </P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Section
19.9. Exhibits; Entire Agreement. </B>All Exhibits referred to herein or attached
hereto are hereby incorporated by reference into, and made a part of, this Agreement.
This Agreement, together with the Exhibits hereto, contains the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements, understandings, inducements and
conditions, express or implied, oral or written, of any nature whatsoever with respect to
the subject matter hereof. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof. The
Agreement may not be modified or amended other than by an agreement in writing. </FONT> </P>


<p align=center>
<font SIZE=2></FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IN
WITNESS WHEREOF, </B> the parties have hereunto set their hands and seals, as of the day and
year first above written. </FONT> </P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> B.O.S BETTER ONLINE SOLUTIONS LTD. </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> By:___________________________
<BR>Name:_________________________
<BR>Title:__________________________
</FONT></P>


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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> AMERICAN STOCK TRANSFER
<BR>&amp; TRUST COMPANY<BR><BR>
<BR>By:<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Name:<BR>Title: </FONT></TD>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
</TR>
</TABLE>
<BR>



<p align=center>
<font SIZE=2> </FONT></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>





<TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="BOTTOM">
     <TH></TH>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="20%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> Rights Certificate No.: </FONT></TD>
     <TD WIDTH="60%" ALIGN="LEFT">
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY'S
PROSPECTUS DATED MARCH __, 2007 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE ALTMAN
GROUP, THE INFORMATION AGENT.</B> </FONT>
</TD>
     <TD WIDTH="20%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> NUMBER OF RIGHTS: </FONT></TD></TR>
</TABLE>
<BR>




<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="3"> B.O.S BETTER ONLINE SOLUTIONS LTD.
<BR><B>Incorporated under the laws of the State of Israel</B> </FONT></P>




<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> TRANSFERABLE PURCHASE
RIGHTS CERTIFICATE </FONT></H1>

<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Evidencing Transferable Rights to Purchase Ordinary Shares of B.O.S BETTER ONLINE SOLUTIONS LTD.
<BR>Subscription Price: $2.50 per Ordinary Share </FONT></P>


<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>THE PURCHASE RIGHTS WILL EXPIRE IF NOT EXERCISED ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME,
<BR>ON _______ __, 2007, UNLESS EXTENDED BY THE COMPANY</B> </FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>REGISTERED
OWNER:</B> </FONT> </TD>
</TR>
</TABLE>
<BR>




<TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="BOTTOM">
     <TH> </TH>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="50%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">
THIS CERTIFIES THAT the registered owner whose name is
inscribed hereon is the owner of the number of transferable
purchase rights ("Rights") set forth above. Each whole
Right entitles the holder thereof to subscribe for and
purchase one ordinary share, with a nominal value of NIS
4.00 per ordinary share, of B.O.S BETTER ONLINE SOLUTIONS
LTD., an Israeli corporation, at a subscription price of
$2.50 per share, pursuant to a rights offering (the "Rights
Offering"), on the terms and subject to the conditions set
forth in the Prospectus. There is no over-subscription
privilege. </FONT></TD>
           <TD WIDTH="5%"> </TD>
<TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">
The Rights represented by this Rights Certificate may
be exercised by completing Form 1 and any other
appropriate forms on the reverse side hereof and by
retuning the full payment of the subscription price
for each ordinary share in accordance with the
instructions set forth in the Prospectus. </FONT></TD></TR>
</TABLE>
<BR>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"> COUNTERSIGNED AND REGISTERED:
<BR>
<BR><B>AMERICAN STOCK TRANSFER &amp; TRUST COMPANY,
<BR>(New York, N.Y.)
<BR>TRANSFER AGENT AND REGISTRAR
<BR>By:
<BR>__________________________________
<BR>AUTHORIZED SIGNATURE</B> </FONT>
</TD>
</TR>
</TABLE>
<BR>




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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> This Rights Certificate is not valid
unless countersigned by the rights agent and registered by the registrar.  Witness the
seal of B.O.S. BETTER ONLINE SOLUTIONS LTD. and the signatures of its duly authorized
officers. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Dated: </FONT></P>




<TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="BOTTOM">
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="50%"> <HR SIZE="2" COLOR=BLACK NOSHADE WIDTH="98%" ALIGN="CENTER"> </TD>
     <TD WIDTH="50%"> <HR SIZE="2" COLOR=BLACK NOSHADE WIDTH="98%" ALIGN="CENTER"> </TD></TR>
<TR VALIGN="TOP">
     <TD ALIGN="CENTER">
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Shmuel Koren
<BR>President, Chief Executive Officer
<BR>and Principal Executive Officer</B> </FONT></TD>
     <TD ALIGN="CENTER">
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Eyal Cohen
<BR>Chief Financial Officer
<BR>and Principal Financial and Accounting Officer</B> </FONT>
</TD></TR>
</TABLE>
<BR>

<p align=center>
<font SIZE=2></FONT></p>
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<page>


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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> DELIVERY OPTIONS FOR
RIGHTS CERTIFICATE </FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <I>For
delivery by mail, hand delivery or over night courier:</I> </FONT></P>

<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> American Stock Transfer &amp; Trust Company
<BR>59 Maiden Lane, Plaza Level
<BR>New York, NY 10038 </FONT></P>





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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Delivery
other than in the manner or to the address listed above will not constitute valid
delivery. </FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> PLEASE
PRINT ALL INFORMATION CLEARLY AND LEGIBLY. </FONT></P>


<TABLE WIDTH="100%" BORDER="0" CELLPADDING="2" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="50%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> FORM 1-EXERCISE OF PURCHASE RIGHTS                                      <BR>
<BR>
To subscribe for ordinary shares, please complete lines (a) and (b) and <BR>
sign under Form 4 below.                                                     <BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
(a) EXERCISE OF PURCHASE RIGHTS:<BR>
I apply for ______________ shares x $2.50 = $_______________            <BR>
(no. of new shares) x (subscription price) = (amount enclosed)          <BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
(b) METHOD OF PAYMENT (CHECK ONE)<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
<FONT size="3" face="Wingdings">o
</FONT> Cashier's check or money order drawn on a U.S. bank, payable to<BR>
"American  Stock Transfer &amp; Trust Company, as Rights Agent."                       <BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
<FONT size="3" face="Wingdings">o
</FONT> Wire transfer of immediately available funds directly to the account
maintained
by American Stock Transfer &amp; Trust Company, as Rights Agent, for
purposeses of accepting subscriptions in this Rights Offering at
JPMorgan
Chase Bank, 55 Water Street, New York, New York 10005, ABA
#021000021, Account #323-113052.                                        <BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
<FONT size="3" face="Wingdings">o
</FONT> For Israeli Residents<BR>
Payment of New Israeli Shekels according to the representative exchange
rate published by the Bank of Israel on the day prior to payment by
cashier's check drawn on a bank located in Israel payable to B.O.S
Better
Online Solutions Ltd. or wire transfer of immediately available funds
directly to United Mizrahi Bank Ltd. Haifa Business Cener, 2 Pal Yam St.
Haifa, Israel, Branch # 444, Account # 125542, Swift Code MIZBILIT<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
FORM 2-SALE OR TRANSFER TO DESIGNATED TRANSFEREE OR                     <BR>
THROUGH BANK OR BROKER                                                  <BR>
<BR>
To sell or transfer your purchase rights to another person, complete
this form and
have your signature guaranteed under Form 5. To sell your purchase
rights through
your bank or broker, sign below under this Form 2 and have your
signature guaranteed
under Form 5, but leave the rest of this Form 2 blank.<BR>
<BR>
For value received, ______________ of the purchase rights represented<BR>
by this
Rights Certificate are assigned to:<BR>
<BR>
_________________________________________________________________<BR>
(Print Full Name of Assignee)<BR>
_________________________________________________________________<BR>
(Print Full Address)<BR>
_________________________________________________________________<BR>
Tax ID or Social Security No.<BR>
_________________________________________________________________<BR>
Signature(s)<BR>
<BR>
IMPORTANT: The signature(s) must correspond with the name(s) as printed<BR>
on
the reverse of this Rights Certificate in every particular, without<BR>
alteration or
enlargement, or any other change whatsoever.
</FONT></TD>
     <TD WIDTH="4%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> &nbsp; </FONT></TD>
     <TD WIDTH="46%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> FORM 3-DELIVERY TO DIFFERENT ADDRESS<BR>
<BR>
If you wish for the ordinary shares underlying your rights to be
delivered to an address different from that shown on the face of this
Rights Certificate, please enter the alternate address below, sign under
Form 4 and have your signature guaranteed under Form 5.<BR>
<BR>
_________________________________________________________________<BR>
_________________________________________________________________<BR>
_________________________________________________________________<BR>
<BR>
FORM 4-SIGNATURE<BR>
<BR>
TO SUBSCRIBE: I acknowledge that I have received the Prospectus for this
Rights
Offering and I hereby irrevocably subscribe for the number of shares
indicated
above on the terms and conditions specified in the Prospectus.<BR>
__________________________________________________________________<BR>
Signature(s)<BR>
<BR>
IMPORTANT: The signature(s) must correspond with the name(s) as printed<BR>
on
the reverse of this Rights Certificate in every particular, without
alteration or
enlargement, or any other change whatsoever.<BR>
<BR>
FORM 5-SIGNATURE GUARANTEE<BR>
This form must be completed if you have completed any portion of Forms 2
or 3.<BR>
<BR>
Signature Guaranteed:_______________________________________________<BR>
(Name of Bank or Firm)<BR>
By:______________________________________________________________<BR>
(Signature of Officer)<BR>
<BR>
IMPORTANT: The signature(s) should be guaranteed by an eligible guarantor
institution (bank, stock broker, savings &amp; loan association or credit
union) with
membership in an approved signature guarantee medallion program pursuant
to
Securities and Exchange Commission Rule 17Ad-15.
</FONT></TD></TR>
</TABLE>
<BR>





<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3> FOR INSTRUCTIONS ON THE USE OF B.O.S BETTER ONLINE SOLUTIONS LTD. PURCHASE RIGHTS CERTIFICATES, CONSULT THE ALTMAN GROUP, THE
INFORMATION AGENT, AT
(800) 330-5136. </FONT></P>


<p align=center>
<font SIZE=2></FONT></p>
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<page>



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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="3"> <B>B.O.S. BETTER ONLINE SOLUTIONS LTD.</B> </FONT></P>



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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> INSTRUCTIONS FOR USE OF B.O.S. BETTER                ONLINE SOLUTIONS LTD.<BR> ORDINARY SHARE RIGHTS
CERTIFICATES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE
RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME (MIDNIGHT ISRAEL TIME), ON
____________ __ 2007, UNLESS EXTENDED AS DESCRIBED IN THE PROSPECTUS. </FONT></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following instructions relate to a rights offering (the &#147;Rights Offering&#148;) by
B.O.S. Better Online Solutions Ltd., an Israeli corporation (the &#147;Company&#148;
&#147;us&#148; or &#147;our&#148;), to the holders of ordinary shares of the Company as
described in the Company&#146;s prospectus, dated ____________ 2007 (the
&#147;Prospectus&#148;). Shareholders of record at the close of business on
_________________ 2007 (the &#147;Record Date&#148;), are receiving one transferable
subscription right for each 3.3724 ordinary shares held by them at the Record Date. Your
rights will be aggregated for all the shares that you own on the record date and then
rounded down to the nearest whole number, so that you will not receive fractional rights.
For example, if you own 4 shares on the record date, you will receive one Right, and if
you own 10,000 shares on the record date, you will receive 2,965 Rights. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
subscription price for each ordinary share is $2.50 and must be paid to American Stock
Transfer &amp; Trust Co., as Rights Agent, or directly to us under the procedures
described herein. If you hold your shares through an Israeli brokerage company that holds
the Rights through the Company&#146;s nominee company (<I>Hevra Le-Rishumim of Bank Leumi
Le-Israel Ltd.</I>), the subscription price may be paid in New Israeli Shekels according
to the representative exchange rate that will be published by the Bank of Israel on the
day before payment of the subscription price. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
rights will expire at 5:00&nbsp;p.m., New York City time (midnight Israeli time), on
_____________, 2007, unless extended by the Company as described in the Prospectus (the
&#147;Expiration Date&#148;). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of rights to which a holder of a rights certificate (&#147;Rights
Certificate&#148;) is entitled is printed on the face of that holder&#146;s Rights
Certificate. You should indicate your wishes with regard to the exercise of your rights by
completing the Rights Certificate and returning it to the Rights Agent in the envelope
provided. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;YOUR
RIGHTS CERTIFICATE MUST BE RECEIVED BY THE RIGHTS AGENT, OR GUARANTEED DELIVERY
REQUIREMENTS WITH RESPECT TO YOUR RIGHTS CERTIFICATE MUST BE COMPLIED WITH, AND PAYMENT OF
THE SUBSCRIPTION PRICE MUST BE RECEIVED, AS MORE SPECIFICALLY DESCRIBED IN THE PROSPECTUS,
BY THE RIGHTS AGENT ON OR BEFORE THE EXPIRATION DATE. YOU MAY&nbsp;NOT REVOKE ANY EXERCISE
OF A RIGHT. </FONT></P>


<p align=center>
<font SIZE=2></FONT></p>
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<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>1.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Subscription
Privilege.</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a record owner of our ordinary shares, you may exercise your rights by delivering
a signed exercise form on the back of your rights certificate or a notice of guaranteed
delivery to American Stock Transfer &amp; Trust Co., our Rights Agent, at the address
noted below together with payment in full of the subscription price for each right being
exercised, by 5:00 p.m., New York City time (midnight Israel time), on ____________, 2007. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a record owner and reside in Israel, you may also exercise your rights by
delivering a signed exercise form on the back of your rights certificate to us at the
address noted below, together with payment in full of the subscription price in New
Israeli Shekels for each right being exercised, by midnight, Israel time, on ____________,
2007 . If you are a record owner who resides in Israel, we may accept payments in U.S.
dollars if requested and agreed to by us. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
and American Stock Transfer &amp; Trust Co., our Rights Agent, as applicable, may refuse
to accept improperly completed or delivered or unexecuted exercise forms. We and American
Stock Transfer &amp; Trust Co., our Rights Agent, as applicable, must receive payment in
full of the subscription price for each right being exercised together with the exercise
form (or notice of guaranteed delivery). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are delivering your completed exercise form (or notice of guaranteed delivery) and
payment for the exercise of your rights to American Stock Transfer &amp; Trust Co., our
Rights Agent, please do so by mail, overnight or hand delivery to one of the following
addresses: </FONT></P>




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<TR VALIGN="BOTTOM">
     <TH></TH>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="5%" ALIGN="LEFT">
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"> </FONT>
</TD>
     <TD WIDTH="45%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">
<U><I>Hand delivery
</I></U><BR>American Stock Transfer &amp; Trust Company
<BR>59 Maiden Lane
<BR>New York, New York 10038
<BR>Attention: Reorganization Department </FONT></TD>
     <TD WIDTH="50%" ALIGN="LEFT">
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <U><I>Mail and Overnight mail
</I></U><BR>American Stock Transfer &amp; Trust Company
<BR>6201 15th Avenue
<BR>Brooklyn, New York 11219
<BR>Attention: Reorganization Department </FONT>
</TD></TR>
</TABLE>
<BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Record
owners who reside in Israel, and who wish to deliver their completed exercise form and
subscription payment in New Israeli Shekels for the exercise of their rights directly to
us, should do so by mail, overnight or hand delivery to the following address: </FONT></P>




<TABLE WIDTH="100%" BORDER="0" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="BOTTOM">
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN="TOP">
     <TD WIDTH="5%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> </FONT></TD>
     <TD WIDTH="95%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">
B.O.S Better Online Solutions Ltd.
<BR>20 Freiman St., POB 198
<BR>Rishon Lezion, 75101
<BR>Israel
<BR>Attention: Mr. Eyal Cohen, CFO
</FONT></TD></TR>
</TABLE>
<BR>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
payments to American Stock Transfer &amp; Trust Co., as Rights Agent, must be made in U.S.
dollars by check drawn on a bank located in the United States and payable to
&#147;American Stock Transfer &amp; Trust Co., as Rights Agent,&#148; or by wire transfer
of funds to the account maintained by American Stock Transfer &amp; Trust Co., our Rights
Agent, for this rights offering at JP Morgan Chase, 55 Water Street, New York, New York
10005, ABA No. 021000021, Account No. 323-113052, reference B.O.S Better Online Solutions
Ltd., Attention: Reorganization Department. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
payments to us shall be made in New Israeli Shekels according to the representative
exchange rate published by the Bank of Israel on the day before payment of the
subscription price and shall be by wire transfer or by check drawn on a bank located in
Israel, and payable to &#147;B.O.S Better Online Solutions Ltd.&#148; Any wire transfer to
us should be made to United Mizrahi Bank Ltd., Haifa Business Center, 2 Palyam St., Haifa,
Israel, Branch #&nbsp;444, Account #&nbsp;125542, Swift Code: MIZBILIT. We may accept
other forms of payment or payments in U.S. dollars if requested and agreed to by us. </FONT></P>


<p align=center>
<font SIZE=2>2</FONT></p>
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<page>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
will choose the method of delivery of exercise forms and payment of the subscription price
and will bear the risk of such election. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IF
YOU SEND YOUR COMPLETED EXERCISE FORM AND PAYMENTS BY MAIL, WE URGE YOU TO USE REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND TO ALLOW A SUFFICIENT NUMBER OF
DAYS TO ENSURE DELIVERY AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE. WE STRONGLY
URGE YOU TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A CHECK DRAWN ON A BANK LOCATED IN
THE UNITED STATES OR IN ISRAEL. We will not consider any payment by check, other than a
cashier&#146;s check or a money order, to have been made until the check clears through
the account of American Stock Transfer &amp; Trust Co., our Rights Agent, or to our
account, as applicable, before the expiration date. If you do not exercise your rights by
the date and in accordance with the procedures applicable to you, your ability to exercise
the rights and purchase the ordinary shares will expire. Record holders exercising their
rights shall be entitled to receive the ordinary shares promptly following such exercise. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments
for the exercise of your rights made to American Stock Transfer &amp; Trust Co., our
Rights Agent, will be held in a segregated interest bearing money market account, and will
be sent to us in accordance with our written instructions. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you exercise less than all of the rights evidenced by your Rights Certificate, the Rights
Agent will issue you a new Rights Certificate evidencing the unexercised rights. If you
choose to have a new Rights Certificate sent, you may not receive any such new Rights
Certificate in sufficient time to permit the exercise of the rights evidenced thereby. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you have not indicated the number of ordinary shares being purchased, or if you have not
forwarded full payment of the subscription price for the number of ordinary shares that
you have indicated are being purchased, you will be deemed to have exercised the
Subscription Privilege with respect to the maximum number of ordinary shares which may be
purchased for the subscription price transmitted or delivered by you. To the extent that
the subscription price transmitted or delivered by you exceeds the product of the
subscription price multiplied by the number of ordinary shares you are entitled to
purchase as evidenced by the Rights Certificate(s) transmitted or delivered by you, the
excess (such excess being the &#147;Subscription Excess&#148;) will be returned to you
following the expiration of the Rights Offering. No interest shall be paid on the
Subscription Excess, if any. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>2.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Execution.</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          <I>Execution by Registered Holder(s). </I>The signature on the Rights
          Certificate must correspond with the name of the registered holder exactly as it
          appears on the face of the Rights Certificate without any alteration or change
          whatsoever. If the Rights Certificate is registered in the names of two or more
          joint owners, all of such owners must sign. Persons who sign the Rights
          Certificate in a representative or other fiduciary capacity must indicate their
          capacity when signing and, unless waived by the Company in its sole and absolute
          discretion, must present to the Rights Agent satisfactory evidence of their
          authority to so act. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          <I>Execution by Person Other than Registered Holder. </I>If the Rights
          Certificate is executed by a person other than the holder named on the face of
          the Rights Certificate, proper evidence of authority of the person executing the
          Rights Certificate must accompany the same unless, for good cause, the Company
          dispenses with proof of authority, in its sole and absolute discretion. </FONT></P>


<p align=center>
<font SIZE=2>3</FONT></p>
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<page>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          <I>Signature Guarantee. </I>Your signature must be guaranteed by an Eligible
          Institution if you wish to transfer all or less than all of your unexercised
          rights to a designated transferee. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>3.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Guaranteed
Delivery Procedures in the United States.</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you want to exercise your rights, but time will not permit your rights certificate to
reach American Stock Transfer &amp; Trust Co., our Rights Agent, prior to 5:00 p.m., New
York City time (midnight, Israel time), on ______________, 2007, you may exercise your
subscription rights if you send, and the Rights Agent receives, (1) payment in full for
each right being exercised, (2) a notice of guaranteed delivery, substantially in the form
provided to you with your rights certificate, from a member firm of a registered national
securities exchange or a member of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in the United
States, and (3) your properly completed and duly executed rights certificate, including
any required signature guarantees, within three NASDAQ trading days following the date of
your notice of guaranteed delivery. The notice of guaranteed delivery may be delivered to
the Rights Agent in the same manner as your rights certificate as set forth herein, or may
be transmitted to the Rights Agent by facsimile transmission, to facsimile number
718-234-5001. You can obtain additional copies of the form of notice of guaranteed
delivery by requesting them from the Rights Agent. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>4.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Transferability
of Rights</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
rights are transferable. You may sell or otherwise transfer them to others. The
unexercised rights will be eligible for trading on the NASDAQ Global Market and the Tel
Aviv Stock Exchange for one day only on _______________, 2007. If you are one of our
affiliates, you may transfer your rights only if there is an effective registration
statement or exemption covering such transfer under the United States securities laws. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Record
holders wishing to transfer their rights to another person may do so by executing the
rights transfer form on the back of the rights certificate and submitting it to American
Stock Transfer &amp; Trust Co. prior to __________, 2007. Record holders wishing to sell
their rights on the NASDAQ Global Market or the Tel Aviv Stock Exchange, should
independently engage a broker to execute this sale on their behalf. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
no contrary instructions have been received by ______________, 2007 and your rights remain
unexercised, your rights will expire. If you hold your shares through an Israeli brokerage
company that holds the rights through the Company&#146;s nominee company (<I>Hevra
Le-Rishumim of Bank Leumi Le-Israel Ltd.</I>), the rules of the Tel Aviv Stock Exchange
provide that if no contrary instructions have been received from you by the time
determined by your broker on _______________, 2007, you will be considered to have
instructed your broker to sell all your rights on the Tel Aviv Stock Exchange with no
price limit. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
are responsible for all commissions, fees and other expenses, including brokerage
commissions and transfer taxes, incurred in connection with the purchase, sale or exercise
of rights. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>5.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Ambiguities
in Exercise of Rights</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you do not specify the number of rights being exercised, or if your payment is not
sufficient to pay the total subscription price for all of the shares that you indicated
you wished to purchase, you will be deemed to have exercised the maximum number of rights
that could be exercised for the amount of the payment received from you. If your payment
exceeds the total subscription price for all of the rights you have elected to exercise,
we will promptly refund to you the balance with no interest. </FONT></P>


<p align=center>
<font SIZE=2>4</FONT></p>
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<page>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>6.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Beneficial
Owners Who Are Not Record Holders</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a beneficial owner of our ordinary shares and hold them through a broker, dealer
or other nominee (including a member of the Tel Aviv Stock Exchange), you should expect
your broker, dealer or other nominee to notify you of this rights offering and the
procedures for exercising or transferring your rights. If you wish to exercise your
rights, you will need to have your broker, dealer or other nominee act for you. To
indicate your decision with respect to your rights, you should complete and return to your
broker, dealer or other nominee the form provided to you accompanied by the subscription
payment. You should receive this form from your broker, dealer or other nominee with the
other rights offering materials. You should NOT return your subscription form or transfer
the subscription payment directly to us. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized
below are the procedures for exercising your rights if you are a beneficial owner whose
ordinary shares are held through the Company&#146;s nominee company (<I>Hevra Le-Rishumim
of Bank Leumi Le-Israel Ltd.</I>). </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <I>Procedures
Applicable to Holders of Shares Through a Nominee Company.</I> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you hold your ordinary shares through an Israeli brokerage company that holds the rights
through the Company&#146;s nominee company (<I>Hevra Le-Rishumim of Bank Leumi Le-Israel
Ltd.</I>), you should expect to receive a letter regarding this rights offering from the
member of the Tel Aviv Stock Exchange through which you hold your shares (the brokerage
company). In that letter, you will be requested to make ONE of the following three
elections: </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          your rights and subscribe for our ordinary shares. If this alternative is
          elected, you may give a member of the Tel Aviv Stock Exchange through which you
          hold your shares an exercise notice commencing after 5:00 p.m., New York City
          time (midnight, Israel time), on _________________ , 2007 (the record date) and
          no later than the time determined by your broker on ________________, 2007. You
          must attach the subscription payment to your notice. You will need to arrange
          with your broker the method of payment of your subscription payment. The
          subscription price is to be paid in New Israeli Shekels according to the
          representative exchange rate published by the Bank of Israel on the day before
          payment of the subscription price; or </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          the rights or any part of them on the Tel Aviv Stock Exchange. If you select
          this alternative, you may give your broker price limit instructions as to the
          sale of the rights; or </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          from exercising your rights and from selling them. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your
notice should reach the member of the Tel Aviv Stock Exchange through which you hold your
shares by no later than ______________________, 2007 (the rights trading day) at the time
determined by your broker. If notice is not received from you by such time, you will be
considered to have instructed your broker to sell your rights on the Tel Aviv Stock
Exchange, with no price limit. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you hold rights and wish to transfer them to another person, you may do so by executing
the rights transfer form that will be made available to you by your broker. The shares issuable upon exercise of
the rights shall be freely tradeable.  </FONT></P>


<p align=center>
<font SIZE=2>5</FONT></p>
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<page>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
rights will trade on the Tel Aviv Stock Exchange for one trading day, ________________,
2007. Pursuant to the Tel Aviv Stock Exchange rules, if the trading of our ordinary shares
or the rights is halted for a period in excess of 45 minutes, and the trading does not
resume for the remainder of that day upon which the rights are traded on the Tel Aviv
Stock Exchange, an additional trading day for the rights will take place, and the last day
to exercise the rights will be accordingly extended. If on the day upon which the rights
are traded on the Tel Aviv Stock Exchange the trading of our ordinary shares is halted,
yet the cessation of trade continues for fewer than five consecutive trading days, your
instructions with respect to the rights delivered to your broker shall remain in effect
unless contrary instructions have been received by your broker from you. If the trading of
our ordinary shares on the day upon which the rights are traded on the Tel Aviv Stock
Exchange is halted for a period of more than five consecutive trading days, all prior
instructions received by your broker will be cancelled. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders
of unexercised rights following the Tel Aviv Stock Exchange rights trading day may
exercise them and subscribe for our ordinary shares by notifying their broker and
transferring the subscription payment. This notice must reach the broker by no later than
________________, 2007 at the time determined by the broker. If this notice is not
received on time, it will not be possible to exercise these rights. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Tel Aviv Stock Exchange rules, Tel Aviv Stock Exchange members must submit to the Tel
Aviv Stock Exchange Clearing House a written rights exercise (subscription) notice on
behalf of all their clients wishing to exercise rights no later than 9:00 a.m. Israel time
(2:00 a.m., New York City time) on _____________________, 2007 . The rights of holders of
our ordinary shares through our nominee company will expire if the brokers of these
holders do not provide an exercise notice as described above. The Tel Aviv Stock Exchange
rules further require brokers to transfer, on the same date, to the Tel Aviv Stock
Exchange Clearing House the subscription payments with respect to their clients&#146;
exercised rights, and the Tel Aviv Stock Exchange Clearing House thereafter will transfer
these payments to us. Under the Tel Aviv Stock
Exchange rules, during the period of ________, 2007 until
_______, 2007, an exercise notice submitted by a shareholder who holds ordinary shares
through a broker, dealer or other nominee in Israel, by 12:00 p.m. Israel time, shall be
transferred to the Tel Aviv Stock Exchange Clearing House by 12:00 p.m. Israel time on the
next trading day, and shall be cleared by 12:00 p.m. Israel time on the trading day
thereafter. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>7.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Nominee
Holders</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a broker, a trustee or a depositary for securities that holds our ordinary shares
for the account of others as a nominee holder, you should notify the respective beneficial
owners of such shares as soon as possible of the issuance of the rights to find out such
beneficial owners&#146; intentions. You should obtain instructions from the beneficial
owner with respect to the rights, as set forth in the instructions we have provided to you
for your distribution to beneficial owners. If the beneficial owner so instructs, you
should complete the appropriate subscription certificates. A nominee holder that holds
shares for the account(s) of more than one beneficial owner may exercise the number of
rights to which all such beneficial owners in the aggregate otherwise would have been
entitled if they had been direct record holders of our ordinary shares on the record date,
so long as the nominee submits the appropriate subscription certificates and
certifications and proper payment to us. If you are a member of the Tel Aviv Stock
Exchange, you must comply with the rules of the Tel Aviv Stock Exchange with respect to
providing notices to and receiving instructions from your clients. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>8.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Procedures
For DTC (The Depository Trust Company) Participants</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect that your exercise of your subscription privilege with respect to rights may be
made through the facilities of DTC. If you exercise your subscription privilege with
respect to rights through DTC we refer to your rights as DTC Exercised Rights. Please call
the Information Agent, The Altman Group, at 800-330-5136 to obtain copies of the DTC
participant exercise form and the nominee holder certification. </FONT></P>


<p align=center>
<font SIZE=2>6</FONT></p>
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<page>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>9.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Rights
Agent and Information Agent</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have appointed American Stock Transfer &amp; Trust Company as Rights Agent and The Altman
Group Inc. as the Information Agent for the rights offering. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you have questions or need assistance, please contact the Information Agent at the Altman
Group. If you are calling from the United States, you may call Toll Free: 800-330-5136.
For all other calls: 201-806-7300. The Information Agent&#146;s fax number is
201-460-0050; Attention: Mr. Domenick DeRobertis, Managing Director. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Subscription
Privilege.</I> As soon as practicable after the Expiration Date,
the Rights Agent will deliver to each validly exercising Rightsholder the ordinary shares
purchased pursuant to such exercise. Such ordinary shares will be issued in the same form,
certificated or book-entry, as the Rights exercised by that Rightsholder. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>10.</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <B>Form&nbsp;W-9.</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
Rightsholder who elects to exercise their rights through the Rights Agent should provide
the Rights Agent with a correct Taxpayer Identification Number (&#147;TIN&#148;) and,
where applicable, certification of such Rightsholder&#146;s exemption from backup
withholding on a Form&nbsp;W-9. Each foreign Rightsholder who elects to exercise their
rights through the Rights Agent should provide the Rights Agent with certification of
foreign status on a Form&nbsp;W-8. Copies of Form&nbsp;W-8 and additional copies of
Form&nbsp;W-9 may be obtained upon request from the Rights Agent at the address, or by
calling the telephone number, indicated above. Failure to provide the information on the
form may subject such holder to 30% federal income tax withholding with respect to any
proceeds received by such Rightsholder. </FONT></P>


<p align=center>
<font SIZE=2>7</FONT></p>
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     <!-- Project:        \\Backup\office\EDGAR Filing\BOS better online solutions Ltd\73470\a73470.eep -->
     <!-- Control Number: 73470                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    BOS better online solutions Ltd                                  -->
     <!-- Project Name:   F-1/A                                                            -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PHILLIPS NIZER LLP
<BR>666 Fifth Avenue
<BR>New York, NY 10103
</FONT></P>

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<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 6, 2007 </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>VIA EDGAR</U> </FONT> </P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Securities and Exchange Commission
<BR>Washington, D.C. 20549
</FONT></P>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Attn:  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Barbara
C. Jacobs     <BR>     Assistant Director  <BR>        Mail Stop 4561</FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>         Re: </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2">B.O.S.
Better Online Solutions Ltd. <BR> Amendment No. 2 to Registration Statement
on Form F-1 <BR> File No. 333-139233 <BR> <U>Filed on December 11,
2006</U> </FONT> </TD>
</TR>
</TABLE>
<BR>



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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ladies and Gentlemen: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have attached hereto Amendment No. 2 (the &#147;Amendment&#148;) to the Company&#146;s
Registration Statement on Form F-1. The Amendment is being filed to fill in the rights
offering record date, offering period and related information. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
behalf of the Company we respectfully request that the effectiveness of the Registration
Statement be accelerated to 11:00 a.m. on Thursday March 8, 2007 or as soon thereafter as
is practical. A copy of an acceleration request from the Company is attached hereto. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you have any questions concerning the responses, please do not hesitate to call me at
212-841-0700. </FONT></P>


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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cordially<BR><BR>Brian Brodrick</FONT></TD>
</TR>
</TABLE>
<BR>




<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Encl.</FONT></P>



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