<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>june02.txt
<DESCRIPTION>PROXY STATEMENT
<TEXT>
                                   FORM 6-K


                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549


                         Report of Foreign Private Issuer




                      Pursuant to Rule 13a-16 or 15d-16 of
                       the Securities Exchange Act of 1934


For the Month of June 2002


                                MIND C.T.I. LTD.
                  (Translation of Registrant's Name into English)


          Industrial Park, Building 7, P.O. Box 144, Yoqneam, Israel 20692
                     (Address of Principal Executive Offices)


Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F:


                         Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934:

                               Yes [ ] No [X]

If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-___.

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

Attached hereto and incorporated herein by reference is the registrant's
Proxy Statement for its Annual General Meeting of Shareholders to be held on
June 27, 2002.

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

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


MIND C.T.I. LTD.
(Registrant)


By:  /s/ Monica Eisinger
     -----------------------------------
     Monica Eisinger
     President


Dated: June 5, 2002


----
                                     MIND C.T.I. LTD.

                       NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS


Notice is hereby given that an Annual General Meeting of Shareholders (the
"Meeting") of Mind C.T.I. Ltd. (the "Company") will be held on Thursday, June
27, 2002 at 10:00 A.M. (Israel time), at the offices of the Company, Industrial
Park, Building 7, Yoqneam 20692, Israel, for the following purposes:

     (i)    to re-appoint Kesselman & Kesselman, certified public accountants
            in Israel and a member of PriceWaterhouseCoopers International
            Limited, as the Company's independent auditor and to authorize the
            Board of Directors of the Company to determine its remuneration;

     (ii)   to re-appoint Mr. Lior Salansky, a member of Class II of the Board
            of Directors of the Company, whose term of office shall expire at
            the Meeting, as a director of the Company;

     (iii)  to elect Mr. Zamir Bar-Zion as an outside director of the Company;

     (iv)   to approve a grant of options to Monica Eisinger, the Company's
            President, Chairperson of the Board of Directors and Chief
            Executive Officer;

     (v)    to convert each one of the Company's Non-Voting Ordinary Shares,
            nominal value NIS 0.01 per share, into one of the Company's
            Ordinary Shares, nominal value NIS 0.01 per share, and to amend the
            Company's Memorandum and Articles of Association to reflect such
            conversion;

     (vi)   to discuss the Company's audited financial statements for the year
           ended December 31, 2001; and

     (vii) to transact such other business as may properly come before the
           Meeting or any adjournments or postponements thereof.

Shareholders of record at the close of business on May 22, 2002 are entitled to
 notice of, and to vote at, the Meeting.  All shareholders are cordially
invited to attend the Meeting in person.

Shareholders who are unable to attend the Meeting in person are requested to
complete, date and sign the enclosed form of proxy and to return it promptly in
the pre-addressed envelope provided. No postage is required if mailed in the
United States.  Shareholders who attend the Meeting may revoke their proxies
and vote their shares in person.

Joint holders of shares should take note that, pursuant to Article 32(d) of the
Articles of Association of the Company, the vote of the senior of the joint
shares who tenders a vote, in person or by proxy, will be accepted to the
exclusion of the vote(s) of the other joint holder(s).  For this purpose
seniority will be determined by the order in which the names stand in the
Company's Register of Members.



                                       By Order of the Board of Directors,

                                       Monica Eisinger
                                       President, Chairperson of the Board
                                       of Directors and Chief Executive Officer
Dated: May 23, 2002


                                 MIND C.T.I. LTD.
                           Industrial Park, Building 7
                              Yoqneam 20692, Israel



PROXY STATEMENT


     This Proxy Statement is furnished to the holders of Ordinary Shares, NIS
0.01 per share nominal value (the "Ordinary Shares"), of Mind C.T.I.
Ltd.(the"Company") in connection with the solicitation by the Board of
Directors of proxies for use at the Annual General Meeting of Shareholders (the
"Meeting"), or at any adjournment or postponements thereof, pursuant to the
accompanying Notice of Annual General Meeting of Shareholders.  The Meeting
will be held on Thursday, June 27, 2002 at 10:00 A.M. (Israel time), at the
offices of the Company, Industrial Park, Building 7, Yoqneam 20692, Israel.


     It is proposed that at the Meeting, resolutions be adopted as follows:

     (i)    to re-appoint Kesselman & Kesselman, certified public accountants
            in Israel and a member of PriceWaterhouseCoopers International
            Limited, as the Company's independent auditor and to authorize the
            Board of Directors of the Company to determine its remuneration;

      (ii)  to re-appoint Mr. Lior Salansky, a member of Class II of the Board
            of Directors of the Company, whose term of office shall expire at
            the Meeting, as a director of the Company;

      (iii) to elect Mr. Zamir Bar-Zion as an outside director of the Company;

      (iv)  to approve a grant of options to Monica Eisinger, the Company's
            President, Chairperson of the Board of Directors and Chief
            Executive Officer;

      (v)   to convert each one of the Company's Non-Voting Ordinary Shares,
            nominal value NIS 0.01 per share, into one of the Company's
            Ordinary Shares, nominal value NIS 0.01 per share, and to amend the
            Company's Memorandum and Articles of Association to reflect such
            conversion;

      (vi)  to discuss the Company's audited financial statements for the year
            ended December 31, 2001; and

      (vii) to transact such other business as may properly come before the
            Meeting or any adjournments or postponements thereof.

     The Company currently is not aware of any other matters which will come
before the Meeting.  If any other matters properly come before the Meeting, the
persons designated as proxies intend to vote in accordance with their judgment
on such matters.

     A form of proxy for use at the Meeting and a return envelope for the proxy
are enclosed.  Shareholders may revoke the authority granted by their execution
of proxies at any time before the exercise thereof by filing with the Company a
written notice of revocation or duly executed proxy bearing a later date, or by
voting in person at the Meeting.  Unless otherwise indicated on the form of
proxy, shares represented by any proxy in the enclosed form, if the proxy is
properly executed and delivered to the Company not less than 72 hours prior to
the time fixed for the Meeting, will be voted in favor of all the matters to be
presented to the Meeting, as described above.  On all matters to be considered
at the Meeting, abstentions and broker non-votes will be treated as neither a
vote "for" nor "against" the matter, although they will be counted in
determining whether a quorum is present.

     Proxies for use at the Meeting are being solicited by the Board of
Directors of the Company.  Only shareholders of record at the close of business
on May 22, 2002 will be entitled to vote at the Meeting.  Proxies are being
mailed to shareholders on or about May 27, 2002 and will be solicited chiefly
by mail.  However, certain officers, directors, employees and agents of the
Company, none of whom will receive additional compensation therefor, may
solicit proxies by telephone, telegram or other personal contact.  The
Company will bear the cost for the solicitation of the proxies, including
postage, printing and handling, and will reimburse the reasonable expenses of
brokerage firms and others for forwarding material to beneficial owners of
shares.

     On May 22, 2002, the Company had outstanding 20,016,220 Ordinary Shares,
each of which is entitled to one vote upon each of the matters to be presented
at the Meeting, and 650,000 Non-Voting Ordinary Shares.  Two or more
shareholders holding the Ordinary Shares conferring in the aggregate at least
25% of the outstanding Ordinary Shares, present in person or by proxy, will
constitute a quorum at the Meeting. If within an hour from the time appointed
for the Meeting a quorum is not present, the Meeting shall stand adjourned to
the same day in the next week, at the same time and place, at which adjourned
meeting, any two shareholders shall constitute a quorum.

                            PRINICIPAL SHAREHOLDERS

     The following table sets forth certain information regarding the
beneficial ownership of the Company's shares as of May 22, 2002 by each person
who is known to own beneficially more than 5% of the Company's outstanding
shares.

Name of Beneficial Owner       Total Shares Beneficially Owned    Percentage of
                                                                 Shares  (1)
Monica Eisinger                      5,040,000 (2)                      24.4%
Lior Salansky	                        3,749,140 (2)                      18.1%
ADC Teledata Communications Ltd.(3)  4,502,000                           21.8%
Summit Partners (4)                  2,592,600                           12.5%
Kevin Mohan (5)                      2,592,600                           12.5%

(1)  Based on 20,666,220 Ordinary Shares and Non-Voting Ordinary Shares
[outstanding on May 22, 2002].

(2)  The shares owned by Ms. Eisinger and Mr. Salansky include 140,000 shares
owned by Mind Israel Ltd. Each of Ms. Eisinger and Mr. Salansky is considered a
beneficial owner of these shares.

3)  ADC Teldata Communications Ltd. is a wholly-owned subsidiary of ADC
Telecommunications, Inc., a Minnesota company whose shares are publicly traded
on the Nasdaq Stock Market.

(4)  Summit Partners is the name used to refer to a group of investment
partnerships. Shares reflected include 1,081,100 Ordinary Shares and 650,000
Non-Voting Ordinary Shares held by Summit Ventures V, L.P., 644,180 Ordinary
Shares held by Summit V Companion Fund, L.P., 41,600 Ordinary Shares held by
Summit V Advisors Fund, L.P., 136,120  Ordinary Shares held by Summit V
Advisors Fund (QP), L.P., and 39,600 Ordinary Shares held by Summit Investors
III, L.P

(5) Represents shares described in note (4) above, beneficially owned by Summit
Partners. Mr. Mohan, one of the Company's directors, is a member of Summit
Partners LLC, the sole general partner of Summit Partners V, L.P. which is the
sole general partner of Summit Ventures V, L.P., Summit V Companion Fund, L.P.,
Summit V Advisors Fund, L.P., Summit V Advisors Fund (QP), L.P., and Summit
Investors III, L.P. Mr. Mohan does not have voting and dispositive authority
over these shares and disclaims beneficial ownership except to the extent of
his pecuniary interest in these shares.

            ITEM 1 - RE-APPOINTMENT OF AUDITOR AND DETERMINATION OF ITS
                                   REMUNERATION

     Under the Israeli Companies Law, 5759 - 1999 (the "Companies Law"), the
shareholders of the Company are authorized to appoint the Company's auditor and
to authorize the Board of Directors to determine its remuneration. It is
proposed that Kesselman & Kesselman, certified public accountants in Israel and
a member of PriceWaterhouseCoopers International Limited (the "Auditor") be
re-appointed as the Company's independent auditor until the close of the
following annual meeting.

It is proposed that at the Meeting the following resolution be adopted:

    "RESOLVED, that the Company's Auditor, Kesselman & Kesselman, be, and they
     hereby are, re-appointed as the auditor of the Company until the close of
     the following annual meeting, and that the Board of Directors be, and it
     hereby is, authorized to determine its remuneration".

     The affirmative vote of the holders of a majority of the Ordinary Shares
     present, in person or by proxy, and voting on the matter is required for
     the approval thereof.

     The Board of Directors recommends a vote FOR approval of this proposed
     resolution.

                         ITEM 2 - RE-APPOINTMENT OF DIRECTOR

     Under the Company's Articles of Association, our Board of Directors is
divided into three classes of directors designated as Class I, Class II and
Class III, which are differentiated by the dates of expiration of the terms of
office of their respective directors.

     Pursuant to a shareholders resolution dated July 12, 2000, Lior Salansky
was designated as a member of Class II of the Board of Directors, and his term
of office shall expire at the Meeting.  If Mr. Salansky is re-elected, his term
of office shall expire at the Company's 2005 annual general meeting of
shareholders.

     Mr. Salansky is a co-founder of our Company. He has served in a number of
positions within the Company from inception until February 2000, including Vice
President of Business Development, R&D Manager and software developer. Mr.
Salansky holds a B.Sc. in Computer Science from the Technion, Israel Institute
of Technology.

It is proposed that at the Meeting the following resolution be adopted:

     "RESOLVED, to re-appoint Lior Salansky as a Class II director of the
     Company to serve until the annual general meeting to be convened in the
third year following this re-appointment".

     The affirmative vote of the holders of a majority of the Ordinary Shares
present, in person or by proxy, and voting on the matter is required for the
approval thereof.


     The Board of Directors recommends a vote FOR approval of this proposed
     resolution.



                        ITEM 3 - ELECTION OF OUTSIDE DIRECTOR

     Companies incorporated under the laws of Israel whose shares have been
offered to the public, such as the Company, are required by the Israeli
Companies Law, 5759-1999 (the "Companies Law"), to appoint at least two outside
directors ("outside directors").  To qualify as an outside director, an
individual may not have, and may not have had at any time during the previous
two years, any affiliation with the Company or its affiliates, as such terms
are defined in the Companies Law.  In addition, no individual may serve as an
outside director if the individual's position or other activities create or may
create a conflict of interest with his or her role as an outside director.  For
a period of two years from termination from office, a former outside director
may not serve as a director or employee of the Company or provide professional
services to the Company for compensation.

     The Company's Board of Directors is divided into three classes of
directors, denominated Class I, Class II and Class III. The outside directors
are required to be elected by the shareholders, but they will not be members of
any class. The term of service of an outside director is three years and may be
extended for an additional three years.  All of the outside directors of a
company must be members of its audit committee and each other committee of a
company's board of directors must include at least one outside director.

     At an Extraordinary Meeting of the Company's shareholders held on February
12, 2001, the shareholders elected Messrs. Ami Amir and Amnon Neubach as
outside directors of the Company. Effective April 22, 2002, Mr. Ami Amir
resigned as an outside director of the Company in order to pursue other
business opportunities. At the Meeting, shareholders will be asked to elect Mr.
Zamir Bar-Zion as an outside director of the Company on the same terms as
approved for outside directors at the Extraordinary Meeting of the Company's
shareholders held on February 12, 2001.  The Company has received a declaration
from such nominee that he fulfills all the qualifications of an outside
director under the Companies Law.

     A brief biography of Mr. Zamir Bar-Zion is set forth below:

     Zamir Bar-Zion was until recently a Managing Director for investment
banking at Nessuah Zannex & Co. Prior to joining Nessuah Zannex & Co., Mr. Bar
Zion served as a private financial consultant and a senior partner at Evergreen
Canada - Israel Investments Ltd. Mr. Bar-Zion holds a B.S. degree in Computer
Science and Finance from the New York Institute of Technology, an M.A. degree
in Finance from Pace University and has graduated from the Program of
Management Development at Harvard University.

It is proposed that at the Meeting the following resolution be adopted:

     "RESOLVED, that Mr. Zamir Bar-Zion be elected as an outside director of
     the Company for a term of three years."

     The election of outside directors requires the affirmative vote of the
holders of a majority of the Ordinary Shares present, in person or by proxy,
and voting on the matter, provided that either (i) at least one third of the
shares of non-controlling shareholders are voted in favor of the election of
the outside directors or (ii) the total number of shares of non-controlling
shareholders voted against the election of the outside directors does not
exceed one percent of the outstanding Ordinary Shares.

     The Board of Directors recommends that the shareholders vote FOR approval
     of election of the above-mentioned nominee.

     Under the Companies Law, the terms and conditions of Ms. Eisinger's
employment and service with the Company require the approval of the Company's
Audit Committee, Board of Directors and shareholders, in that order. At
meetings held on December 24, 2001, the Audit Committee and Board of Directors
granted Ms. Eisinger options (the "Options") to purchase 80,000 Ordinary Shares
at an exercise price of $1.65 per share, which was the market price on the date
of grant. The Options are subject to the terms and conditions of the MIND 1998
Share Option Plan. The Options vest in equal annual installments over a period
of four years with the first installment vesting on December 31, 2002.

It is proposed that at the Meeting the following resolution be adopted:

     "RESOLVED, to affirm, ratify and approve the grant of 80,000 Options to
     Ms. Eisinger."

     Since Ms. Eisinger may be deemed a controlling shareholder of the company,
the affirmative vote of the holders of a majority of the Ordinary Shares
present, in person or by proxy, and voting on the matter is required for
the approval thereof, provided that either (i) the affirmative vote includes at
least one-third of the shares voted by shareholders who do not have a personal
interest in the approval of Ms. Eisinger's compensation package or (ii) the
total number of shares voted against the resolution does not exceed one percent
of the outstanding Ordinary Shares.

     The Board of Directors recommends a vote FOR approval of this proposed
     Resolution

     ITEM 5 - CONVERSION OF NON-VOTING ORDINARY SHARES INTO ORDINARY SHARES AND
                AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION

     The Company's Board of Directors desires to list the Ordinary Shares for
trading on the Tel Aviv Stock Exchange ("TASE"). However, the Israeli
Securities Law, 5728 - 1968, prohibits the initial listing on the TASE of the
securities of a company if such company's share capital is divided into more
than one class of shares where the voting rights of such shares do not carry
equal voting rights in proportion to their nominal value. The Company's share
capital is currently divided into two classes of shares, the Ordinary Shares
and 8,000,000 authorized Non-Voting Ordinary Shares, nominal value NIS 0.01 per
share ("Non-Voting Shares") of which 650,000 Non-Voting Ordinary Shares are
issued and outstanding.

     In order to complete the listing of the Ordinary Shares on TASE, the Non-
Voting Shares need to be converted into Ordinary Shares and the Company's
Memorandum and Articles of Association must be amended so that the Company will
only have one class of shares, the Ordinary Shares. The Company's current
Articles of Association provide that each one Non-Voting Share is convertible
into one fully paid and non-assessable Ordinary Share upon the occurrence of
the events specified in therein, none of which have occurred. Accordingly, the
Board of Directors has recommended that the shareholders at the Meeting approve
the conversion of each one Non-Voting Share into one Ordinary Share and the
corresponding amendment of the Company's Memorandum and Articles of Association
so that the Company will have only one class of shares with equal voting
rights.

It is proposed that at the Meeting the following resolutions be adopted:

     "RESOLVED, to convert each Non-Voting Share, nominal value NIS 0.01 per
      share, into one Ordinary Share, nominal value NIS 0.01 per share."


     "RESOLVED, to amend Section 4 of the Company's Memorandum of Association
     in a manner that will reflect the conversion of each Non-Voting Share into
     one Ordinary Share and to replace Article 4 of the Amended and Restated
     Articles of Association in its entirety to read as follows and the Company
     is authorized to incorporate such amended Article 4 into a Second Amended
     and Restated Articles of Association:"

"4.        Share Capital

(a)      The share capital of the Company shall be eight hundred and
Eighty thousand New Israeli Shekels (NIS 880,000) divided into eighty eight
million (88,000,000) ordinary shares of a nominal value of one Agora (NIS 0.01)
each, which shall be designated as "Ordinary Shares".

(b) Rights of Ordinary Shares. The Ordinary Shares confer upon
the holders thereof all rights accruing to a shareholder of the Company, as \
provided in these Articles, including, inter alia, the right to receive notices
of, and to attend, meetings of the shareholders; for each share held - the
right to one vote at all shareholders' meetings for all purposes, and to share
equally, on a per share basis, in such dividends as may be declared by the
Board of Directors in accordance with the terms of these Articles and the
Companies Law, and upon liquidation or dissolution - in the assets of the
Company legally available for distribution to shareholders after payment of all
debts and other liabilities of the Company, in accordance with the terms
ofthese Articles and applicable law. All Ordinary Shares rank pari passu in all
respects with each other."

     The affirmative vote of the holders of a majority of the Ordinary Shares
present, in person or by proxy, and voting on the matter is required for the
approval thereof, subject to the sanction of a resolution passed by the holders
of a majority of the Non-Voting Shares by written consent or at a separate
general meeting of the holders of the Non-Voting Shares.

     The Board of Directors recommends a vote FOR approval of these proposed
     resolutions.

                          ITEM 6 - FINANCIAL STATEMENTS

     The audited financial statements of the Company for the year ended
Decemebr 31, 2001 (the "Financial Statements"), are being distributed to
Company's shareholders together with this proxy statement. The Financial
Statements were approved by the Board of Directors as required by the Companies
Law.

    The Company will hold a discussion with respect to the Financial Statements
    at the Meeting.

                                ITEM 7 - OTHER BUSINESS

     Management knows of no other business to be transacted at the Meeting;
but, if any other matters are properly presented to the Meeting, the persons
named in the enclosed form of proxy will vote upon such matters in accordance
with their best judgment.


                                      By Order of the Board of Directors,



                                      Monica Eisinger
                                      President, Chairperson of the Board
                                      of Directors and Chief Executive Officer

Dated: May 23, 2002

-----


Dear Shareholder,


The year 2001, our second year as a public company, was a difficult year due to
the global economic slowdown, especially in our market segments. After being
profitable for 6 years, MIND encountered losses in 2001 and the beginning of
2002. Our aim is to return to profitability as soon as possible, without harming
our core activities.

MIND CTI was established in 1995 as a supplier of Enterprise Call Accounting
Solutions. In 1997 we entered the Billing for VoIP (Voice over IP) market and in
2000 we expanded our operations into Billing for Multiple IP services. In 2001
we have maintained our position and market share in the Billing for VoIP arena
worldwide and have succeeded in gradually penetrating new market segments. Our
"pay as you grow" business model continues to prove itself by generating revenue
from upgrades for existing customers as well as attracting new customers
worldwide.

From Q1 2001, like most of the vendors in this field, we have been affected by
the economic uncertainty in the telecommunications market. Many new and small
service providers have failed and existing service providers have been reducing
or delaying expenditures on new equipment and applications. We believe that this
slowdown in expenditures will continue affecting the volume of our sales and
putting pressure on our prices. In order to prevail in today's challenging
business climate, we are concentrating on diversifying our target markets and
expanding our product offerings while continuing to focus on cost control and
preservation of cash.

Results of Operations

For the year ended December 31, 2001, our revenue was $10.5 million, compared
with $15.6 million in the year ended December 31, 2000. Net loss for 2001 was
$4.4 million, or $0.21 per share, compared with a net loss of $12.4 million, or
$0.73 per share, for 2000. On a pro forma basis, we had net income for 2000 in
the amount of $3.7 million, or $0.22 per share. Pro forma net income for 2000
excludes the effect of non-cash charges in the amount of $16.1 million for
accretion and amortization of the beneficial conversion feature of our
convertible preferred shares. These preferred shares were converted into
ordinary shares upon consummation of our initial public offering in August
2000.

Revenue for the first quarter of 2002 was $2.4 million, compared with $2.6
million for the first quarter of 2001 and consistent with our fourth quarter of
2001 revenue of $2.4 million. Net loss for the first quarter of 2002 was $0.6
million, or $0.03 per share, compared with a net loss of $1.1 million, or $0.05
per share, for the first quarter of 2001. Net increase in cash and cash
activities during the first quarter of 2002 was $0.1 million, and our cash
position on March 31, 2002 was $39.8 million.

Maintaining Worldwide Presence in a Cost-Effective Manner

MIND is a global company with a worldwide customer base, strong partnerships and
an international workforce. As of March 31, 2002, our workforce was distributed
among our offices as follows: 32 employees in Europe, 24 employees in the United
States, 10 employees in China and Japan and 106 employees in our Israeli
headquarters.

Our Romanian office has proved itself a success in the global cost-saving
environment. We have expanded this operation in 2001 because we found in Romania
the talent required to develop high quality software and to provide professional
services to our customer base, in a cost-effective setting. We benefit from the
proximity both to our headquarters as well as to our European customers.  This
team also supports customers in other parts of the world, including Asia
Pacific.  We will expand this operation even further, in all domains, in order
to create a stronger European anchor.

Acquisitions

Our first acquisition in March of 2001, the purchase of the Verabill product
line from Veramark Technologies for $1M in cash, positions us as a billing
solutions provider for the wireline and wireless segments. We have already
leveraged this acquisition through our established agreements with Alcatel
and Nokia, which provide us with additional sales opportunities. The
purchase of Verabill was a very attractive deal for a proven product and
technology with an established international customer base. Revenues from
this product line in the year since the acquisition were derived from both
new customers as well as from upgrades to existing customers.

Emerging as a Stronger Company

MIND's efforts to enter the market for tier-1 service providers were proven
successful during 2001 with important customer wins worldwide. These customers
selected our solutions thanks to the advanced capabilities and unlimited
scalability we offer, as well as our competitive prices.

Our partnerships with various equipment vendors such as Cisco, Ericsson and
VocalTec are flourishing. In addition to our continuous cooperation with Cisco
in the enterprise and VoIP markets, we now cooperate in the wireless IP
services market, as well, where we provide service-enabling solutions including
mediation, provisioning, rating and billing solutions.

We have developed a new geographical market, in Latin America, which we view as
one of the few regions with significant near-term growth potential. Another new
market for us is the 3G wireless space, where we offer side-by-side solutions
for IP services enabling. The emergence of this market segment has been
significantly delayed due to technological impediments and the global
economic slowdown. This delay has caused the deferral of the deployment of
new networks and of the need for the new solutions that we provide. We see
ourselves well positioned to gain market share as these markets evolve.

MIND has state-of-the-art technology, a global customer base, an experienced
team and nearly $40 million.  We believe these advantages will enable us to
overcome the present market conditions, build our organization to meet the
changing market needs and emerge as a stronger company.

We thank you for your continued support.


Sincerely,



Monica Eisinger
President, Chairperson of the Board of Directors and
Chief Executive Officer



----















                                        MIND C.T.I. LTD.
                                    (An Israeli Corporation)
                               2001 CONSOLIDATED FINANCIAL STATEMENTS




























































                                        MIND C.T.I. LTD.


                              2001 CONSOLIDATED FINANCIAL STATEMENTS






                                         TABLE OF CONTENTS

                                                                 Page
     REPORT OF INDEPENDENT AUDITORS                              F-2
     CONSOLIDATED FINANCIAL STATEMENTS:
          Balance sheets                                       F-3-F-4
          Statements of operations                               F-5
          Statements of changes in shareholders' equity          F-6
          Statements of cash flows                             F-7-F-8
         Notes to financial statements                        F-9-F-30


         The amounts are stated in U.S. dollars ($) in thousands.



                                    _____________
                                 ____________________
                                    _____________





































                                           F1
PRICEWATERHOUSECOOPERS

                                             Kesselman & Kesselman
                                             Certified Public Accountants (Isr.)
                                             Trade Tower, 25 Hamered Street
                                             Tel Aviv 68125 Israel
                                             P.O Box 452 Tel Aviv 61003 Israe
                                             Telephone +972-3-7954555
                                             Facsimile +972-3-7954556




                          REPORT OF INDEPENDENT AUDITORS


To the shareholders of
MIND C.T.I. LTD.


We have audited the consolidated balance sheets of MIND C.T.I. Ltd. (the
"Company") and its subsidiaries as of December 31, 2001 and 2000 and the
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's Board of Directors
and management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Israel and in the 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's Board of
Directors and management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and
its subsidiaries as of December 31, 2001 and 2000 and the results of their
operations, changes in shareholders' equity and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.


Tel-Aviv, Israel                             Kesselman & Kesselman
February 11, 2002                            Certified Public Accountants (Isr.)




Kesselman & Kesselman is a member of PricewaterhouseCoopers International
Limited, a company limited by guarantee registered in England and Wales.













                                           F-2


                                    MIND C.T.I. LTD.
                               CONSOLIDATED BALANCE SHEETS

                                                               December 31,
                                                          ______________________
2001 2000

                                                          ______________________
                                                             (In thousands of
                                                                U.S. dollars)
                                                          ______________________

                     A  s  s  e  t  s
CURRENT ASSETS (note 8):
     Cash and cash equivalents (note 9a)                   $ 39,723     $ 43,373
     Marketable securities (note 9b)                                         103
     Accounts receivable (note 9c):
          Trade                                              2,914         5,589
          Other                                                948         1,460
     Inventories                                                26            20
                                                            _______       ______
             T o t a l  current assets                      43,611        50,545
                                                            _______       ______
INVESTMENT IN A COMPANY (note 1f)                                             93
                                                                          ______
PROPERTY AND EQUIPMENT (note 2)
          Cost                                               3,363         2,734
          Less-accumulated depreciation and amortization     1,373           792
                                                            _______       ______
                                                             1,990         1,942
                                                            _______       ______
OTHER ASSETS, net of accumulated amortization (note 3)       1,113           368

         T o t a l  assets                                $ 46,734$       52,948

_________________________
      Monica Eisinger                  ) Chairman of the Board of Directors
                                       )   President and Chief Executive Officer


_________________________              )
      Amnon Neubach                    ) Director




























                                        F-3

                                                               December 31,
                                                          ______________________
   2001      2000
                                                          ______________________
                                                             (In thousands of
                                                                U.S. dollars)
                                                          ______________________
         Liabilities and shareholders' equity

CURRENT LIABILITIES (note 8) -
     accounts payable and accruals:
  Trade                                                   $   485         $  955
  Other (note 9d)                                           1,486          2,901
                                                            _______       ______
   T o t a l  current liabilities                           1,971          3,856
ACCRUED SEVERANCE PAY (note 4)                                772            776
                                                            _______       ______
       T o t a l  liabilities                               2,743          4,632
 _________ _________
COMMITMENTS (note 5)
MINORITY INTEREST                                                             89
                                                                       _________
SHAREHOLDERS' EQUITY (note 6):
     Share capital - ordinary shares of
          NIS 0.01 par value (authorized - 88,000,000
          shares; issued and outstanding:
          December 31, 2001 - 20,654,220 shares;
          December 31, 2000 - 20,566,220 shares)               52             51
     Additional paid-in capital                            61,078         61,233
     Deferred stock compensation                            (145)          (453)
     Accumulated deficit                                 (16,994)       (12,604)
                                                          ________      ________
        T o t a l  shareholders' equity                    43,991         48,227
                                                          ________      ________
        T o t a l  liabilities and shareholders' equity  $ 46,734       $ 52,948
                                                         =========      ========



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






























                                        F4

                                  MIND C.T.I. LTD.
                      CONSOLIDATED STATEMENTS OF OPERATIONS.
                                                      Years ended December 31,
                                                     __________________________
                                                        2001     2000     1999
                                                     ________  _______   ______
                                                  (In thousands of U.S.dollars,
                                                      except per share data)
                                                   ____________________________
REVENUES (note 10a):
     Sales of licenses                             $ 7,108  $ 12,476    $ 6,791
     Services                                        3,361     3,137      1,405
                                                     ________  _______   ______
Total revenues                                       10,469    15,613     8,196
COST OF REVENUES (including $ 14,000 and $ 10,000
     of non-cash compensation in 2001
     and 2000, respectively) (note 10b)               2,113     2,203     1,487
                                                     ________  _______   ______
GROSS PROFIT                                          8,356     13,410    6,709
RESEARCH AND DEVELOPMENT EXPENSES - net
     (including $ 57,000, $ 52,000 and $ 9,000 of
      non-cash compensation in 2001, 2000
      and 1999, respectively)(note 10c)                4,439     3,795    1,927
SELLING, GENERAL AND ADMINISTRATIVE
     EXPENSES (including $ 50,000, $ 165,000 and
     $ 17,000, non-cash compensation in 2001, 2000
     and 1999, respectively):
     Selling  expenses                                  6,880     4,774    1,958
     General and administrative expenses (note 10d)     3,099     1,928    1,000
                                                       ________  _______  _____
OPERATING INCOME (LOSS)                                (6,062)    2,913    1,824
FINANCIAL AND OTHER INCOME - net (note 10e)             1,590     1,080     137
                                                     ________  _______   ______
INCOME (LOSS) BEFORE TAXES ON INCOME                   (4,472)    3,993    1,961
TAXES ON INCOME (note 7)                                    7       245      447
                                                     ________  _______   ______
INCOME (LOSS) BEFORE MINORITY INTEREST                 (4,479)    3,748    1,514
MINORITY INTEREST IN LOSSES OF A SUBSIDIARY                89
                                                     ________  _______   ______
NET INCOME (LOSS)                                      (4,390)    3,748    1,514
ACCRETION OF MANDATORILY REDEEMABLE
     CONVERTIBLE A PREFERRED SHARES TO
     MANDATORY REDEMPTION VALUE (note 6b)                        (8,894)
AMORTIZATION OF BENEFICIAL CONVERSION
     FEATURE OF MANDATORILY REDEEMABLE
     CONVERTIBLE PREFERRED SHARES (note 6b)                      (7,223)
                                                     ________  _______   ______
NET INCOME (LOSS) APPLICABLE TO
     ORDINARY SHARES                               $ (4,390)  $ (12,369) $1,514
                                                     ========  =======   ======
EARNINGS (LOSS) PER ORDINARY SHARE
     (note 10f) - basic and diluted                $ (0.21)   $ (0.73)    $ 0.10
                                                     ========  =======   ======
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
     USED IN COMPUTATION OF EARNINGS (LOSS)
     PER ORDINARY SHARE - IN THOUSANDS (note 10f):
     Basic                                          20,654    16,897      14,667
                                                   ========  =======     ======
    Diluted                                         20,654    16,897      14,984
                                                   ========  =======     ======
     The accompanying notes are an integral part of the financial statements.










                                        F-5

                                  MIND C.T.I. LTD.
         CONSOLIDATED STATEMENTS OF  CHANGES IN SHAREHOLDER'S EQUITY

                     Share capital                          Retained
               --------------------  Additional  Deferred   earnings
                  Number of           Paid-In     Stock     (accumulated
                    Shares   Amount   Capital  Compensation  deficit)     Total
               ------------- ------ ---------- ------------- ----------- -----
               (In thousands)           (In thousands of U.S. dollars)
               ------------- --------------------------------------------------
BALANCE AT
 JANUARY 1,
  1999              12,246     36      1,067                    657       1,760
CHANGES DURING
 1999:
  Net income                                                   1,514      1,514
  Exercise of
   warrants to
   purchase
   ordinary shares
   in January 1999.
   net of issuance
   costs of $23,000
   (note 6a(4))       2,646     *      2,313                              2,313
  Deferred
   compensation
   related to
   employee stock
   option grants -
   net                                  300       (300)                     -,-
  Amortization
   of deferred
   compensation
   related to
   employee stock
   option grants                                     26                      26
  Dividend                                                       (393)     (393)
                  -------  -----    -------    -------      ---------   --------
BALANCE AT
 DECEMBER 31, 1999 14,892     36      3,680       (274)          1,778     5,220
CHANGES DURING
 2000:
  Net income                                                     3,748     3,748
  Dividend                                                     (2,013)   (2,013)
  Deemed purchase
   and cancellation
   on March 30,
   2000 of ordinary
   shares which
   were exchanged
   for mandatorily
   redeemable B
   preferred shares
  (note 6b)           (556)     *     (3,000)                            (3,000)
  Accretion of
   mandatorily
   redeemable
   convertible A
   preferred shares
   to mandatory
   redemption value
   (note 6b)                                                  (8,894)   (8,894)
  Amortization of
   beneficial
   conversion
   feature of
   redeemable
   convertible
   preferred shares                   7,223                    (7,223)      -,-
  Employee stock
   options
   exercised
   and paid             2      *          1                                   1
  Conversion of
   mandatorily
   redeemable
   A and B
   preferred
   shares into
   ordinary shares
   (note 6b)        2,778      7     22,993                              23,000
  Issuance of share
   capital under an
   initial public
   offering, net of
   underwriters'
   discount and
   issuance costs
   of $ 4,561,000
   (note 6a(5))     3,450      8     29,930                              29,938
  Deferred
   compensation
   related to
   employee stock
   option grants -
   net                                  406       (406)                     -,-
  Amortization of
   deferred
   compensation
   related to
   employee stock
   option grants                                   227                      227
                   ------  ---      -------    -------       ---------  -------
BALANCE AT
 DECEMBER 31, 2000 20,566  $51      $61,233      $(453)      $(12,604)  $48,227
                   ======  ===      =======      =====       ========   =======
CHANGES DURING
 2001:
  Net loss                                                    (4,390)   (4,390)
  Employee stock
   options
   exercised
   and paid           88         1     32                                   33
  Write-off of
   deferred stock
   option grants as
   a result of
   forfeiting of
   options                           (187)         187                    -,-
  Amortization of
   deferred
   compensation
   related to
   employee stock
   option grants                                   121                      121
                   ------  ---      -------    -------       ---------  -------
BALANCE AT
 DECEMBER 31,2002  20,654  $52       $61,087   $(145)       $(16,994)    $43,991

                       * Represents an amount less than $1,000.

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









                                        F-6

                                                              (Continued) - 1
                                    MIND C.T.I. LTD.
                           CONSOLIDATED STATEMENTS OF CASH FLOW


                                               Years Ended December 31,
                                           --------------------------------
                                               2001      2000      1999
                                              ------    ------    ------
                                            (In thousands of U.S. dollars)
                                           --------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                  $(4,390)   $3,748    $1,514
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Minority interest in losses of a subsidiary   (89)
   Depreciation and amortization                  805       379       196
    Deferred income taxes - net                   (4)      (485)      294
    Compensation expense resulting from
      options granted to employees               121        227        26
   Accrued severance pay - net                    83        229        89
    Capital loss (gain) on sale of property and
      equipment - net                             (2)         3         9
Write-off of an investment in a company           93
Loss (gain) from trading securities                2       (13)       (19)
   Interest accrued on short-term bank deposits             (3)       (29)
   Changes in operating asset and liability items:
      Proceeds from sale of trading securities   101         36        96
      Decrease (increase) in accounts receivable:
        Trade                                   2,675    (3,012)   (1,377)
        Other                                     514    (1,203)     (127)
      Increase (decrease) in accounts payable and
        Accruals:
        Trade                                    (470)      754        30
        Other                                  (1,415)    1,744       276
      Decrease (increase) in inventories           (6)       17        51
                                             --------   -------  -------
  Net cash provided by (used in) operating
       activities                               (1,982)    2,421     1,029
                                             --------   -------  -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment             (831)   (1,355)     (526)
  Purchase of product line , see note 3       (1,000)
  Investment in short-term bank deposits                           (1,410)
  Withdrawal of short-term bank deposits                    631       811
  Investment in a company                                  (93)
  Proceeds from sale of property and equipment    130        2        19
                                             --------   -------  -------
  Net cash used in investing activities        (1,701)     (815)   (1,106)
                                             --------   -------  -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of share capital                             29,938     2,313
  Issuance of mandatorily redeemable
    convertible A preferred shares                      11,106
  Employee stock options exercised and paid        33        1
  Issuance of shares to minority shareholders
    in a subsidiary                                         89
  Dividends paid                                        (2,013)     (393)
                                             --------   -------  -------
  Net cash provided by financing activities       33     39,121     1,920
                                             --------   -------  -------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                (3,650)     40,727     1,843
BALANCE OF CASH AND CASH
  EQUIVALENTS AT BEGINNING OF YEAR           43,373       2,646       803
                                             --------   -------   -------
BALANCE OF CASH AND CASH EQUIVALENTS
  AT END OF YEAR                             39,723   $ 43,373    $2,646
                                              =======   =======  =======


                                          F-7


                                                                (Concluded) - 2
                                      MIND C.T.I. LTD.
                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                               Years Ended December 31,
                                           --------------------------------
                                               2001      2000      1999
                                              ------    ------    ------
                                            (In thousands of U.S. dollars)
SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW AND NON-CASH ACTIVITIES:
  Cash paid during the year for:
    Interest                                 $   -        $ -       $5
                                             ========   =======  =======
    Income tax                               $   125      $  894  $ 210
                                             ========   =======  =======
  Accretion of mandatorily redeemable
    convertible A preferred shares to
      mandatory redemption value                        $  8,894
                                                        ========
  Amortization of beneficial conversion feature
    of mandatorily redeemable convertible
      preferred shares                                  $  7,223
                                                        ========
  Conversion of mandatorily redeemable
    convertible preferred shares into
      ordinary shares                                   $ 23,000
                                                        ========

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







































                                            F-8
                                   MIND C.T.I. LTD.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

     The significant accounting policies, applied on a consistent basis, are as
     follows:

     a. General:

        1) Nature of operations
           MIND C.T.I. Ltd. (the "Company") is an Israeli company, which
           together with its subsidiaries, develops, manufactures and markets
           billing and customer care software products for wireless,
           wire-line and next-generation carriers that provide voice, data
           and Internet Protocol("IP") services. The Company also provides a
           call management system used by enterprises for call accounting,
           traffic analysis and fraud detection.

           As to the acquisition of the VeraBill product-line in March 2001
           see note 3.

           In the year ended December 31, 2001, 29% of total revenues are
           derived from two major customers, see note 10a.

           The Company has three wholly-owned subsidiaries in the United
           States, the Netherlands and Romania and a 80% owned subsidiary in
           Japan.

        2) Functional currency

           The currency of the primary economic environment in which the
           operations of the Company and its subsidiaries are conducted is the
           U.S. dollar ("dollar" or "$").  Most of the Company's revenues are
           derived from sales outside of Israel which are denominated primarily
           in dollars. To the extent that the Company's revenues are derived in
           Israeli currency linked to the dollar, contract amounts are stated
           in dollars and paid in Israeli currency linked to the changes in the
           exchange rate of the dollar and Israeli currency. In addition, most
           marketing costs are incurred outside Israel, primarily in dollars.
           Thus, the functional currency of the Company and its subsidiaries is
           the dollar.

           Transactions and balances originally denominated in dollars are
           presented at their original amounts.  Balances in non-dollar
           currencies are translated into dollars using historical and current
           exchange rates for non-monetary and monetary balances, respectively.
           For non-dollar transactions and other items (detailed below)
           reflected in the statements of income, the following exchange rates
           are used: (i) for transactions: exchange rates at transaction dates
           or average rates and (ii) for other items (derived from non-monetary
           balance sheet items, such as depreciation, changes in inventories,
           etc.) - historical   exchange rates.  The resulting currency
           translation gains or losses are carried to financial income or
           expenses, as appropriate.

        3) Accounting principles

           The financial statements are prepared in accordance with generally
           accepted accounting principles ("GAAP") in the United States.

        4) Use of estimates in preparation of financial statements

           The preparation of financial statements in conformity with GAAP
           requires management to make estimates and assumptions that affect
           the reported amounts of assets and liabilities and disclosure of
           contingent assets and liabilities at the dates of the financial
           statements and the reported amounts of revenues and expenses during
           the reporting years. Actual results could differ from those
           estimates.

                                           F-9
                                  MIND C.T.I. LTD.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

     b. Principles of consolidation:

        1) The consolidated financial statements include the accounts of the
           Company and its subsidiaries.

        2) Intercompany balances and transactions are eliminated in
           consolidation.

     c. Cash equivalents

        The Company and its subsidiaries consider all highly liquid
        investments, which include short-term bank deposits (up to three months
        from date of deposit) that are not restricted as to withdrawal or use,
        to be cash equivalents.

     d. Marketable securities

        These securities - participation certificates in mutual funds
        classified as "trading securities", are stated at redemption value,
        which represents their fair value.  The changes in redemption value of
        the securities are carried to financial income or expenses.

     e. Inventories

        Inventories are valued at the lower of cost or market value.  Cost is
        determined by the "first-in, first-out" method.

     f. Investment in a company

        The investment is stated at cost.

        During the year ended December 31, 2001, the Company wrote-off the
        entire investment.

     g. Property and equipment:

        1) These assets are stated at cost.

        2) The assets are depreciated by the straight-line method, on basis of
           their estimated useful life.

           Annual rates of depreciation are as follows:

                                                                    %
             Computers and electronic equipment                   15-33
                                                               (mainly 33)
             Office furniture and equipment                        6-7
             Vehicles                                              15

     Leasehold improvements are amortized by the straight-line method over the
     term of the lease, which is shorter than the estimated useful life of the
     improvements.














                                           F-10
                                      MIND C.T.I. LTD.
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

     h. Other assets

Cost of acquisition of a product line are stated at cost and amortized by the
straight-line method over a period of five years (see note 3).

     i. Impairment of long-lived assets

        The Company's accounting policy requires that long-lived assets,
        identifiable intangibles and goodwill related to those assets to be
        held and used by an entity be reviewed for impairment whenever events
        or changes in circumstances indicate that the carrying amount of the
        assets may not be recoverable. If indicators of impairment are present,
        the existence of impairment is identified by comparing the carrying
        amount of the potentially impaired asset to the undiscounted cash flows
        from use and eventual disposition of that asset. If the carrying amount
        of the asset being evaluated is greater than the undiscounted cash
        flows from use and eventual disposition of that asset, then impairment
        is measured based on the excess, if any, of the carrying amount over
        the fair value of that asset. In the reported years, no impairment loss
        has been recognized.

     j. Income taxes:

        1) Deferred income taxes are computed for temporary differences between
           the assets and liabilities as measured in the financial statements
           and for tax purposes, at the tax rates expected to be in effect when
           these differences reverse.

        2) The Company may incur additional tax liability in the event of
           intercompany dividend distribution; however, no additional tax has
           been provided for since it is the Company's policy not to cause, in
           the foreseeable future, distribution of dividends which would result
           in additional tax liability.

        3) Taxes which would apply in the event of disposal of investments in
           non-Israeli subsidiaries have not been taken into account in
           computing the deferred taxes, as it is the Company's policy to hold
           these investments, and not to realize them.

        4) Upon the distribution of dividends from the tax-exempt income of
           approved enterprises (see also note 7a), the amount distributed will
           be subject to tax at the rate that would have been applicable had
           the Company not been exempted from the payment thereof. . No
           deferred income taxes will be provided in respect of such tax-exempt
           income, since the Company intends to permanently reinvest the
           amounts of tax-exempt income.


     k. Revenue recognition:

     The Company applies the provisions of Statement of Position 97-2 of the
     American Institute of Certified Public Accounts ("SOP 97-2"), "Software
     Revenue Recognition", as follows:

        1) Sales of licenses

           Revenue from sale of products is recognized when delivery has
           occurred, persuasive evidence of an agreement exists, the sales
           price is fixed or determinable and collectability is probable.
           Customization of the product, if any, is performed before delivery
           occurs.





                                           F-11
                                   MIND C.T.I. LTD.
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

           In cases where the Company installs the product, the revenue
           recognition is deferred until the installation is completed.

           The Company does not grant a right of return of products sold to
           customers, distributors and resellers.

           The Company renders maintenance and support services to its
           customers, mainly for a period of one year from delivery. When
           revenue on sale of the products is recognized, the Company defers a
           portion of the sales price (which is presented in the balance sheet
           as deferred revenues among "accounts payable and accruals - other")
           and recognizes it as maintenance and support service revenue ratably
           over the above period. The portion of the sales price that is
           deferred is determined based on the fair value of the service as
           priced in transactions in which the Company renders solely
           maintenance and support services.

        2) Services

           The services the Company provides consist of maintenance, support
           and project management.

           Project management consists of advice to the Company's customers
           regarding the development of billing and customer care software over
           their IP networks.

           Service revenues are priced on a fixed price basis and are
           recognized ratably over the service period or as services are
           performed. See also (1) above.

     l. Research and development

        Pursuant to Statement of Financial Accounting Standards ("FAS") No. 86,
        of the Financial Accounting Standards Board of the United States
        ("FASB", "Accounting for the Costs of Computer Software
        to be Sold, Leased, or Otherwise Marketed", research and development
        costs related to software products are expensed as incurred until the
         "technological feasibility" of the product has been established.
        Because of the relatively short time period between "technological
        feasibility" and product release, and the insignificant amount of costs
        incurred during such period, no software development costs have been
        capitalized.

        Royalty-bearing grants received from government departments for
        development of approved projects is recognized as a reduction of
        expenses as the related cost is incurred, since at the time the grants
        were received, successful development of the related projects was not
        assured.

     m. Allowance for doubtful accounts

        The allowance is determined for specific debts doubtful of collection.














                                           F-12
                                MIND C.T.I. LTD.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

     n.     Stock based compensation

           The Company accounts for employee stock based compensation in
           accordance with Accounting Principles Board Opinion No. 25,
           "Accounting for Stock Issued to Employees" ("APB 25") and related
           interpretations. Under APB 25, compensation cost for employee stock
           option plans is measured using the intrinsic value based method of
           accounting. In accordance with FAS No. 123, "Accounting for Stock
           Based Compensation", the Company discloses pro forma data assuming
           the Company had accounted for employee stock options grants using
           the fair value based method defined in FAS 123.

           Accordingly, the difference, if any, between the fair value of the
           shares on the date of the grant of the options, and the exercise
           price of such options, is recorded as a compensation expense over
           the vesting period.

     o.    Advertising expenses

           These expenses are charged to income as incurred. Advertising
           expenses totaled $ 159,000, $ 533,000 and $ 215,000 in the years
           ended December 31, 2001, 2000 and 1999, respectively.

     p.    Comprehensive income

           The Company has no comprehensive income components other than net
           income.

     q.     Recently issued accounting pronouncements:

     1)     FAS 141 and FAS 142

            In June 2001, the FASB issued FAS No. 141, "Business Combinations",
            and FAS No. 142, "Goodwill and Other Intangible Assets".

            FAS 141 eliminates the pooling-of-interests method of accounting for
            business combinations initiated after June 30, 2001 and further
            clarifies the criteria to recognize intangible assets separately
            from goodwill for business combinations completed after June 30,
            2001. FAS 142 primarily addresses financial accounting and reporting
            for goodwill and other intangible assets. The provisions of FAS 142
            are effective at the beginning of fiscal year 2002.

     2)     FAS 144

            In August 2001, the FASB issued FAS No. 144, "Accounting for the
            Impairment or Disposal of Long-Lived Assets", which supersedes FAS
            121 and is effective for fiscal periods beginning after December 15,
            2001 (January 1, 2002 for the Company) and interim periods within
            those years. FAS 144 establishes an accounting model for impairment
            or disposal of long-lived assets to be disposed of by sale.

     3)     The Company does not expect the adoption of the abovementioned
            standards to have a material effect on its consolidated financial
            statements.











                                     F-13
                              MIND C.T.I. LTD.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 - PROPERTY AND EQUIPMENT:

     a. Composition of assets, grouped by major classification, is as follows:

                                                             Accumulated
                                                             depreciation
                                            Cost           and amortization
                                     -------------------  ------------------
                                         December 31,         December 31,
                                     -------------------  ------------------
                                        2001      2000      2001     2000
                                     --------  --------  --------  --------
                                       (In thousands of   (In thousands of
                                         U.S. dollars)      U.S. dollars)
                                     -------------------  ------------------
        Computers and electronic
          equipment                       $ 1,887  $ 1,254   $  904    $  443
        Office furniture and equipment        446      377      123        84
        Vehicles                            1,011    1,103      341       265
        Leasehold improvements                 19                 5
                                         -------- -------- --------  --------
                                         $  3,363    2,734  $ 1,373    $  792
                                         ======== ======== ========  ========

     b. Depreciation expenses totaled $ 655,000, $ 379,000 and $ 196,000 in the
        years ended December 31, 2001, 2000 and 1999, respectively.


NOTE 3 - OTHER ASSETS:

      a)  Composed as follows:

                                                               December 31,
                                                             ----------------
                                                              2001      2000
                                                             ------    ------
                                                            (In thousands of
                                                              U.S. dollars)
                                                             ----------------

        Amounts funded with severance pay funds
          and by insurance policies in respect of employee
          severance pay, see note 4                          276     $ 363
        Deferred income taxes, see note 7e                     7         5
        VeraBill product line, net of accumulated
          amortization of $150,000, see b. below             850
                                                           -------   -------
                                                           $1,113     $ 368
                                                            =======   =======



     b)   In March, 2001, the Company acquired from Veramark Technologies
          Inc.,all of the rights for the VeraBill product line, for 1 million
          dollars in cash. VeraBill is a mediation, provisioning and billing
          solution for wireline and wireless mid-size carriers.  The acquisition
          provides the Company with complementary technology for mediation and
          provisioning for traditional wireline and wireless switches and an
          existing customer base.

          The Company estimates the goodwill component, if exists, to be
          immaterial and therefore, in view of the inter-related nature of
          the acquired assets (technology and customer base) and their similar
          useful life, it amortizes these assets over the same period of five
          years.



                                    F-14
                                  MIND C.T.I. LTD.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4 - SEVERANCE PAY:

     a. Israeli law generally requires payment of severance pay upon dismissal
        of an employee or upon termination of employment in certain other
        circumstances. The severance pay liability of the Company to its
        Israeli employees, based upon the number of years of service and the
        latest monthly salary, is partly covered by regular deposits with
        severance pay funds and pension funds, and by purchase of insurance
        policies; under labor agreements, the deposits with recognized pension
        funds and the insurance policies, as above, are in the employees' names
        and are, subject to certain limitations, the property of the employees.

        The severance pay liabilities covered by the pension funds are not
        reflected in the balance sheets as the severance pay risks have been
        irrevocably transferred to the pension funds.

        The amounts accrued and the portion funded by the insurance policies
        are reflected in the financial statements as follows:


                                                         December 31,
                                                        2001     2000
                                                      --------  --------
                                                       (In thousands of
                                                          U.S. dollars)
                                                      ------------------
                Accrued severance pay                 $  772     $  776
                Less - amounts funded (presented in
                  "other assets")                       (276)      (376)
                                                     -------     -------
                Unfunded balance                      $  496      $ 413
                                       =======     =======


        The amounts of accrued severance pay as above cover the Company's
        severance pay liability in accordance with labor agreements in force
        and based on salary components which, in management's opinion, create
        entitlement to severance pay. . The Company records the obligation as
        it was payable at each balance sheet date on an undiscounted basis.

        The Company may only make withdrawals from the funds for the purpose of
        Paying severance pay.

     b. The severance pay expenses were $ 448,000, $ 491,000 and $201,000 in
        the years ended December 31, 2001, 2000 and 1999 respectively.

     c. The earnings on the amounts funded were $ 14,000, $ 22,000 and $16,000
        in the years ended December 31, 2001, 2000 and 1999 respectively.


NOTE 5 - LEASE COMMITMENTS:

     a. Leasing of premises

        The premises occupied by the Company and its subsidiaries are rented
        under various operating lease agreements. The lease agreements for the
        premises expire on various dates between 2002 and 2006.

        In 2000, the Company entered into operating lease agreements for use of
        motor vehicles.








                                    F-15
                                 MIND C.T.I. LTD.
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 - LEASE COMMITMENTS (continued)

        Future minimum lease commitments of the Company and its subsidiaries
        under the above leases, at exchange rates in effect on December 31,
        2001, are as follows:

                                                         (In thousands of
                                                           U.S. dollars)
                                                       ---------------------
                 Years ending December 31:
                   2002                                             658
                   2003                                             413
                   2004                                             406
                   2005                                             159
                   2006                                              27
                                                                 ------
                                                                 $1,663
                                                                 ======

        The rental payments for the premises in Israel, which constitute most
        of the above amounts, are payable in Israeli currency linked to the
        Israeli consumer price index (the "Israeli CPI").

        Rental expense totaled $ 662,000, $ 446,000 and $201,000 in the years
        ended December 31, 2001, 2000 and 1999, respectively.

NOTE 6 - SHAREHOLDERS' EQUITY:

     a.  Share capital:

        1)  The Company's ordinary shares are traded in the United States on the
            Nasdaq National Market, under the symbol MNDO, see (5) below.

        2) On April 30, 2000, the shareholders of the Company resolved to
           increase the authorized share capital to 88,000,000 shares of NIS
           0.01 par value  (85,222,220 ordinary shares, 2,222,220 mandatorily
           redeemable convertible A preferred shares and 555,560 mandatorily
           redeemable convertible B preferred shares).

           As a result of the conversion of the mandatorily redeemable
           convertible shares to ordinary shares on August 2000, the Company's
           authorized share capital is composed of 88,000,000 ordinary shares.

           On April 30, 2000, the Board of Directors of the Company resolved to
           allot a stock dividend (bonus shares) at the rate of 19 ordinary
           shares for each ordinary share. All per ordinary share amounts and
           ordinary shares outstanding in these financial statements have been
           adjusted to give retroactive effect to the stock dividend.




















                                  F-16
                              MIND C.T.I. LTD.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS' EQUITY (continued):

        3) Each ordinary share of NIS 0.01 par value confers upon its holder
           the right to receive cash dividends and stock dividends, the right
           to a share in the Company's assets upon liquidation, based on paid
           up par value, not taking into account any premium, and the right to
           vote at shareholders' meetings.

        4) Under an agreement entered into in August 1997, the Company issued
           1,856,000 ordinary shares of NIS 0.01 par value to an investor, in
           consideration of $ 1,044,000 ($ 0.56 per share), net of issuance
           costs of $ 14,000. In addition, the Company granted the investor a
           warrant to increase its holdings up to 30% of the Company's shares
           at a price of $ 0.88 per share.

           In January 1999, the investor exercised the warrant and the Company
           issued thereto 2,646,000 additional ordinary shares of NIS 0.01 par
           value, in consideration of $ 2,313,000, net of issuance costs of $
           23,000.

        5) Initial public offering

           On August 8, 2000, 3,000,000 ordinary shares of NIS 0.01 par value
           were offered by the Company in an initial public offering ("IPO") at
           a price of $ 10 per share (before underwriting discount and offering
           costs). An additional 450,000 ordinary shares of NIS 0.01 par value
           were purchased by the underwriters in September 2000, pursuant to an
           over allotment option which was fully exercised at the same price
           per share. The proceeds to the Company, $ 29.9 million, are net of
           7% underwriting discount and offering costs of $ 2.1 million.

           Upon the closing of the IPO, all the mandatorily redeemable
           convertible A and B preferred shares were automatically converted
           into ordinary shares of NIS 0.01 par value (see b. below).

     b  Mandatorily redeemable convertible A and B shares:

         1) On March 30, 2000, the Company issued mandatorily redeemable
     convertible preferred shares, composed as follows:

                                                                  Original
                                                    Issued and     gross
                                                    outstanding   proceeds
                                                  -------------  -------------
                                                   (Number of   (U.S. dollars
                                                    shares in        in
                                                    thousands)    thousands)
                                                  -------------  -------------
           A preferred shares of NIS 0.01 par value    111,111     $ 12,000
           B preferred shares of NIS 0.01 par value     27,778     $  3,000
                                                     ---------     --------
                                                       138,889     $ 15,000
                                                     =========     ========

           The A preferred shares were issued under an investment agreement
           among new investors, the Company and principal shareholders, dated
           March 30, 2000, for consideration of $12 million.











                                     F-17
                                  MIND C.T.I. LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS' EQUITY (continued):

           Issuance costs of $ 894,000 were charged against the recorded amount
           of the A preferred shares before any accretion.

           The B preferred shares were issued on March 30, 2000 in exchange for
           ordinary shares held by one of the Company's principal shareholders.
           Concurrent with the exchange, this principal shareholder sold the B
           preferred shares to an investor group which was the same as the
           investors in the A preferred shares. The Company received no cash as
           a result of this sale.

        2) The A and B preferred shares conferred upon their holders the same
           rights as the ordinary shares (see a(3) above), as well as
           conversion rights, redemption rights and a preference in liquidation
           as stipulated in the Articles of Association of the Company and a
           mechanism of anti-dilution in the event of issuance of shares at a
           price per share lower than the price paid by the holders of the
           preferred shares.

           The A and B preferred shares were convertible into ordinary shares,
           at the holder's option, at any time after 12 months from the date of
           issuance. The A and B preferred shares were to be automatically
           converted into ordinary shares upon the occurrence of a liquidity
           event, including an IPO (see also below). In this case, the
           conversion ratio of the B preferred shares was to be one to twenty
           and the number of ordinary shares into which the B preferred shares
           were to be converted was 555,560 ordinary shares. The conversion
           ratio of the A preferred shares was to be between one to sixteen and
           one to twenty, depending on the IPO price per ordinary share.

           Under the Articles of Association of the Company, in the event of a
           liquidity event as defined below, the holders of the A and B
           preferred shares were to receive an amount in cash, before the
           holders of the ordinary shares receive any distribution, equal to
           the greater of (a) the sum of $108 per preferred share plus an
           amount equivalent to a dividend of 4.5% compounded annually since
           March 30, 2000, or (b) an amount such preferred holder would have
           received had the preferred shares been converted into ordinary
           shares immediately prior to the liquidity event. These rights
           expired upon the conversion of the A and B preferred shares into
           ordinary shares, which automatically occurred upon the IPO, see a(5)
           above.

        3) In connection with the issuance of the A and B preferred shares, an
           amount of $ 7,223,000, representing the beneficial conversion
           feature, was amortized against retained earnings (accumulated
           deficit) over a period commencing upon issuance (March 30, 2000) and
           ending on the date of the IPO. The amount of $ 7,223,000 was
           calculated as the difference between the per share conversion price
           and the deemed fair value of an ordinary share at the issuance date
           multiplied by the applicable number of equivalent ordinary shares.
















                                    F-18
                               MIND C.T.I. LTD.
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS' EQUITY (continued):

        4) The Company, its existing shareholders at March 30, 2000 and the
           investors in the A and B preferred shares entered into a redemption
           agreement on March 30, 2000, concurrently with the purchase of the A
           and B preferred shares. The redemption agreement provided that, if a
           liquidity event as described in (2) above would  not occur by March
           30, 2005, the holders of the A and B preferred shares would be
           entitled to cause a sale of the Company or redemption of the A and B
           preferred shares at an amount equal to the higher of (a) fair market
           value of the preferred shares (as determined by appraisal, if
           requested), or (b) the amount as determined in the case of a
           liquidity event as described above. However, any amount paid in
           redemption of the B preferred shares would have been payable only to
           the extent of profits of the Company earned since the date of
           issuance (March 30, 2000). As a result of the IPO, these rights have
           expired.

           Accordingly, the A preferred shares were classified outside of
           permanent shareholders' equity prior to their conversion into
           ordinary shares at their expected mandatory redemption value of $ 20
           million. In addition, as a result of the forgoing, an amount of $
           8,894,000 accrued in 2000, was charged to accumulated deficit. This
           amount reflects the difference between the redemption value of the A
           preferred shares and the net proceeds received by the Company for
           the issuance of those shares. The B preferred shares were also
           classified outside of permanent  shareholders' equity at their
           estimated fair value of $ 3,000,000 at March 30, 2000, with a
           similar amount recorded as a reduction of additional paid-in capital
           representing the deemed purchase and cancellation  of the ordinary
           shares which were exchanged for the B preferred shares. The carrying
           amount of the B preferred shares would have been increased by a
           charge to retained earnings (accumulated deficit) in the future, to
           the extent that the Company had net income, up to the redemption
           amounts as determined in the preceding paragraph.

c.     Option plans:

      1)  In December 1995, an employee was granted an option to purchase
          50,000 ordinary shares of NIS 0.01 par value for $ 7,500 ($ 0.15 per
          share). This option was exercised in the year ended December 31,
          2001.


      2)  In December 1998, the Board of Directors approved an employee stock
          option plan, which was amended in 2000 (the "1998 Plan"). Under the
          1998 Plan, options for up to 2,308,000 ordinary shares of NIS 0.01
          par value are to be granted to employees.

          Immediately upon issuance, the ordinary shares issuable upon the
          exercise of the options will confer on holders the same rights as the
          other ordinary shares.

          The 2000 amendment changed the number of options that can be granted
          under the 1998 Plan and enabled the Company to grant options to
          employees of the Company's subsidiaries.

          The Board of Directors determines the exercise price and the vesting
          period of the options granted.

          The options vest over three to five years.







                                      F-19
                              MIND C.T.I. LTD.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS' EQUITY (continued):

         Generally, options not exercised will expire approximately 7 years
         after they are granted.

         The 1998 Plan, in respect of Israeli employees, is subject to the terms
         stipulated by Section 102 of the Israeli Income Tax Ordinance.  Inter
         alia, the Ordinance provides that the Company will be allowed to claim,
         as an expense for tax purposes, the amounts credited to the employees
         as a benefit upon sale of shares allotted under the plan at a price
         exceeding the exercise price, when the related capital gains tax is
         payable by the employee. The Company has not recorded a tax benefit
         because it anticipates that the tax benefit will be nominal, as most of
         its income during the period the options may be exercised will be
         tax exempt (see Note 7a).

         The following is a summary of the status of the 1998 Plan as of
         December 31, 2001, 2000 and 1999, and changes during the years ended on
         those dates:

                                        Years Ended December 31,
                          ----------------------------------------------------
                                 .2001              2000              1999
                          ----------------  ----------------  ----------------
                                  Weighted          Weighted          Weighted
                                  Average           Average           Average
                                  Exercise          Exercise          Exercise
                          Number   Price    Number   Price    Number   Price
                          -------  -------  -------  -------  -------  -------
Options outstanding at
  beginning of year       738,220   $ 4.36  413,220  $ 1.16  221,220   $ 0.57
Changes during year:
  Granted *             2,206,300     3.28  518,000    6.68  207,000     1.77
  Exercised               (38,000)    0.64   (2,000)   0.57
  Forfeited              (887,200)    3.89 (191,000)   3.77  (15,000)    0.98
                          -------  -------  -------  -------  -------  -------
Options outstanding at
  end of year           2,019,320   $ 3.45   738,220  $ 4.36  413,220   $ 1.16
                          =======  =======  =======  =======  =======  =======
Options exercisable at
  end of year             297,820   $1.50    237,000  $ 1.58   53,000   $ 0.57
                          =======  =======  =======  =======  =======  =======
Weighted average fair
  value of options
  granted during the
  year**                  $ 3.28            $ 4.20            $ 1.99
                          =======           =======           =======

*    Composed as follows:

                           Years Ended December 31,
           ---------------------------------------------------------------------
                  2001                       2000              1999
           ----------------  ----------------  ---------------------------------
                Weighted   Weighted     Weighted  Weighted  Weighted   Weighted
                average    average      average   average    average   average
                exercise   fair         exercise   fair      exercise   fair
            No.   price     value   No.  price     value  No.  price    value
            ---  -------  ------  -----  ------   ------  --  -----  -------
Options
granted
during the
year at the
following
exercise
prices

Below market
value                             316,200  $4.93  $7.94  189,000  $1.51  $1.54
At market
value    2,206,300  $3.28  $3.28  201,800  $8.74  $8.74
Above
market
value                                                   18,000  $5.40    $  5

                                    F-20

                            MIND C.T.I. LTD.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 6 - SHAREHOLDERS' EQUITY (continued):

        ** The fair value of each option grant is estimated on the date of grant
           using the Black-Scholes option-pricing model with the following
           assumptions:


                                           Years Ended December 31,
                                       --------------------------------
                                          2001      2000      1999
                                        ------    ------    ------
      Dividend yield                        0%        0%        0%
                                         ====      ====      ====
      Expected volatility                 121%       53%       53%
                                         ====      ====      ====
      Risk-free interest rate               5%        5%        5%
                                         ====      ====      ====
      Expected average lives - in years     2         2         2
                                         ====      ====      ====

     3) The following table summarizes information about options outstanding
        and exercisable at December 31, 2001:

        Options outstanding                         Options exercisable
-------------------------------------------  -----------------------------------
                         Weighted                            Weighted
          Number         average    Weighted    Number        average   Weighted
Range of outstanding at  remaining  average   exercisable at remaining average
Exercise December 31,   contractual exercise  December 31,  contractual exercise
 prices    2001           life       price       2001          life      price
--------- ------------ -----------  --------- --------------  --------- --------
                          Years                                 Years
                          -----                                 -----
$0.57-1.20      2,000      4        $ 0.57      183,200          4      $ 0.57
$1.25-2.50  1,037,100      4        $ 1.88       62,000          4      $ 1.25
$2.55-5.40   183,600       4        $ 5.04       52,600          4      $ 5.05
$5.50-10.00  796,620       4        $ 8.11
             --------                           --------
            2,019,320      4        $ 3.70      297,820          4      $ 1.55
             ========                           ========


            4) In the years ended December 31, 2000 and 1999, the Company
               recorded $ 406,000 and $ 300,000, respectively, of deferred
               stock compensation for the excess of the deemed fair value of
               the ordinary shares over the exercise price at the date of grant
               of options to employees. In the year ended December 31, 2001 no
               deferred compensation was recorded. The deferred stock
               compensation is amortized over the vesting period of the options
               using the straight-line method. The compensation expense that has
               been charged against income in the years ended December 31, 2001,
               2000 and 1999 is $121,000, $227,000 and $26,000, respectively.

               In the year ended December 31, 2001 due to the forfeiting of
               certain options, the Company wrote-off $ 187,000 of deferred
               stock compensation, which was recorded in previous years.













                                           F-21
                            MIND C.T.I. LTD.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 - SHAREHOLDERS' EQUITY (continued):

               Had compensation cost for the 1998 Plan been determined based on
               the fair value at the grant dates for awards granted under the
               1998 Plan, consistent with the method of FAS 123, the Company's
               net income (loss) applicable to ordinary shares and earnings
               (loss) per share would have been reduced to the pro forma
               amounts indicated below:

                                 Years Ended December 31,
                  ------------------------------------------------------------
                      2001                2000            1999
                  --------------  ----------------------  --------------------
                        As        Pro        As      Pro    As        Pro
                     reported    forma    reported  forma  reported  forma
                  --------------  ----------------------  --------------------
Net income (loss)
  applicable
  to ordinary
  shares -
  in thousands
  of U.S. dollars   $( 4,390)   (5,422)   (12,369)  $(13,142)  $1,514  $1,424
                    =========  =========   =======   =======   ======  ======
Earnings (loss)
  per share -
  in U.S. dollars -
  basic and diluted  $(0.21)    $(0.26)  $ (0.73)  $ (0.78)  $0.10    $0.10
                    =========  =========  ======    ======   ====    =====

     e. Dividends

        In the event cash dividends are declared by the Company, such dividends
        will be paid in Israeli currency. Under current Israeli regulations,
        any cash dividend paid in Israeli currency in respect of ordinary
        shares purchased by non-residents of Israel with non-Israeli currency
        may be freely repatriated in such non-Israeli currency, at the rate of
        exchange prevailing at the time of conversion. As of December 31,2001,
        the Company has accumulated deficit. See also note 7a.

NOTE 7 - TAXES ON INCOME:

     a. Tax benefits under the Law for the Encouragement of Capital
        Investments, 1959

        The Company's production facilities have been granted "approved
        enterprise" status under the above law. Income derived from the
        approved enterprise is tax exempt for a period of ten years commencing
        in the first year in which the Company earns taxable income from the
        approved enterprise, since the Company has elected the "alternative
        benefits" scheme (involving waiver of investment grants).

        The Company has currently two approved enterprises.  The period of tax
        benefits of the first approved enterprise, which commenced operations
        in 1995, will expire in 2004. The period of benefits of the second
        approved enterprise has not yet commenced.

        In the event of distribution of cash dividends from income that was
        tax exempt as above, the Company would have to pay the 25% tax in
        respect of the amount distributed.

        Through March 31, 2000, the Company distributed as dividends the entire
        retained earnings derived from tax exempt income. Therefore, the
        Company recorded deferred and current taxes at the rate of 25% in
        respect of the amounts distributed. Most of such dividends were
        declared in March 2000. From April 1, 2000, the Company does not intend
        to distribute dividends to its shareholders in the foreseeable future.



                                      F-22
                                   MIND C.T.I. LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 - TAXES ON INCOME (continued):

        The entitlement to the above benefits is conditional upon the Company's
        fulfilling the conditions stipulated by the above law, regulations
        published thereunder and the certificate of approval for the specific
        investments in approved enterprises. In the event of failure to comply
        with these conditions, the benefits may be canceled and the Company may
        be required to refund the amount of the benefits, in whole or in part,
        with the addition of linkage differences to the Israeli CPI and
        interest.

     b. Measurement of results for tax purposes under the Income Tax
        (Inflationary Adjustments) Law, 1985  (the "Inflationary Adjustments
        Law")

        Under the Inflationary Adjustments Law, results for tax purposes are
        measured in real terms, in accordance with the changes in the Israeli
        CPI.  The Company is taxed under this law. As explained in note 1a(2),
        the financial statements are measured in dollars. The difference
        between the changes in the Israeli CPI and in the exchange rate of the
        dollar relative to Israeli currency - both on annual and cumulative
        bases - causes a difference between taxable income and income reflected
        in these financial statements.

     c. Tax benefits under the Law for the Encouragement of Industry (Taxes),
        1969

        The Company is an "industrial company" as defined by this law and
        as such is entitled to certain tax benefits, consisting mainly of
        accelerated depreciation as prescribed by regulations published under
        the Inflationary Adjustments Law, and amortization of patents and
        certain other intangible property rights.

     d. Other applicable tax rates:

        1) Income from other sources in Israel

           Income not eligible for approved enterprise benefits is taxed at the
           regular corporate tax rate of 36%.

        2) Income of non-Israeli subsidiaries

           Non-Israeli subsidiaries are taxed according to tax laws in their
           countries of residence.

     e. Deferred income taxes:
                                                      December 31,
                                                    ----------------
                                                     2001      2000
                                                    ------    ------
                                                   (In thousands of
                                                     U.S. dollars)
                                                    ----------------
        1) Provided in respect of the following:
             Accrued vacation pay                    $ -       $ 1
             Accrued severance pay                     2         1
             Research and development expenses        14        10
             Carryforward tax losses                  19
                                                   -----     -----
                                                      35        12
             Less - valuation allowance               19
                                                   -----     -----
                                                    $ 16      $ 12
                                                   =====     =====




                                F-23
                            MIND C.T.I. LTD.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 - TAXES ON INCOME (continued):

                                                      December 31,
                                                    ----------------
                                                     2001      2000
                                                    ------    ------
                                                   (In thousands of
                                                     U.S. dollars)
                                                    ----------------
        2) The deferred taxes are presented
             in the balance sheets as follows:
             Among current assets (liabilities)      $   9    $ 7
             As non-current assets                       7      5
                                                    ------   ------
                                                     $ *16   $  12
                                                    ======   ======

           * Realization of this deferred tax balance is conditional upon
             earning, in the coming years, taxable income in an appropriate
             amount. The amount of the deferred tax asset, however, could be
             reduced in the near term if estimates of future taxable income are
             reduced.


     f. Taxes on income included in the income statements:

        1) As follows:
                                             Years Ended December 31,
                                         --------------------------------
                                             2001      2000      1999
                                            ------    ------    ------
                                          (In thousands of U.S. dollars)
                                         --------------------------------
             Current:
               Israeli *                   $  -      $ 691     $ 153
               Non-Israeli                    11        39
                                           -------   -------   ------
                                              11       730        153
             Deferred, see e. above           (4)     (485)       294
                                           -------   -------   ------
                                            $  7     $ 245     $ 447
                                          =======   =======   =======
            See a. above

























                                   F-24
                           MIND C.T.I. LTD.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 7 - TAXES ON INCOME (continued):

        2) Following is a reconciliation of the theoretical tax expense,
           assuming all income is taxed at the regular tax rates applicable to
           companies in Israel (see d. above), and the actual tax expense:

                                            Years Ended December 31,
                                 ---------------------------------------------
                                      2001         2000            1999
                                 --------------  --------------  -------------
                                    (In thousands of U.S. dollars)
                                 ---------------------------------------------

Income before taxes on income,
  as reported in the
  statements of income*
                                 $ (4,472)  100%   3,993   100%  $ 1,961   100%
                                 =======  ====   =======  ====   ======  ====
Theoretical tax expense          $ (1,610)   36%   1,438    36%  $   706    36%
L e s s - tax benefits
  arising from approved
  enterprise status,
  see a. above
                                   1,565    (35)  (1,397)  (35)     (216)  (11)
                                 -------  ----   -------  ----   ------  ----
                                     (45)      1      41     1       490    25
Increase (decrease) in
  taxes resulting from
  permanent differences:
  Income taxed at special rates                      157     4
  Disallowable deductions              8       -      10     -        33     2
  Differences between the basis
    of measurement of income
    reported for tax purposes,
    and the basis of measurement
    of income for financial
    reporting purposes - net,
    see b. above                       38     1       1      -       (57)   (3)
  Increase in taxes in respect of
    tax losses incurred in the
    reported year for which
    deferred taxes were not created    19    -
  Other                               (13)   -       36     1       (19)   (1)
                                 -------  ----   -------  ----   ------  ----
Taxes on income                    $    7    -%     245     6%  $   447    23%
                                 =======  ====   =======  ====   ======  ====
* As follows:
     Taxable in Israel           $(4,482)         $ 3,985        $ 1,951
     Taxable outside Israel           10                8             10
                                 -------         -------         ------
                                 $(4,472)         $ 3,993         $ 1,961
                                 =======         =======         ======















                                       F-25
                             MIND C.T.I. LTD.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 - TAXES ON INCOME (continued):


     g. Tax assessments

        The Company has received final assessments from the tax authorities,
        following their audit, through the year ended December 31, 1998. The
        subsidiaries have not been assessed since incorporation. Any resulting
        taxes are recorded in the period the assessments are received.

NOTE 8 - MONETARY BALANCES IN NON-DOLLAR CURRENCIES:

                                                     December 31, 2001
                                              --------------------------------
                                                Israeli currency      Other
                                               ------------------   non-dollar
                                               Linked*   Unlinked   currencies
                                               -------   --------   ----------
                                                (In thousands of U.S. dollars)
                                               -------------------------------
     Assets - current:
       Cash and cash equivalents                 $  -     $   164     $   209
       Accounts receivable:
         Trade                                              1,126         577
         Other                                    566         382
                                                -----     -------     -------
                                                 $566     $ 1,672     $   786
                                                =====     =======     =======
     Current liabilities -
       accounts payable and accruals:
       Trade                                              $   271     $     3
       Other                                                1,486
                                                           -------     -------
                                                          $ 1,757     $     3
                                                           =======     =======
                         *  To the Israeli CPI.
































                                    F-26
                             MIND C.T.I. LTD.
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 - SUPPLEMENTARY BALANCE SHEET INFORMATION:

         a.     Cash and cash equivalents

                The balance as of December 31, 2001 and 2000 includes $ 38.0
                million and $ 40.1 million, respectively, of highly liquid bank
                deposits. The deposits are denominated in dollars and bear
                annual interest of 2.12% as of December 31, 2001.

                                                               December 31,
                                                             ----------------
                                                              2001      2000
                                                             ------    ------
                                                            (In thousands of
                                                              U.S. dollars)
                                                             ----------------

     b.   Marketable securities
            Including unrealized gain                                  $  13
                                                                      =======

     c. Accounts receivable:
        1) Trade:
             Open accounts                                  $ 3,614   $ 6,439
             Less - allowance for doubtful accounts            (700)      850)
                                                            -------   -------
                                                            $ 2,914   $ 5,589
                                                            =======   =======

        2) Other:
             Government of Israel                             $ 566     $ 344
             Prepaid expenses                                   256       613
             Employees                                           57
             Deferred income taxes, see note 7e                   9         7
             Related parties                                     59        29
             Sundry                                               1       477
                                                            -------   -------
                                                            $ 948       1,460
                                                            =======   =======

     d   Accounts payable and accruals - other:
          Payroll and related expenses                          506       879
          Accrued vacation pay                                   57       125
          Deferred revenues, see note 1k                        826     1,204
          Accrued expenses in respect of the IPO                          471
          Advances from customersnce                                      135
          Related parties                                        59
          Accrued expenses and sundry                            38        87
                                                            -------   -------
                                                            $ 1,486   $ 2,901
                                                            =======   =======

















                                           F-27
                          MIND C.T.I. LTD.
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 - SUPPLEMENTARY BALANCE SHEET INFORMATION (continued):

     e Concentration of credit risks

        Most of the Company's cash, cash equivalents and marketable securities
        at December 31, 2001 and 2000 were deposited with Israeli and U.S.
        banks.  The Company is of the opinion that the credit risk in respect
        of those balances is remote.

        Most of the Company's revenue has historically been from a large number
        of customers.  Consequently, the exposure to credit risks relating to
        trade receivables is limited.  The Company performs ongoing credit
        evaluations of its customers for the purpose of determining the
        appropriate allowance for doubtful accounts.

     f Fair value of financial instruments

        The fair value of the financial instruments included in the working
        capital of the Company and its subsidiaries is identical or close to
        their carrying value.


NOTE 10 - SELECTED INCOME STATEMENT DATA:

      a.     Revenues:

      1)     The Company has two product lines: (i) product line "A" - billing
             and customer care solutions for service providers; and (ii) product
             line "B" - software product to enterprises - a call management
             system used by organizations for call accounting, traffic analysis
             and fraud detection.  The VeraBill product (see note 3b) is
             included in product line "A".

           Following are data regarding revenues classified by product lines:

                                             Years Ended December 31,
                                         --------------------------------
                                             2001      2000      1999
                                            ------    ------    ------
                                          (In thousands of U.S. dollars)
                                         --------------------------------
             Product line "A"              $ 7,859  $ 12,178    $3,529
             Product line "B"                2,610     3,435     4,667
                                           -------    ------    ------
                                           $10,469  $ 15,613    $8,196
                                           =======    ======    ======

        2) Following are data regarding geographical revenues classified by
           geographical location of the customers:

                                              Years Ended December 31,
                                          --------------------------------
                                              2001      2000      1999
                                             ------    ------    ------
                                           (In thousands of U.S. dollars)
                                          --------------------------------
       United States, Latin America
         and Canada                        $2,520    $5,777    $2,068
       Asia Pacific and other               3,693     3,435       894
       Europe (1999 mainly Germany)         3,176     4,840     3,385
       Israel                               1,080,    1,561     1,849
                                          -------    ------    ------
                                           10,469    15,613    $8,196
                                           =======    ======    ======

       Most of the Company's assets are located in Israel.


                                    F-28
                           MIND C.T.I. LTD.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 - SELECTED INCOME STATEMENT DATA (continued):

          3)     Revenues from principal customers - revenues from single
                 customers each of which exceeds 10% of total revenues in the
                 relevant year:

                                              Years Ended December 31,
                                          --------------------------------
                                              2001      2000      1999
                                             ------    ------    ------
                                           (In thousands of U.S. dollars)
                                          --------------------------------
           Customer A                       $1,826      $836       $709
                                           =======    ======    ======
           Customer B                       $1,180      $861
                                           =======    ======
           Customer C                                            $1,574
                                                                 ======

     b.     Cost of revenues

            Cost of revenues for the year ended December 31, 1999, includes
            $ 161,000 - royalties paid in respect of participation in research
            and development, see c. below.

c.     Research and development expenses - net:
                                             Years Ended December 31,
                                         --------------------------------
                                             2001      2000      1999
                                            ------    ------    ------
                                          (In thousands of U.S. dollars)
                                         --------------------------------
        Expenses incurred:
          Payroll and related expenses     $ 3,276   $ 2,920   $ 1,702
          Depreciation and amortization        335       174        96
          Non-cash compensation                 58        52         9
          Other                                754       649       148
                                           -------   -------   -------
                                            $4,423   $ 3,795   $ 1,955
        Less - royalty bearing
          participations from the
          Government of Israel*                                   (28)
                                           -------   -------   -------
                                            $4,423   $ 3,795   $ 1,927
                                            ======   =======   =======

      * The Company was committed to pay royalties to the Israeli Government
        on proceeds from sales of products in the research and development of
        which the Government participated by way of grants. Under the terms of
        Company's funding from the Israeli Government, royalties of 4% were
        payable on sales of products developed from a project so funded, up to
        100% of the amount of the grant received by the Company. Through
        December 31, 2000, the Company paid the entire amount of royalties in
        respect of such participations.

        d.     General and administrative expenses:

                                            Years Ended December 31,
                                         --------------------------------
                                             2001      2000      1999
                                            ------    ------    ------
                                          (In thousands of U.S. dollars)
                                         --------------------------------
     The changes in allowance for
        doubtful accounts are composed
        as follows:
             Balance at beginning of year        $ 850      $230       $48
             Increase during the year            1,053       773       285
             Bad debt written off               (1,203)     (153)      (103)
                                                ------     ------    ------
             Balance at end of year              $ 700     $ 850      $ 230
                                                 ======   =======   =======




































































                                 F-29
                        MIND C.T.I. LTD.
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 - SELECTED INCOME STATEMENT DATA (continued):

     e. Financial and other income - net:

                                              Years Ended December 31,
                                            ------------------------------
                                              2001      2000      1999
                                             ------    ------    ------
                                            In thousands of U.S. dollars)
                                            ------------------------------
        Income:
          Gain on sale of, and
            unrealized gain on,
            trading securities              $  -        $ 13      $  19
          Interest on bank deposits           1,627    1,325        140
          Non-dollar currency
            gains - net                          79
          Capital gain on sale of
            Property and equipment                2
                                            -------   -------   -------
                                              1,708    1,338        159
                                            -------   -------   -------
        Expenses:
          Loss on sale of trading securities      2
          Bank commissions                       23      17          12
          Non-dollar currency losses - net              238           1
          Capital loss on sale of property
            and equipment                                 3           9
          Capital loss on write-off of an
            Investment                           93
                                            -------   -------   -------
                                                118      258        22
                                            -------   -------   -------
                                            $ 1,590   $ 1,080     $ 137
                                            =======   =======   =======

    f.  Earnings (loss) per ordinary share ("EPS")

        Basic EPS are computed based on the net income (loss) applicable to
        ordinary shares divided by the weighted average number of ordinary
        shares outstanding during each year. In computing diluted EPS, account
        was taken of the dilutive effect of the outstanding stock options,
        using the treasury stock method.

        Diluted EPS for the year ended December 31, 2001 and 2000 does not
        include 738,220 and 2,019.320 options, because of their anti-dilutive
        effect, since the Company had net loss applicable to ordinary shares.

        Following are data relating to the weighted average number of shares
        for the purpose of computing EPS:

                                              Years Ended December 31,
                                          --------------------------------
                                              2001      2000     1999
                                             ------    ------    ------
                                                   (In thousands)
                                          --------------------------------
        Weighted average number
          of shares issued and
          outstanding - used in
          computation of basic EPS           20,654      16,897   14,667
        A d d - incremental shares
          from assumed exercise
          of options                              -                  317
                                             -------   -------   -------
        Weighted average number of
          shares used in computation
          of diluted EPS                     20,654     16,897    14,984
                                             =======   =======   =======

                                    _____________
                                 ____________________
                                    _____________


                                            F-30






</TEXT>
</DOCUMENT>
